Numbers Game
By Betsy Cummings
March-April 2010

Keeping inventory at an appropriate level can be one of the trickiest business issues a supplier ever tackles. But with new strategies and techniques, it’s certainly not impossible. 

Trying to figure out exactly which products to stock, which to make just in time and which to never make again? Welcome to the club. Forecasting and managing inventory can be so tricky that some suppliers simply give up trying. But they shouldn’t, say our experts. As daunting as the task may be, keeping track of inventory and managing it well to reduce costs isn’t so complicated. Read on to find out more.

Take a Look Back

Any guru of inventory management will tell you that the key is to know what’s hot and what’s not. Not sure what to put in the warehouse and when? Your sales history, market trends, the economy and other factors should all be considered when trying to determine which key items to stock more or less of.

Sandip Sarwate, cofounder of Saffron Marigold, a luxury linen manufacturer based in Petaluma, CA, says he’s built a spreadsheet of historical data spanning three years in which his more than 400 SKUs are detailed on a monthly basis. This allows him to track what’s selling month by month, establishing a pattern of sales volume per item throughout the year. Over several years, strong patterns develop, allowing Sarwate to have more confidence in his stock levels in the warehouse, buying more light colors during the spring, for example, since white and yellow linens are consistently more popular during that season.

Similarly, Counselor Top 40 supplier Vantage Apparel is now looking more closely at “product and color lifecycles to better forecast immediate inventory levels,” says Wendy Gray, director of creative services for the Avenel, New Jersey-based company. That involves “a strategy of buying in lower quantities at more frequent rates,” she says. Constantly remaining fluid with inventory – and subsequently customer – buying patterns is crucial as the economy shows signs of renewal, she adds. “As the business picks back up we look for opportunities for larger volume buys on key products to offer deeper inventories and pass on pricing benefits to our customer,” Gray says.
 
Collaborate With Customers

Trying to determine what items clients will want this year? Then you should probably ask them, says Chad Autry, associate professor of supply chain management at Oklahoma City University in Oklahoma City, OK. “A key element, especially when inventory lines become wide and deep, is having quarterly meetings with customers,” Autry says, “understanding what they’re going to be moving toward in the future and identifying industry trends.” Keeping your finger on the pulse of the industry also includes attending the same conventions, meetings and networking trade shows from year to year, Autry adds.

It may also mean casting a wider net with vendors that can offer a greater pool of resources to pull from so promotional products can be ordered for a client at the last minute, rather than held in a warehouse where they may never be needed.

In today’s market of last-minute orders and varying product popularity, “You’re always going to want to have your big three vendors with a lot of flexibility and deep product assortments,” Autry says. “But I don’t think that necessarily you’re going to be able to survive just on that. You’re going to have to know who it is you’re going to go to for the newest Styrofoam koozie whenever it becomes the hot item.”

Pre-Stock Parts

While it may be too costly to store all materials for, say, a tote bag, raw materials like handles or rivets can be kept in a warehouse, making bag orders a less-costly cut-and-sew job when they come in, says Jeff Lederer, executive vice president of Counselor Top 40 supplier Prime Line, based in Bridgeport, CT. “It allows us to use less inventory and cash,” Lederer says, while allowing for “as much just-in-time inventory management as you can get overseas.” The result is a less-costly, better-run management system, Lederer says. “Our out-of-stocks have been negligible.”

Similarly, Sarwate says he operates on a mantra of complete transparency with his overseas vendors so that they’re aware of and can anticipate Saffron Marigold’s production needs. “We share all of our information with our partners and talk to them every week,” Sarwate says. “If something sells during certain months, they know it.”

Integrate

In part, Lederer says, Prime is able to manage inventory so tightly thanks to a sophisticated new inventory management system the company spent millions of dollars on and fully implemented last September.

Indeed, inventory accuracies and space management are not only key, but are the two main challenges suppliers face when tackling inventory management, says Rick Register, president and COO of Cambar Solutions, a supply chain and warehouse management consultancy based in North Charleston, SC. “That’s a challenge to companies that don’t have good systems in place.” It’s also what often makes companies regress back to manual inventory counts using pen and paper, he says.

But plunking down millions on sophisticated software systems isn’t necessary for suppliers just starting to analyze inventory data more explicitly, says Sarwate. “We had a need for a ‘good enough’ inventory management solution without the high costs,” he says. Working off of the customer relationship management software he was using from www.salesforce.com, Sarwate’s firm was able to manage inventory more effectively by integrating it with their CRM system. It’s a “simple system focused on the customer,” Sarwate says, and that makes tracking inventory almost second nature. Keen to support customer and supply chain systems seamlessly, many CRM systems also offer SKU tracking or the ability to import that information into Excel, he adds.

Companies that do make a significant investment in an inventory tracking system should do so with the expectation that inventory management will be far better within a year’s time, Register says. Systems that can’t help companies show improvement by then may be ill suited for that supplier’s situation or poorly conceived.

Dump the Duds

Liquidating the non-sellers is every supplier’s dream and nightmare at the same time. No matter how well a supplier forecasts what will be hot from one year to the next the company will inevitably have excess product as it heads into the next year. The best way to move unpopular items out the door may be through customer incentives, says Sarwate. Offering deep discounts may seem anathema to suppliers, particularly in a slow economy, but the drain excess inventory can place on a company – in disorganization and staff demands – is usually far more expensive than the hit a supplier will take on small margins, experts say.

In addition to non-sellers, most products have a limited shelf life, and tracking how long products have been on warehouse shelves is key to ensuring consistent product quality – and making sure that a supplier doesn’t have to be wasteful by discarding unused products.

At Counselor Top 40 supplier Dard Products Inc. in Evanston, IL, a barcode system is used to scan each product that enters one of two company warehouses – one onsite for products that are ready to move and another for newer products that need to be stored for a slightly longer period of time, says Bonni Shevin-Sandy, the company’s executive vice president. “Each shipment we scan has the date of when the goods were manufactured to keep track of that for shelf life,” she says.

Whereas highlighters might have a 12-month shelf life, for example, electronic products might last twice as long and plastic products as long as four years. “But nothing stays on the shelf that long, thank God,” Shevin-Sandy says.

Still, even products that move quickly should be sold in the order in which they were received from suppliers so that end-users are getting the freshest products possible. Using barcodes to scan products more effectively tracks that movement, Shevin-Sandy says. That scanning process also allows Dard to track sales month by month so that it’s clear which products are hot sellers at specific times throughout the year – which in turn helps company executives make better inventory forecasting decisions. The company’s system also integrates every department, from accounting to production to warehouse management and others, so that communication about products doesn’t slip through the cracks. 

Don’t Presume

Assuming you know what your customers want from year to year can be one of the worst inventory mistakes a supplier can make – leaving a company with thousands of items they may never be able to get rid of. Don Vanpool, president of Vanpool Consulting Inc., based in Waukesha, WI, was appalled to find a recent client with 10-year-old inventory on his shelves. “A poor job of identifying what their customers need up front” meant a painful lesson in inventory management for years to come, Vanpool says.

Misjudging items so that they camp out on warehouse shelves for a decade seems absurd, but poor forecasting is a problem endemic to so many small businesses, Vanpool says. “Even in the most sophisticated companies, the first thing you want to do is check how clean the warehouse is,” he says. “That’s an indicator of other issues.” That starts with desks in the area being clean and continues to product shelves. “I’ve walked into some very sophisticated places and they’re not paying attention to simple things,” which is where good inventory management starts, he says.

Moreover, companies often fail to see the big picture that accompanies good inventory management, Vanpool says. A company that cleans up its warehouse shelves as well as its inventory processes could dump 30% of its products and perhaps move into a smaller – and less costly – space. Staff waste time and money checking and rechecking mismanaged inventory levels. At companies where forklifts are needed to cruise through warehouse space, equipment wears out significantly faster in places where inventory levels aren’t carefully watched and managed, adding to maintenance and repair costs. “Oftentimes business owners don’t realize the wear and tear on equipment that occurs when people drive all around the warehouse to find a product they may never find,” Register says.

In fact, experts says it’s actually cheaper and more effective for many companies to operate in a just-in-time fashion for any products they’re not sure will be hot sellers.

Betsy Cummings is senior writer for Supplier Global Resource. 

Making It All Manageable

Want to know what’s on your shelves as well as the best items to stock? It may be easier than you think.

• Examine the history. A supplier’s own records are his best friend when it comes to inventory management. Look at sales and order trends for at least two – and ideally four – years to see not only which products were purchased more frequently, but when. After all, the key to good inventory management is knowing when to stock shelves as much as what to put on them.
• Query your customers. Your clients – along with market shifts and the economy – are the best determinants of what products to keep in stock. Make sure to meet with top customers at least quarterly to get a sense of what their product needs will be for the coming months.
• Make it seamless. A system of separate parts is often the problem when it comes to tracking inventory. Integrating customer-relationship management systems with inventory tracking helps both the front and back office staff to communicate regularly about needs.

