By Dominic Jephcott Friday, 31 January 2014

MT EXPERT: Why the Chinese New Year could impact your bottom line

As many as one third of Chinese workers won't return to work after the New Year. It's make or break time for your business.

The beginning of the year is a critical time for any business, but for those that have strong links with suppliers in China there is one annual trend that could mean make or break unless it is met head on. After the extended Lunar New Year holiday (31 January to 6 February inclusive), we estimate that as many as one third of factory workers in China are expected to choose not to return to work.

UK businesses may not realise that this is in fact something that happens ever year, as factory workers migrate to their hometown for the New Year celebrations. Meeting up with family and friends who they may not have seen for 12 months gives workers an opportunity to rethink their way of life. If jobs closer to home are on offer and the pay is good, they may be persuaded not to return to their previous job. Indeed, the Chinese government’s current policy of encouraging the spread of economic wealth across the entire country could strengthen the migration effect this year.

Approaching this with an ‘out of sight, out of mind’ attitude is not advisable for Western buyers with supply chain interests in China, as the ripple effect of this seasonal labour shortage could quickly impact on deliveries. Instead, a plan of action could help to keep the supply chain going.

DON’T PANIC!

Panicking about this is pointless. Chinese factory managers are used to dealing with high staff turnovers and the businesses that have thrived during the global economic downturn are those that have concentrated on delivering quality goods at the right price, while paying a competitive wage. They have also taken steps to ensure their production processes are as churn-proof as possible by keeping them simple, so new workers can be trained up quickly.

ADD VALUE TO THE RELATIONSHIP

Despite precautions being taken by factory managers in China, as the 6th February looms there’s little doubt that demand in China could create a bottleneck, as buyers put pressure on their suppliers to prioritise their orders. To stand a chance of success, UK-based companies may need to show their Chinese supplier that they are less focused on slashing costs and trimming margins than on adding value to the relationship. Key is getting involved and being prepared to provide management support on the ground. Chinese factory managers must really appreciate that Western businesses can help them to drive value by working with them to improve quality standards, reduce waste and control production to ensure a higher yield from constrained resources.

HAVE A BACK-UP PLAN

Matching support on the ground with sensible contingency planning is also a must. When looking to source critical components, for example, it is normal practice for buyers to appoint two suppliers. As well as providing much-needed back-up, this helps buyers secure the best deal. However, in situations where material costs are high, it may make more sense to work with just one supplier. In such situations, the risk of a break in supply is greater. Where this is the case, having a physical presence on the ground and working alongside suppliers to closely manage and address shortfalls, is vital. It is also sensible to take care when deciding who to buy from in the first place, as a reliable track record can be reassuring.

STAY CLOSE

One common mistake Western buyers make in managing relationships with Chinese suppliers is assuming that distance doesn’t matter. When issues crop up, it is too easy for the buyer to fly in an executive to hold talks with the factory manager, only to find that nothing changes when they fly back home. In reality, the factory manager has probably been influenced by the next buyer through the door who they may have a stronger relationship with.
Being present on the ground and maintaining a dialogue with the factory manager can help to ensure that an order is kept at the top of their mind, particularly if a buyer’s working practices and payment record means they are good to do business with.

THERE’S STILL TIME…

As the Lunar New Year approaches, some Western businesses may be concerned about what might happen come 6th February. If they haven’t taken steps to get close to their suppliers already, these businesses should do so now, and be prepared to field people to China or call on some on-the-ground expertise.

Dominic Jephcott is CEO at supply chain consultancy, Vendigital, based in Hong Kong.

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Additional Information

Latest from MT

Google tests delivery drones

Google tests delivery drones

The tech giant that brought the world to your fingertips now wants to bring it to your door. With flying robots.

 

10 things we learned this week

 

House price rise beats expectations (or doesn't)

 

Malaysia Airlines is slashing 6,000 staff

 

Dyson could be about to launch a robotic vacuum cleaner