Coming Together
By Betsy Cummings
May-June 2010

Your biggest client just got acquired. Worried? Don’t be. Read on to learn how suppliers can easily navigate mergers and acquisitions in today’s market.

After 60 days of hashing and rehashing the details, control of the market (at least in northern Nevada) was finally his. Or so it seemed to Klaus Grimm, chief promotional officer of Reno, NV-based Blue Moon Advertising and Promotional Products (asi/141834), which acquired Advertising Specialty Company (asi/114100) in March.

With that purchase, the new company, Blue Moon Promotions, became the largest distributor in northern Nevada and expects to double its yearly $2.5 million in sales. Like most corporate purchases, the deal was fraught with logistical challenges and hurdles. “With the acquisition we doubled staff and had to create new computer systems and a server environment and all of that,” says Grimm. “A lot of preparation and planning. The actual negotiation was the easy part.”

In some ways Grimm may be right. Still, one of the hardest steps – working with suppliers to ensure a seamless working relationship with Blue Moon – may just be starting. As Blue Moon gains access to accounts it didn’t have before, Grimm says, it also focuses on logistics with suppliers that both Blue Moon and Advertising Specialty worked with prior to the acquisition.

The Incredible Shrinking Industry 

As the economy improves, experts say more mergers and acquisitions may follow. In fact, a recent report called the PricewaterhouseCoopers’ Private Company Trendsetter Barometer, which surveys 251 executives in private business, found that 46% of those surveyed plan to sell their company in the next five years.

Similarly, as the potential for mergers and acquisitions increases in the promotional product marketplace – either because a distributor’s been weakened by the economy or become more opportunistic because of it – more distributors are joining forces or acquiring each other in an attempt to become stronger in the market. And, that may mean more strategy issues for suppliers looking to maintain business ties with those distributors. How lenient suppliers are, what terms they agree to with distributorships newly formed by mergers and acquisitions, and how aggressive they are in nailing down work relationships with new distributor contacts can affect the level of new business generation moving forward.

“During the transitional period, usually six to 12 months, suppliers need to be particularly attentive to new styles of doing business in the merged or surviving company, perhaps with new terms or conditions and differing expectations,” says John Reddish, founder of Advent Management International, a business consultancy based in Drexel Hill, PA, that helps companies navigate mergers and acquisitions, among other business processes.

For Blue Moon, acquiring another company put a strain on cash flow. To ease that burden, Grimm says, they sent a notice by fax “to every supplier in the ASI world that we had merged” and included tips about things like invoices, which should now be sent to a new location.

Blue Moon asked suppliers for extended terms – as much as five months, in some cases – so that the distributorship could improve its cash flow immediately after the acquisition. “Some did not want to do it,” says Grimm, surprised that a few of the industry’s biggest players balked at the request. “For people that didn’t do it, we ended up finding different resources.”

This poses a dilemma for suppliers: Should they agree to extended billing terms with distributors that have recently gone through a merger or acquisition, just to maintain their business? “I think flexibility is important,” says Joe DeVault, senior vice president of sales for Indianapolis-based Counselor Top 40 supplier Norwood, which was acquired by Top 40 supplier BIC Graphic last year and is now the Top 40 entity known as BIC APP. “That’s part of our value proposition, that we’re flexible with our customers to a certain extent. I think you’ll see that most manufacturers are flexible to keep business going for a short period of time to get on the same page.” 

Ear to the Ground

DeVault says it’s important for suppliers to get early notification if a distributor is thinking about acquiring another company, being acquired or considering a merger. How? There are three basic ways, according to DeVault. One is to scan industry periodicals and e-newsletters regularly. “Sometimes there’s an announcement before anyone gets around to discussing their relationships with suppliers,” he says.

Since salespeople are constantly on the pulse of industry news and gossip, a second key tactic is tapping their knowledge of company shake-ups, DeVault says. “We have about 50 people in sales and they call on 3,500 accounts. That gives us a good picture of what’s going on,” he says. In addition, it’s crucial to keep inside sales teams – those working in customer service and other areas – in the loop as well, asking them to be aware of any changes they hear about when talking to clients.

The third way to predict what companies might be acquired? Keep an eye on receivables, DeVault says. “When you look at people out beyond 90 days, or those that have historically had long-outstanding balances, that’s probably where most of the acquisitions are going to occur,” he says. “They’re either looking to be acquired or need to be acquired.” In fact, DeVault says, suppliers attuned to their receivables shouldn’t be surprised by certain distributor mergers or acquisitions.

“Follow the Person, Not the Position”

Once a merger or acquisition is in the works, it’s crucial for suppliers to be actively involved with their distributor contacts, says Andrew Sobel, an expert on client loyalty and founder of Andrew Sobel Advisors Inc., a business consultancy based in Santa Fe, NM.

How? Become an invaluable resource, offering, for example, articles and insights about the industry. For those in the position to do so, becoming personally valuable to clients can help cement a client relationship after a merger or acquisition. A good rule to adhere to is, “Follow the person, not the position,” Sobel says. “Too many sellers think, ‘I want to build a relationship with the chief financial officers or directors of marketing.’ ” But that kind of customer targeting often misses the personal element of client relations that can ensure a supplier a guaranteed spot with a client once an acquisition is over.

Building relationships with customers over a career is much more likely to generate long-term relationships that will guarantee loyalty in times of corporate change, Sobel says. “Lots of people will say, ‘I need to build more senior-level relationships.’ But the fact is, a lot of people, when they’re a senior executive, they’ve already brought a lot of preferred relationships along with them,” he says. “If I call up someone who’s been in business for 20 years and say, ‘I want to be your trusted advisor,’ they might say, ‘Where were you five years ago?’ ”

All of this means suppliers should focus on more constant communication with distributor clients – before, during and after a merger. Doing so not only strengthens client relationships but makes suppliers more of a market resource to other customers, simply because they’re talking to more people within the industry and therefore are more likely to be aware of mergers and acquisitions before they happen.

The beauty of the selling relationship in the ad specialty industry, according to experts, is that it entails constant order management, and the follow-up needed to manage those orders requires continuous communication between salespeople and clients. That’s key in remaining front and center as an acquired company determines which vendors it will continue to use on the other side of the deal.  

Suppliers that are constantly on the radar, offering factoids about the industry or news about their distributor clients’ competitors, are more likely to remain in the mix. Meetings with clients can be as brief as a cup of coffee or a five-minute phone call. The point is to deliver quick, helpful information and move on, experts say.

Meet Decision-Makers Early On 

For suppliers worried that their main contact will be canned after the merger, gaining introductions to other decision-makers in the company is key, experts say. “Your relationship is not just with a single point of contact,” says Simma Lieberman, a stress management consultant and founder of Simma Lieberman Associates in Albany, CA. “If that’s your only contact, you should insist on meeting with other people in the company.”

To that end, if the distributor a supplier normally works with is getting acquired, Lieberman suggests that the supplier contact the acquiring company long before the acquisition is finalized to start making inroads with those who will be in charge once the transition is complete. That shouldn’t be too hard, given the tightly knit nature of the ad specialty market, experts say. “It’s my experience that typically most acquisitions are with companies we’re already dealing with,” says DeVault.

Reddish agrees, saying, “If you’re a supplier to the acquired company, your strategy is to try to get those you have worked with in the old company to introduce you to the key players in the new one and become visible to them.”
“The real key is being proactive and getting notification as early as possible so you don’t have orders held up and issues later down the line,” DeVault says, adding that it’s important that suppliers know how future purchase orders, invoices and other administrative details will be handled.

Suppliers should also be aware that distributorships that are enlarged following a merger or acquisition might feel empowered to ask for more concessions from suppliers or even demand more services and allowances. After Blue Moon’s merger, for example, Grimm says he simply told apparel suppliers that they would need to supply samples for free. “You shouldn’t be paying for apparel if suppliers want us to sell it,” he says. “If you charge me I’ll show items I don’t have to pay for.” Being part of a larger, more desirable distributor to work with made Grimm feel as though he had more leverage in the industry.

Ultimately, how soon suppliers are aware of and react to a distributor’s corporate changes will determine how successful the relationship is moving forward. Says DeVault, “Find out what’s going on as soon as you possibly can.”

Betsy Cummings is senior writer for Supplier Global Resource. 

A Survivalist’s Guide

Just had a client go through a merger or acquisition? Figuring out the best way to handle the “new” distributorship can be tricky. Keep these points in mind before, during and after the deal to make the transition run more smoothly.

• Keep in touch. The best way to keep your pulse on what’s happening inside a merger or acquisition is to ask your distributor contacts. They’re often the best source for industry changes.
• Become a resource. Now is the time to offer assistance, information or services as a distributor moves through a merger or acquisition. Doing so will keep your company’s name top of mind once the deal is done. 
• Expand the network. Know one person at a distributorship? Now’s the time to meet his coworkers. If he ends up being dismissed following an acquisition, it will be helpful to know other people within the company. 
• Check the books. Often the distributorships most likely to be sold are those that are slow to pay invoices. Keeping an eye on receivables can give suppliers a good indication of who’s likely to be acquired next. 
• Refer to ASICentral.com. There is now a designated area on ASI’s Web site that compiles all industry mergers and acquistions: www.asicentral.com/mergersRSS.aspx.

Intelligence Operations
By John Moore
May-June 2010

The phrase has undertones of Watergate-like intrigue – something unseemly, maybe even a little dangerous. But collecting competitive intelligence is an essential business tactic, one that has little to do with skulking around in a black catsuit. 

Those who don’t utilize competitive intelligence risk being left behind by their competition, or put out of business altogether – that’s a fact. More over, those who do it well can get a leg up on the competition and put themselves in a position to thrive. First, though, you have to know what competitive intelligence is and what it isn’t.

Know Your Adversaries

On a basic level, competitive intelligence is information that helps you understand the business landscape and informs better decision making. That usually begins with identifying your competitors (and spotting possible future competitors), knowing their capabilities and discovering their intentions.

It sounds simple, but too many small and medium businesses don’t take these steps, according to John McGonagle, managing partner at Helicon Group, a Blandon, PA-based competitive intelligence company.

“You’d be surprised by how many people don’t know who their competition is or how they’re positioned,” McGonagle says. “Even the people you deal with, your partners, can turn out to be your competitors because they’re looking to expand. And where are they going to expand? In the areas they know best, and that might well be you.”

A common mistake is confusing market research with competitive intelligence. “Market research looks at large groups of people in aggregate and scrutinizes data in the past,” says Leonard Fuld, president of Fuld & Company, a Cambridge, MA-based competitive intelligence firm. “Competitive intelligence looks at the present and into the future. The idea is to provide you with insight and foresight. It’s meant to understand on a company level, company operations, profitability, distribution channels, marketing strategy. How will these companies compete in this particular sector? What is their likely strategy? How will they execute their tactics?”

To that end, competitive intelligence involves keeping an eye on larger trends and regulations that can affect your business in the future. The trouble is, too often smaller businesses aren’t watching for changes in the business landscape that can be cataclysmic. The home-repair business is a prime example. How many mom-and-pop operations were blindsided when Lowe’s and Home Depot starting providing basic contractor services?

Years ago, a client involved in trading raw materials asked Helicon Group to conduct broad research of the competitive landscape. What McGonagle and his team discovered took the client by surprise.

“First, the federal government, which had accumulated surpluses of this stuff, was going to put it on the market, which would certainly affect the price of the raw material,” McGonagle explains. “Second, there was research being done in Europe to use as a catalyst in reducing emissions in the production of certain kinds of fuels. Third, there was research ready to be published by a couple of universities that this material was significantly more toxic in terms of handling and manufacturing than had been believed to date.”

McGonagle says, “Any one of those three would be critical to a business’s success, survival and growth. But the company was not aware of them because they said, ‘We know what’s going on out there.’ But they didn’t, because they weren’t looking at it in that way.”

Put Your Assets to Work

Although the stakes are high, competitive intelligence doesn’t have to involve a dedicated team crunching numbers and generating complex reports. Essentially, it’s a business tool, one that should be part of an organization’s day-to-day operations.

“Twenty or 30 years ago, companies had enormous strategic planning departments,” McGonagle says. “Now, the average company has one person doing it. People should view it as a part of their job to keep posted on what’s happening with their competition.”

Discovering this information is a matter of basic due diligence. Fuld points out that simply signing up for Google Alerts to keep track of particular companies or an industry can be beneficial. Similarly, running a search query on your company, then doing the same for other companies in your industry, is a good way to find out who your competition is.

Networking is also a valuable asset. For industry suppliers, Fuld notes that trade shows are fertile ground for competitive knowledge. “You and all your competition are exhibiting there,” he says. “Your best bet is to organize yourself before you go to the show to ask the right questions. Ask questions of your competition’s clients and also their vendors. They’re getting information from your competition, so you might as well tap into them in an organized fashion.”

Companies also have plenty of in-house resources at their disposal. McGonagle suggests debriefing the sales force, particularly when they lose a sale to a competitor, to find out what your competition is offering that you aren’t.
Then there’s possibly the richest source of information of them all – feedback from your customers. “If you have a feedback card, put a line in that asks, ‘Who did you consider before deciding to do business with us?’ ” McGonagle says. “You might be surprised to see who’s out there. It’s cheap, and if they don’t answer you haven’t lost anything because you haven’t given the names of competitors.”

Smart Tactics

Although most companies should be able to integrate competitive intelligence into their everyday activities, there are times when third-party assistance is necessary – when the tasks grows to the point where you need someone to work full time on tracking the information you seek, for example. Or, in some cases, if it involves direct contact with your competitors.

That brings up the issue of ethics. Mention the term “competitive intelligence” and some people get scared off by sordid stories about corporate espionage and dumpster diving (see sidebar, “The Ethics of Competitive Intelligence,” on page 36). But it’s important to know what’s acceptable practice for your particular industry.
“If you’re an employee of a Marriott, you can rent a room at the Sheraton under your own name and sleep there and see how they serve you and learn a lot,” Fuld says. “It’s perfectly appropriate and done throughout the industry.

But if you work for an aerospace company, you’re not going to stroll into a competitor’s plant and take a look. It’s considered spying.”

For ad specialty suppliers, the appropriate level of contact falls somewhere in the middle. “You can’t go to your competitor’s offices and rifle through the file cabinets,” Fuld says. “But you can go to their Web site, you can go to trade shows and ask tough questions of them, of their customers. There are thousands of companies reselling and hundreds of suppliers.”

Technology certainly helps keep tabs on what your competitors are up to. You can find products that monitor Web sites and track any changes made. You can, for example, set the software to track changes made to product or pricing pages. But McGonagle warns not to get too caught up in using technology to aggregate data. “The problem is if you do it for too long you get immunized to looking for changes,” he says. “Don’t use technology to use technology. Decide what it is you want to get and how you intend to use it. Knowing something because it’s good to know isn’t competitive intelligence, it’s curiosity.”

Competitive intelligence works best when you keep your focus narrow. Looking for every bit of information about your competitors can distract you from what’s really important.
 
“I have a test I use for clients,” McGonagle says. “If I gave you this information now, what would you do with it? What decision would you make? What action would you take or not take? If they don’t have anything particular in mind, then we’re back to ‘good to know.’ ”

Fuld suggests keeping a short list – say, three or four key questions that you need answered. That way, your sales force, marketing team and top executives are consistently keeping track of the information you need.

“What you learn becomes part of an internal discussion, becomes part of meetings,” Fuld says. “Let it become part of the dialog of your company when you’re doing planning. The notion here is that if you can make it part of the company conversation, then you’ve achieved a small victory. I’m not talking about producing PowerPoints, long reports, fancy Wikis. Nothing like that. If it can inform management and change decision making at a critical juncture, that’s great.”

It’s important to remember that competitive intelligence isn’t a crystal ball that will reveal all the secrets of your competitors. Seldom will there be an “a-ha!” moment when you discover that a competitor plans to expand, or that a new player is entering the field. But, when done properly and consistently, competitive intelligence puts you in a position to adapt to changes and continue to thrive.

“You’re not going to find everything you want to know about a competitor,” McGonagle says. “But what’s scary is how much companies don’t know about the competition. Sometimes competitive intelligence isn’t designed to get you to win. It’s just enough to get you out of the way of pretty serious harm. I always tell people that’s still a win – if you avoid getting run over by somebody, you’ve succeeded. You’re still here when you might not otherwise be.”

John Moore recently wrote about getting peak performance from your employees for Supplier Global Resource and is a regular contributor to CNBC.

The Ethics of Competitive Intelligence

The thought of engaging in shady behavior is one factor that prevents companies from performing competitive intelligence. Tales abound of dumpster diving and theft of trade secrets, but true competitive intelligence is both legal and ethical.

Not engaging in illegal activities is a given. But the ethics of competitive intelligence are a bit trickier. A good rule of thumb to use: If something feels wrong to you, it probably is.

“We have something called the Harm Rule,” says Leonard Fuld, president of Fuld & Company, a Cambridge, MA-based competitive intelligence firm. “It says, ‘I will not do anything that may now or in the future harm or embarrass the corporation.’ If you feel that what you’re doing might be the case, then don’t do it.”

John McGonagle, managing partner at Helicon Group, a Blandon, PA-based competitive intelligence company, advises his clients to follow the Front Page Rule. “Don’t do anything that you would be embarrassed to see on the front page of your hometown paper.”

The trouble is, that level of harm or embarrassment is different for every industry. Take that dignity-stealing tactic known as dumpster diving. “In some cases it’s perfectly legal, in some cases it’s highly illegal,” McGonagle says. “I think it’s unethical.”

Nonetheless, there are certain guidelines everyone should follow.

“We never misrepresent who we are,” McGonagle says. “If you’re talking to people, you’ve got to be honest. Don’t say you’re a student doing a paper, that’s highly unethical. Don’t go into a trade show with a badge other than who you are. If you also work for a subsidiary, you can put your subsidiary’s name on it. But don’t use a fake name or put down that you’re a consultant when you’re actually the marketing director.

“If you come across a document that’s marked with words like ‘confidential’ or ‘proprietary,’ get away from it,” McGonagle adds. “Don’t finish reading it. Get ahold of your lawyer right away and dump it on his or her desk.

Anything that’s a trade secret – I don’t care even if someone says it’s no longer a trade secret – you walk away from it. You could be facing criminal penalties, not just civil penalties.”

Fuld & Company has a statement of ethics on its Web site (www.fuld.com), including the Ten Commandments of Legal and Ethical Intelligence Gathering (Commandment #4: Thou shalt not bribe). The Society of Competitive Intelligence Professionals (SCIP) also lists a code of ethics on its site (www.scip.org).

The bottom line: If in the name of competitive intelligence you do something that makes you feel like you need a shower afterward, then it’s time to reconsider your methods.

The Changing Roles Of Industry Suppliers
By Michele Bell
May-June 2010

Compared to 10 years ago, the responsibilities that fall on the shoulders of today’s industry suppliers are drastically different and infinitely more diverse. We talked to some top industry players to find out their views on what will be asked of suppliers in the future.

How do suppliers envision their role evolving over the next five years or so? We asked some of your colleagues if they expect to see more emphasis on suppliers being marketing partners, product-safety experts and resource – financial and otherwise – support for distributor clients, or product sellers driven to offer the lowest price due to competition from the Internet and overseas sourcing. Read on for their expert insights.

David Nicholson, president, Counselor Top 40 supplier Polyconcept North America 

“I think we are likely to see both trends occur simultaneously over the next five years in a very profound fashion. In my view, there will be a divergence of supplier models away from ‘a one size fits all’ approach, as we have seen historically within the industry. Instead, successful supplier models will emerge on both sides of the fence – some that promote a ‘full service’ approach, others that move to compete with a ‘lowest price, no frills’ offering. 
 
This has been the trend within most other industries – and we are seeing it accelerate within the ad specialty market as a result of the economic pressures of the past two years, growing compliance requirements, end-user trends and the role of the Internet. Distributors have had to be become more demanding and selective regarding their choice of supplier and, consequently, supplier models will evolve to meet these demands. In some cases, price is the overriding factor and will lead to a selection of a given supplier. In other cases, a unique service or product will trump price, given the specific end-client relationship.   
  
Certainly, the Great Recession has increased the visibility and market demand for the ‘lowest price’ supplier model. And, ike it or not, that will continue for the next few years. However, there’s still opportunity for suppliers to build successful models that create value in other ways beyond price. For all suppliers, however, it will be imperative that they clearly determine which side of the fence they’re on.”

Rob Watson, president, Media Tree

“We’ve seen a dynamic trend over the last 12 months that has shifted our brand to becoming the distributor’s promotional partner and idea experts. Very rarely do large orders now result from individual efforts of the distributor. Large opportunities are openly discussed with our promotions team far in advance to help produce the marketing materials used to help sell the concept into the brand.  

As we continue to evolve, it’s my belief that suppliers who operate as order takers will be overtaken by those suppliers who value the partnership and commitment of the distributor. In the event that those partnerships do not develop, then I think those suppliers will have no choice but to cut costs in order to compete in the marketplace.”

Mel Ellis, president, Humphrey Line

“I’ve never thought that suppliers in our industry have much of a future in competing on price via the Internet or fighting it out against direct sourcing from overseas. That’s the infamous commodity end of the business, where the end-buyer works through in-house purchasing agents, whose job consists of getting the lowest price. Our industry has very little to offer in this area, and certainly the margins available are unattractive, if indeed they’re even in positive territory, by our traditional standards.

Rather, suppliers in our industry have to build more and more expertise in providing needed and valued services, where the margins can still be interesting. We should continue to support the traditional model of supplier/distributor/end-buyer, and focus on ways in which we can make the distributor ever more successful in serving his/her client. Some of the ways we can do this include:

• Rapid order turnaround coupled with reliable levels of inventory on hand
• Preproduction, or first article, proofs
• Selling ideas, coupling our product offerings with market-specific applications
• Open account credit lines
• Indemnification for product safety
• Constantly innovate for new products, materials, decorating
• Customization opportunities for short-run business
• Professional education on numerous subjects, including:
• Product safety
• Decorating options/enhancements
• EDI to enable the distributor to control more of the order process
• Video and multimedia techniques and opportunities
• Partnering for mutual benefit

In looking at the profile of supplier companies, we’re all small, undercapitalized businesses, with very few exceptions, and we succeed or fail based on our ability to compete against the ‘big guys.’

We have to be fast on our feet, innovative and willing to take risk. This is what has made this business so much fun, and continues to be our hallmark. Promotional market supplier companies are the essence of America’s tradition of free-market capitalism. They’re highly entrepreneurial, service-driven and customer-oriented enterprises, and their future is very bright indeed.”

Christopher Duffy, senior vice president of marketing, Counselor Top 40 supplier Bag Makers

“I believe that there’s going to be a continuing divergence of suppliers in the industry over the next few years. There are already several tiers of suppliers today, but market forces like product safety, eco-consciousness and social compliance will widen the gaps between them further in this time.

The stronger suppliers – those with greater infrastructure, global reach, financial stability and flexibility – will only get stronger in these areas. They’ll actually be able to move beyond the ‘partnerships’ that are the buzzword in our industry today.

I see the next evolution for these companies to move beyond partnerships and into more ‘collaborations’ with distributors, those who are also moving in that direction with their own businesses. There will be shared infrastructure, financial risk and creative product development as more of the marketing programs from end-buyers get more ambitious and creative. We’re already seeing the greater role that overseas sourcing and transparency are having on many large-scale projects.

At the other end, there will still be a tier of suppliers who will believe that price is the driving force. They will not have or develop the infrastructure – sourcing, product development, financial acuity – necessary to move to a collaborative environment. As a result, they’ll continue to perceive price as their only competitive advantage and will not see the long-term implications of the strategy.”

Bonni Shevin-Sandy, executive vice president, Counselor Top 40 supplier Dard

“I see the supplier being the key source/partner for distributors for both product supply and education. With the new safety and compliance laws and regulations that have come about, as well as the current economy, we’ll be seeing more and more suppliers partnering with select distributors to maximize the resources. 
Suppliers are going to align themselves with good partners and educate those partners to understand the current laws and regulations. Having the supplier partner help with contracts and presentations – using their intellectual property, creativity, company status such as QCA, minority status and overall company reputation – will be the added value to keep the partnership growing.

The suppliers in the industry that are forward-thinking and proactive in product development, as well as product safety and compliance – and that are willing to invest in both – will survive bad economic times. It’s crucial to structure and build as the economy recovers. Making the hard decisions in product development and patent protection, and then protecting your intellectual property, is crucial for future growth.

At Dard Products (Tagmaster) and Dard Design, we design and patent our own items, and have invested in over 68 patents in many countries; we also stock over 500 items in larger quantities in our Chicago-based factory, as we feel both are important and crucial for our company’s future. Being a founding member of QCA, and partnering with the industry’s finest companies that share the same values on product safety and compliance, also holds an enormous value, but how can a company afford not to protect itself or its distributor partners? 

Cost-driven companies – both distributors and suppliers – focused only on a sale may be putting a person or company at risk with unsafe products. I feel strongly that at the end of the day, being able to go to sleep comfortably knowing that the product we supply is as safe as possible, is more than worth the investments in time and money.”

Michele Bell is the editor of Supplier Global Resource magazine and the senior editor of Counselor magazine. 

Asia’s Seismic Shift
By Michele Bell
July-August 2010

With workers striking, wages rising, factory output decreasing and labor pools shrinking, the “world’s workshop” is undergoing unprecedented change and growing pains. How will this affect you? Massively, and on a multitude of levels.

As if you didn’t have enough to worry about with the U.S. economy. Asia, the manufacturing hub for 95% of ad specialty products, is experiencing growing pains and stress fractures of astonishing proportions. The confluence of events happening now will not only affect this industry, but the all products imported into North America. No product categories are immune, and only those supplier companies that offer made-in-the-USA items are insulated from the issues.

So what’s the problem? Take your pick: newly empowered workers in China demanding wage increases; factories without enough staff or production capabilities; cargo ships without container space; or surging cotton prices and yarn shortages. Without sounding too dramatic, economists having been throwing around a word lately to describe the extraordinary events in Asia: seismic.

“The U.S. ad specialty industry is especially affected by these events because we are an industry known to fulfill any request,” says Bonni Shevin-Sandy, executive vice president of Counselor Top 40 supplier Dard. “Now we’re faced with the issue that our orders may not be fulfilled in a certain time period, or even the possibility our request is being passed on. Just one simple unfulfilled request can shatter the image we’ve set for ourselves. China needs to take the appropriate measures in order to continue to be a market that’s highly sought after.”

The tectonic shift in China, specifically, is happening because for some time now, companies have come to rely on the country’s low-cost labor to keep a steady flow of inexpensive products. That’s no longer the case. Here, we dissect what, exactly, is happening, how it’s affecting the industry and if and when it will get better.

Advantage, Employees

“This story starts with a recession,” says Marty Lott, owner of Counselor Top 40 supplier SanMar. “And when a recession hits the way this one did, the common thing that’s done by people who inventory product is to cut back on their ordering.”

Over the last 18 months, with fewer orders coming in, many Chinese exporters cut capacity by reducing headcount, says Jonathan Isaacson, owner of Counselor Top 40 supplier Gemline. “Given the growth in the Chinese economy, many workers have been able to find jobs in other industries closer to their hometown, as opposed to being in the South or near some other areas in China where the factories are clustered.” 

Additionally, Isaacson points to the fact that the Chinese stimulus package, which focused on infrastructure, absorbed a lot of labor that otherwise would have gone to factory production. “Also, the Chinese government has implemented some tax policies which have made it attractive for workers to go back to the farm,” he says. 

Shevin-Sandy notes that the most pressing issue right now for the ad specialty industry is that China anticipates more than $1.5 trillion (U.S.) in merchandise exports in 2010. “This is an issue because China is sought out for our raw materials, imprinting, packaging, testing and shipments of orders,” she says.

Employers are complaining about increasing costs and labor shortages, and laborers are being pickier about their wages, benefits, social status and working conditions. Younger workers are much more aware of how to use their rights to pursue higher wages and a better, healthier working environment.

Much of the change has come from shifts in the nation’s population. Demographers expect the size of the working-age population to peak in the next five years or so, and then gradually decline. Experts say that labor-intensive sectors such as garment and toy manufacturing will be hit the worst by labor shortages.

Having a dwindling labor supply may seem odd for a country with 1.3 billion people. But, the trend’s been discernable for a while, as the effects of an aging population and China’s one-child policy kick in. In the past 10 years, the population of 20- to 39- year-olds – from which most manufacturing is drawn – has fallen 22%.

“A typical 18- or 20-year-old worker was born in 1990, well after the Chinese reforms,” Isaacson says. “They matured over the last 10 years and have no memory of anything but a rapidly growing country. These workers now have many options that did not exist before. When I first went to China over 20 years ago, there were no McDonald’s at which to work. Today, there are many, and that is seen as a relatively higher-status job than a factory job.”

Striking, American-Style

Additionally, young workers in China won’t tolerate the harsh working conditions their parents accepted. Many will work only for a few months before moving on to another factory or a new town. They are highly mobile and think nothing of moving across the country if they feel like it – a trait similar to young American workers.
 
Decades of prosperity – along with Beijing’s $586 billion infrastructure-focused stimulus package unveiled in 2008 – have created more jobs in China’s interior, leaving workers with more choices. Officials in the key export areas are taking no chances that things will turn around on their own. To attract workers, Guangdong labor authorities have urged companies to raise wages and provide better living and working conditions, as workers live at the factories.

“Most young people in China don’t want to work in factories and want higher-paying jobs,” says Trevor Gnesin, owner of Logomark, adding that a few weeks ago officials found illegal workers from Vietnam in some factories in Guangzhou. “The largest factory in China just gave their 500,000 workforce a minimum 30%-100% increase to avoid a strike. This will impact all factories over China.”

Chinese workers have begun doing something unheard of – striking for higher wages and better work conditions and perks such as activities rooms in their dormatory housing. In an unprecedented move, workers at a Honda plant in southern China went on strike, forcing the automaker to give employees raises of 24%-32%. Add to that the horrifying spate of suicides among factory workers in China and you have a workforce speaking out for the first time.

Big manufacturers are moving to raise salaries because they’re desperate to attract new workers at a time when many coastal factory cities are struggling with labor shortages. Foxconn Technology, the factory for electronics giants such as Apple and Dell, says its rate of turnover at its two Shenzhen campuses, which employ over 400,000 people, is about 5% a month, meaning that as many as 20,000 workers a month are leaving and need to be replaced. Economists say increased salaries will ripple through the global marketplace, driving up prices of everything from T-shirts and sneakers to computer servers and smartphones.

The Inventory Logjam

“In Asia right now, it’s a seller’s market,” says David Nicholson, president of Counselor Top 40 supplier Polyconcept North America. “We’re being put in the position to accept price increases or factories won’t take our orders. Of course it’s much harder for smaller suppliers without the leverage of being a Top 40 company.”

Nicholson says pricing, while an issue, isn’t the worst of it this time – it’s inventory. “The vast majority of suppliers are going through their worst inventory issues ever,” he says. “This comes at a time when many are starting to return to profitability. And, it doesn’t look like it’s going to get better soon, especially with prices going up.”

To be sure, during the economic crisis that started in 2008, many suppliers brought down inventories to be in line with demand. Now, demand has returned, and many suppliers are trying to get back into a stock level commensurate with the demand they’re seeing today, Isaacson says. “For suppliers with a lot of lines, but without the ability to concentrate orders to vendors, it’s now harder to get the attention of the factory,” he says. 

And while it’s unlikely that a supplier would be told flat-out that his order won’t get filled, Randy Chen, owner of Impex – a New Jersey-based company that imports, sources and warehouses for ad specialty suppliers – cautions that factory owners in China are using other tactics. “Nobody’s going to flat-out tell you that they’re not going to take your order,” Chen says. “More likely, they’ll say, ‘We’re going to give you two options: a price increase or a longer lead time.’ And that’s their nice way of saying ‘no’ to your order.”

Then there’s the quality control quandary. “The most pressing issue we’re dealing with is the manufacturers’ increased production times, meaning standard production times are being pushed out,” says Jim Hagan, president/CEO of Counselor Top 40 supplier Sweda LLC Co. “It’s not easy to move production to other countries, due to the fact that we have a stringent qualification process to ensure we are partnered with manufacturers that support our quality, material and social compliance expectations. Not to mention if you’re able to move production, there’s a long lead time in developing molds, pre-production samples, and quality control checks and balances.”

Gnesin agrees. “Getting compliant product is getting harder, as the factories in China would rather deal with easier orders,” he says. “This is becoming much more costly, and we are paying a huge premium to make sure our goods stay compliant.”

Slow Boats From China

Let’s just assume you were working with a factory that had happy and plentiful workers, and enough time to fill every one of your orders. Here’s the next hurdle that stops the process dead in its tracks: There aren’t enough container ships – or containers, for that matter – to accommodate the revved-up orders waiting to be shipped out of China’s ports.

“Everybody’s business was so bad in ’08 and ’09 that they cut down on their ordering, and the freightlines cut their capacity,” Chen says. “So everybody’s cutting containers and freightliners when all of a sudden business picked up unexpectedly. Everyone got caught with their pants down. Also, the freight companies are almost like a quasi-cartel. They can set their own rates.”

Chen says that instead of the normal 70 to 80 days for a shipment from China to reach a port in North America, now it can take upwards of 120 days. “How I’m dealing with that is when I place orders, I’m doubling everything – and expecting a longer lead time,” he says. “Back in March and April we told our customers to forecast six months out in advance. This has caused supply chain problem in the industry. Everybody’s running out of inventory and nobody has large quantities.”

Paul Tsui, Chairman of the Hong Kong Association of Freight Forwarding and Logistics (HAFFA), says most sailings to the U.S. are hugely overbooked, resulting in the constant rollover of consignments.

“There are big-time container shortages, so we trade containers with some of our partners,” Lott says. “If I’ve got one this week that I don’t need I’ll loan it to somebody, and then I’ll look for a favor back next week or the week after, because I have to keep the stuff going.”

To put it into perspective, consider this: Richard Owens, Asia Pacific CEO for DHL’s global customer solutions unit, told IFW that even “a company with DHL’s clout” was being forced to fight for space. “Space is going to the highest bidder,” he said. “We’re among the biggest in the business, so we have the leverage to get capacity. But we’re finding it difficult to get all the capacity we need.” 

The Cotton Conundrum

Lest you think that China’s issues are only affecting the hard-goods segment of the industry, the apparel market has its own special set of problems right now.

Garry Hurvitz, the president/CEO of Counselor Top 40 supplier Ash City Worldwide, took the unusual step of sending out a letter to the industry, detailing the problems in Asia will affect the industry.  

“The cost of raw materials has been impacted with the softening of the U.S. dollar as it has declined against other currencies,” Hurvitz says. “Specifically impacting our cotton-based apparel is the worldwide shortage of this product, and with yarns being more difficult to obtain, we’re seeing production delays and material cost increases everywhere.”

Hurvitz points to the labor issues in Asia, ranging from a 50% increase in wage rates mandated by Bangladesh, to workplace labor shortages in China that originated from recessionary pressures of last year. “Severe production cutbacks in the last two years have shifted workers in Asia from the apparel production plants to government-funded infrastructure projects and domestic production,” he says. “The result of this labor displacement is a significant reduction in Asia’s production capacity as suppliers look elsewhere for replacement factories. As the economy improves, this overall lower supply of production capacity combined with a greater demand for products has lead to higher prices and longer lead times.”

Hurvitz says that with vendors having greater negotiating power, there are new demands for larger garment production runs spread over the entire year before orders are accepted. Delays in getting garments to the marketplace will result from this change.

“Even when final products have been produced, there are further issues, such as the political instability in several Asian countries delaying shipments in getting from the factories to the ports,” Hurvitz maintains, then adds this comment on the situation overall: “It will get a lot worse before it gets better.”

Lott says that SanMar orders from 100 different factories in 20 to 22 countries. “It’s very broad-based – China to Africa to the Caribbean basin, sort of everywhere in between.”

He notes that through March, April and May of last year, receivables for 2010 were on time. “Not early like they had been, but on time,” Lott says. “By the time we got to placing orders from January to March this year for a June order, we were told we’d get it in July, and July’s order in August, and, well, August’s order we’re not so sure about.”

And to be clear, it’s the factories that manufacture inexpensive items that are most hard-hit from labor shortages and production backlogs in China. “It’s not just ad specialties, because companies like Walmart are getting hit, as well,” Lott says. “So you have a labor shortage for a low-end product. You have a severe cotton shortage because, one, demand went up worldwide and there were quite a few countries that had bad cotton crops last year. So Pakistan, for example, ran out of cotton about 60 days ago, which means that their spinning mills had nothing to spin because they have a law that says they can’t import cotton. So you’ve got cotton shortages around the world; cotton shortages created yarn shortages; yarn prices started sky rocketing because demand was high worldwide. People are stealing each other’s yarn at the factory, at the spinning level.”

Lott reports that as of over two months ago, the apparel segment of the industry has been bombarded by price increases. “And, we just went to print with our catalog, so that was the last time we could adjust any prices for the next year,” he says.

But, what happens to SanMar and other suppliers if the yuan floats and prices rise? It’s a genuine concern. “If we have to reprint in the middle of the year, we have to reprint,” Lott says. “The world is very squirrelly right now; not nearly as projectable as it used to be.”

Still, Lott believes that inroads are being made. “We only have half the back orders that we had in January, but we still have more than we’d like to have,” he says. “We’ve been bringing it up about a half percent a week all year long.”

The Only Game in Town (for Now)

Of course the logical question becomes, if China is such a hotbed of a hot mess, why can’t suppliers send their orders to factories in other countries? The short answer is that no country right now has the well-oiled machine of production that China does – all evidence to the contrary.
 
“China is a market that made its mark in manufacturing, while India has made its mark in technology and services,” Shevin-Sandy says. “Since China has been well-known for generations in manufacturing, distributors trust China and know its capabilities and what the finished products look like. Distributors need to be comfortable that their orders are in good hands, and they have that despite the issues there right now. Other countries such as Mexico and Vietnam are not as well-known for their production capabilities and don’t carry the same reputation.”

Even before these problems, manufacturers and buyers of low-cost products were actively seeking alternative locations such as Vietnam, Cambodia and Indonesia, where production of sports shoes has grown 25% since 2007.
Pietra Rivoli, a professor of international business at Georgetown University and the author of The Travels of a T-Shirt in the Global Economy, says the effects of rising labor costs will vary by industry, with lower-value goods like garments being forced to move to Western China or even to Vietnam and Bangladesh. It should be noted, though, that these locations have yet to develop Southern China’s streamlined manufacturing infrastructure.

For apparel, Nicholson says, there are options outside of China. “This is largely due to the fact that apparel doesn’t require advanced manufacturing or a wide range of materials,” he says. “But for most hard-goods categories, very few countries have developed the supply and manufacturing infrastructure that China has. It now produces almost all of the raw materials used in its products, it has better manufacturing equipment, and it has a well-developed infrastructure for business. So, while certain countries can offer low-cost labor to match China, none have the other capabilities that China offers.” 

Chen points out that right now the factories on the shoreline of China are all producing high-tech goods. “The majority of Chinese production is still along the shoreline, but they keep inching inward. What’s happening is that China is building up the infrastructure interior and having all the big companies go in and set up their shops. Remember, it costs less to have a factory in the center of China, away from the shorelines, because you’ll have a larger worker pool and won’t have to pay the higher wages. China’s still going to be the cheap place to buy from. Where else are you going to go?”

Jeff Lederer, executive vice president of Counselor Top 40 supplier Prime Resources Corp., concurs. “Most products in the world are made in China,” he says. “I believe that Walmart alone represents 4% of all Chinese exports. If they could buy elsewhere, they would.”

Fallout for the North American Industry

So, how bad will it get? Experts agree that more ships and containers will become available in the upcoming months, and Nicholson believes that the capacity and lead-time issues will eventually resolve themselves and supply-demand will reach an equilibrium. 

“I expect that we’ll be back to a more predictable buying cycle by the end of this year,” he says. “However, I fear that the inflation pressures – particularly due to the structural changes within China affecting the currency and labor – will be long-term.”

Nicholson maintains that the effects of inflation are both direct and indirect on the ad specialty industry. “The obvious impact will be higher prices – and this will be largely unavoidable for any importer,” he says. “The indirect implications pose other challenges. For example, during periods of inflation, factories and buyers look for ways to mitigate the cost-inflation factors by changing materials, moving production to new regions and altering manufacturing processes. Whether intentional or not, these tactics can lead to increased instances of quality and safety compliance issues.”

He acknowledges that another significant effect will be far greater margin pressure on suppliers and distributors. “With an uncertain U.S. economy, it will be difficult for many suppliers and distributors to pass along these increases – or at least there will be this perception,” Nicholson says. “On the inflation issue, I expect that suppliers will see increases in the 5%-10% range this year with a minimum 5% increase again in 2011.”
Lederer believes that while the confluence of events in Asia will continue on and off for the next 36 months, there will be some inevitable price increases for 2011. “Also, some suppliers who can afford it will have higher inventory levels, like Prime does, to anticipate inevitable delays and cost increases on future orders,” he says.

And, the wildcard in the game? The floating yuan. “Because it’s so difficult for anyone to predict what will happen with the Chinese currency, it means that factories and importers will have to assume the worst – continued appreciation,” Nicholson says. “That means factory owners will be less likely to increase their factory capacities, but will have to increase prices as a hedge. Quite simply, it’s the last thing we wanted to see, given all of the other challenges in China right now.”

What Your Clients Can Do

“We’ve all been spoiled,” Lott says candidly. “I’m as guilty as anyone of engaging in the trend of taking the order today and shipping it today,” he says. “That’s going to be tougher to do. Distributors are used to not checking with us, because they assume we’ll all always have the items they need. Well, now, we may not always have it.”

Lederer maintains that at the end of the day, suppliers need to make a profit. “If costs go up, then it should not be the supplier that bears all of that increase,” he says. “And, distributors should not participate in helping to drive prices lower by comparing a premier supplier and their products to a company that does not have the infrastructure and quality procedures in place – thus creating more of a price war. We should all be selling on strength.”

Lott’s advice to his clients is similar to that of other suppliers: “They should check before they sell,” he says. “They need to plan ahead with what they’re going to order, always have a back-up product ready to go, and be in close contact with their supplier regarding the status of the supplier’s inventory.”

Michele Bell is the editor of Supplier Global Resource magazine and the senior editor of Counselor magazine.

In a Nutshell ...

Do you have clients who simply don’t understand why inventory seems to be perpetually on back order and prices are rising? Here’s a tutorial for you to give them as to where the issues lie:

• A lack of workers. A survey by the Chinese government showed a 35% increase in vacancies posted by employers in the first quarter of 2010, but only an 8% increase in the number of applicants for those vacancies. The result is the tightest labor market in recent years.  
• An increase in wages. Economists say increased salaries for factory workers will ripple through the global marketplace, driving up prices of everything from T-shirts and sneakers to computer servers and smartphones.
• Fewer factories. When factories in Asia closed as the worldwide recession hit, your clients might not have noticed because their orders dwindled, as well. But now that ad specialty sales are picking up, there simply aren’t enough factories in China to fill the orders. 
• A ship shortage. Once again, when the global economy went south, freightliners and the containers they carry were dry-docked. Now, when demand is picking up, there just aren’t enough of them ready to set sail. Rather than taking a week, which is the norm, to get space for your container to be put on ship from Asia to North America, it’s now taking upwards of three. 
• A dearth of cotton. Specifically impacting cotton-based apparel is the worldwide shortage of this product, and with yarns being more difficult to obtain, there are production delays and material cost increases everywhere. Add to that the labor issues in Asia, ranging from a 50% increase in wage rates mandated by Bangladesh, to workplace labor shortages in China that originated from recessionary pressures of last year.

What’s a Distributor to Do?

Constant among all the industry suppliers we talked to, here’s the advice they shared for getting distributors their orders in the quickest, most painless way possible:

1. Remind distributors to stay in regular contact with you so they’re aware of inventory fluctuations. Assuming that items are in stock and can be shipped in 24 hours isn’t going to cut it anymore. 
2. Suggest that distributors order early, and – if they know their client places repeat orders – order more than they need. Here’s where you can step up as the relationship builder and offer to hold the extra stock until they need it.
3. Give your distributors product options. If their clients are dying for a certain style of bag, suggest two similar bags as a backup plan in case the first is in a holding pattern on a production line in a Chinese factory. 
4. If the client is a good one and the item they ordered just isn’t going to make their in-hand date, consider offering a similar, though slightly more pricey, item to save the order – and more importantly, the relationship. Don’t do this often, but do it when necessary.

The Next Step
By Betsy Cummings
July-August 2010

Streamlining operations can be daunting in any economy. In today’s fluctuating marketplace it is especially so. Read on to discover nine strategies to put into place today.

Between economic swings, natural disasters and general market volatility, it’s amazing a supplier – outside of perhaps the industry’s Top 40 – can find any operational or management stability these days. Swings in the past two years have caused many suppliers to scramble for new techniques in operations. But, knowing what will work can be tricky, and sinking more money into a method that may not bring results leaves some suppliers spinning their wheels. We asked management and operations experts to weigh in on how suppliers can make the most of the second half of the year – and get a good jump on 2011. 

Keep an Eye on Gross Profits

Too often, suppliers are more familiar with the daily small picture of product production and operations – moving products in and out becomes more important than stepping back to get an overall picture of the company’s health. To that end, says Gary Patterson, a Boston-based operational risk management expert and president of FiscalDoctor, says suppliers should be more in tune with how their monthly, quarterly and yearly profitability is stacking up – not only against last year’s performance, but against 2008, since 2009 resulted in a dramatic dip in sales for most suppliers.

What’s important, of course, is keeping an eye on net vs. gross profits, since one on the uptick isn’t an indication that the company is healthy overall. Gross profits, or the money earned after the direct costs of producing a product, are perhaps a truer indication of how much spending power and strength a company has overall, particularly in a tight economy, Patterson says. Certainly, if gross margins remain flat (which can occur even when net profits rise) or dip, that spells trouble for a supplier’s ability to pay staff, cover marketing costs and fund other corporate expenses. “You can be more aggressive on the risk you take operationally if you monitor your margins very carefully,” he says.

Get Automated

Whether a supplier is using SAP or some other high-end ERP system, leveraging a software program of some type is a great way to manage the entire operational procedure – from sales to shipping. More businesses are taking an automated route, and according to Patterson, it doesn’t require a $10 million system to make it happen.

“Most companies have reasonable software systems in-house,” Patterson says, and under-use what’s already in place. The key is to retrain staff from time to time so automation remains high, rather than allowing training to fall by the wayside when staff members get too busy to keep up with inputting data. Especially in today’s economy, when suppliers may be replacing laid-off workers with new ones, it’s important to conduct regular reviews of in-house technology and how to use it.

Safeguard Your Company

Too many companies focus on the day-to-day operations, functioning in the moment rather than looking ahead for what can happen – both good and bad, warns Patterson.

Creating a contingency plan today for economic and environmental disasters down the road can be the difference between a supplier’s survival or destruction in an actual disaster. More to the point, Patterson says, workplace interruptions are becoming so common that companies without a contingency plan are starting to suffer in terms of their credit ratings.

The best way to be prepared for a disaster is to plan for it. Experts suggest creating a list of possible disasters that could strike your business, such as a snow storm if you are located in the mountains or a hurricane if you live near the coast. Consider personal emergencies, as well. “If something happens to you, you wouldn’t want your business to come to a grinding halt because there was nobody to pay the bills or place an order,” says Rhoda Abrams, nationally syndicated columnist and head of The Planning Shop, a publisher of books for entrepreneurs. She says it’s a good idea for business owners to establish a second person to sign checks, or to have power of attorney in case of a long-term illness or injury.

To safeguard against a technological breakdown, all computer files should be backed-up at the end of each business day or week, with the files stored at a remote location, such as an online storage company with redundant servers that can be accessed via the Web.

Finally, don’t overlook common emergencies. It’s easy to focus disaster planning on the next catastrophic events, but there’s a much higher chance that a business will be affected by a more common disaster like power failure, fire or extended illness, Abrams says. She suggests making sure the building’s fire code is up to spec, having a back-up generator on site in case of power outages, and implementing a safety program to keep the workplace injury-free.
 
Sell Globally/Ship LocallyWith so many ad specialties being made abroad, suppliers are constantly reconsidering how their products are shipped to ensure the cheapest, fastest delivery. Some ships from Asia are moving more slowly these days to save fuel, Patterson says. That’s great for the planet, but not so great for distributors and end-buyers if a “green” ship is holding up their products. “It might be reason enough to have a little more inventory on hand,” he says. “Close enough to reduce the likelihood of having to air-freight something.” (For more strategies on how to handle inventory challenges, see “Asia’s Seismic Shift” on page 32.)

A Year Is the Limit

Things can drastically change in a year, and business owners know it now more than ever. That’s why many of them are limiting forecasting, inventory and other aspects of running their company to a 12-month time frame, says Shaun Seydor, director of PantherlabWorks at the Institute for Entrepreneurial Excellence at the University of Pittsburgh. Making projections “using a rolling 12-month basis,” he says, gives some business owners peace of mind about growth potential and how much they can risk moving forward. 

Less Is More

Think that inventory is dying sitting on your shelf? You’re right. And more suppliers should be addressing that issue, Seydor says. So precious is the need to accurately predict appropriate inventory levels that many companies are decreasing their shelf space by dropping storage in their current facility or, more commonly these days, moving product to a new, smaller location. This saves on inventory management and facility costs, Seydor says. “Things with much longer lead time are being held, as opposed to quicker items.”

Green Your Wallet & Your Warehouse

Suppliers are also looking to incorporate sustainability into their warehousing processes, Seydor says. By holding and managing less they almost always reduce carbon emissions, because it takes less energy to manage. Having fewer products shipping in and out of the warehouse also affects how sustainable the products are, as well as the company itself.

Specialize in Subcontractors

With a pickup in business looming, many suppliers may be tempted to bring back workers they laid off or seek out new ones to fill the void. That’s understandable, Seydor says, but they may be better off following a more recent trend. Plenty of business these days are looking more toward parceling work out to subcontractors rather than rehiring full-time workers. That way, “They don’t need to hold on to staff with high skill sets” that may cost the company more money, he says.

Bring ’Em Back Part-Time

Last year, many suppliers laid off part of their production staffs. Now that things are picking up, is it time to bring those workers back? Not so fast, say experts. Most businesses are trending toward bringing workers back part-time. This gives suppliers flexibility, keeps them in contact with local talent and gives them a pipeline to potential full-time hires.

Betsy Cummings is senior writer for Supplier Global Resource.

Following the Trends

Now that the economy is improving, staying ahead of the curve is crucial for suppliers to maintain smooth operational procedures. Read on for a few tips on how to do just that.

• Be agile. With so many market fluctuations it’s crucial for suppliers to be able to change course at a moment’s notice. That comes from having a good handle on financial specifics, as well as knowing where slight adjustments can be made. 
• Rehire carefully. Now that the market is showing signs of growth, suppliers may need more workers to handle higher production levels. But hiring former full-time employees could suddenly put a heavy burden on a company. Instead, suppliers may want to consider hiring part-time workers or subcontracting work out for higher-level skilled jobs. 
• Ship speedily. Sustainability is infiltrating every aspect of the business world these days, including shipping. Reports of ships traveling more slowly to save on fuel means product deliveries can arrive more slowly, as well. Suppliers may want to rethink inventory levels, knowing that some items may ship more slowly than in years past. 
• Stick to the system. Automation isn’t a bad thing, particularly in tough economic times when having more exact production and management systems in place makes companies run more smoothly. Even if suppliers have a software system in place to track everything from sales to shipments, often they aren’t utilizing it fully. Now is the time to retrain staff on any existing systems. 
• Kick the tires. So to speak, at least. Most businesses concentrate so much on trying to build up their strengths that they fail to look for weak spots – until it’s too late. By then it’s often  much more difficult to fix mistakes, and suppliers may find themselves scrambling to avert a crisis. 

Shipping and Customs: The Devil’s in the Details
By Taylor Yu
Sep-Oct 2010

With proper documentation you can keep customs issues to a minimum and begin to think of them as merely stepping stones, not pitfalls.

Until relatively recently, most cargo ships traveling internationally ran at “full steam,” essentially hitting the gas for the whole trip from shore to shore. This practice minimizes in-transit time, but does not have the ship’s engines working at maximum efficiency. Several shipping companies have announced that they’re now employing a new strategy for their long-distance shipments. By slowing down, or “slow-steaming,” some ships are seeing fuel consumption decrease by as much as 30%, which can save a shipping company a lot of money in fuel costs, especially when averaged across an entire fleet.
 
Unfortunately for suppliers operating on tight deadlines, this kind of strategic cost-cutting could add a week or more to a shipment’s transit time. The economic crunch has forced many companies to alter their tried-and-true business practices to emphasize efficiency rather than timeliness. In order to cut costs, this may become an industry-wide practice, something suppliers and trading companies are not necessarily able to influence.

Proactive Preparation

Having an order shipped thousands of miles across the ocean, only to have it delayed by U.S. Customs and Border Protection (U.S. CBP) when a client is waiting for delivery, can be a supplier’s worst nightmare. A thousand different things can go wrong during the transportation of goods from one location to another. In as many ways as possible, suppliers must do their best to plan for and minimize these potential complications in order to keep their supply chains flowing and keep their clients satisfied. Dealing with customs doesn’t have to be a complication, as long as suppliers take a few simple steps to facilitate a smooth customs process.

Receiving clearance from U.S. CBP is an essential step in the process of importing goods into the U.S. Without proper clearance, shipments of goods can be detained by U.S. CBP, which of course can significantly delay the delivery of products and negatively affect the supplier’s ability to maintain inventory and meet their clients’ needs. 

Barring the threat of having a shipment seized and held – for weeks, or even months – in a customs warehouse, the customs process is intended to facilitate trade, not impede it.  Therefore, it’s also designed to be efficient, so long as imported goods are compliant with trade regulations. With the right preparation, suppliers can view the customs process as a stepping stone, rather than an obstacle, to their continued growth.

Regulation of incoming commodities by federal officials is mandatory and quite strict. But, this doesn’t mean that companies are powerless to facilitate the efficient navigation of the customs process. In fact, there are several tangible steps a supply company can take to help keep customs clearance issues to a minimum. Most delays that occur when dealing with U.S. CBP have to do with documentation issues – incomplete, inaccurate or missing documents are all red flags for customs officials. Entry documents that accompany incoming shipments are meticulously scrutinized by U.S. CBP personnel. Any and all discrepancies between what’s been documented and what is contained in a shipment are investigated. This is where the most significant delays can arise – waiting around after detainment for inspection and approval in a warehouse – which is why filing the right documents along with shipments is by far the most important thing that can be done to keep the customs process from turning into an ordeal.

Diligent Documentation

Getting the right documentation in order is a multilevel process. It depends on a complete understanding of the goods themselves being shipped by the importer and familiarity with the customs process itself – in particular the various classifications, requirements and restrictions that apply to different types of goods. Suppliers may find it difficult to accurately classify goods within in a given shipment, which will inevitably result in shipment delays.

Mike Matras, president of Supreme Import Ltd., stresses the importance of being well-versed in the different regulations and rules that might apply to a given shipment: “A seemingly minor clerical error, like incorrectly listing the ratio of cotton to other materials in a product, can drastically alter the way U.S. CBP classifies and calculates the duty on a product, potentially forcing shippers to pay higher duty fees than originally anticipated,” he says.

U.S. CBP makes it easy for suppliers to stay abreast of current and developing trade regulations, both national and international. The official Customs & Border Protection website, www.CBP.gov, provides a wealth of resources and reference materials that deal with international trade. Under the “Trade” section, there are collections of documents that outline various aspects of the customs approval process, as well as reviews of numerous trade regulations and contact information for many important offices when you need to get in touch with a U.S. CBP official. 

Trading companies and suppliers must maintain positive working relations with U.S. CBP to ensure that both present and future interactions continue with as few complications as possible. One component of this relationship is developed through consistent and ongoing compliance with international trade laws. The harmonized tariff system that the U.S. CBP service uses to classify the multitude of goods imported into the U.S. is extremely complex and dependent on many factors. It’s essential that companies not only present the proper documentation, but that those documents are accurate and comprehensive.

The key to accurate and comprehensive filing of necessary customs paperwork is utilizing an experienced customs broker. Suppliers must collaborate with their customs broker to understand how their goods will be classified by U.S. CBP, and present documentation that conveys this. Licensed customs brokers have a much more intimate understanding of the intricacies of customs laws and regulations, which allows them to further assist suppliers in deciphering the harmonized tariff system classification rules, as well as ensure that the correct documentation gets filed. 

Utilize an Intermediary

Today, many shippers and customs brokers mitigate issues of lost documents by taking advantage of the paperless, Internet-based filing systems put in place by U.S. CBP over the past decade.  “In our experience, the number-one reason a package gets delayed in customs is due to missing or incomplete paperwork,” says Donna Longino, public relations manager for UPS. 

The Automated Commercial Environment allows container inventories and ship manifests to be sent electronically to the port of entry for approval by U.S.  CBP officials. Longino says that when using the paperless filing systems, “information is prompted and stored electronically, allowing shippers to greatly reduce their chance of making manual errors when filling out customs documentation.” Under limited circumstances, this system can even be used to gain early approval for certain types of shipments, which could lead to an expedited customs process.

Licensed customs brokers serve as an intermediary between suppliers and customs officials. Working with an experienced customs broker is highly recommended, since the import process is sophisticated and legal requirements vary from country to country. Consequently, a customs broker is key to efficient importing, as the broker ensures accurate customs compliance to speed the transport of goods and reduce the risk of penalties and fines, says Longino. 

In addition to preparing and filing the necessary documents, the customs broker interfaces directly with U.S. CBP officials and acts as a liaison if and when issues arise. This means that when a shipment gets delayed by customs, customs brokers get things moving again by correcting documentation issues and revising tariff and duty claims.
Exasperating, but Necessary 

Dealing with U.S. CBP when problems come up can be time-consuming and frustrating, as the order in which individual cases are handled can be arbitrary, at times. Customs is predominantly concerned with enforcing trade laws, and is under no obligation to give priority to shipments that need to meet a deadline.

A licensed customs broker also brings to the table his or her previous experience working with the customs office. They may know just the right person to contact, or just the right document to file, to gain clearance for a trade-compliant shipment that has been needlessly detained. At the end of the day, having a knowledgeable customs broker can mean the difference between a shipment that arrives on time and a shipment that arrives weeks behind schedule.
 
If a shipment needs to be inspected, customs officials may choose to physically unload and inventory every item from a shipment before it is cleared for entry. Unloading, inspecting and then reloading an entire container of goods can be complicated and time-consuming, and you don’t want this process to take any longer than it has to. Accepting that these kinds of complications will arise, suppliers should work with shipping companies and freight forwarders that are willing to pack the goods to their specifications. 

Shippers that are willing to palletize and organize cargo at the point of export can facilitate things at the U.S. end of the journey. If your shipment ends up having to be searched, suppliers should make every effort to ensure that it’s as straightforward an affair as possible. Proper packing techniques, like palletization, can reduce the time required to load and unload cargo from several days to just a few hours. Arranging for your shipments to be clearly and accurately marked and labeled will also be valuable here.

Sometimes, inspections happen. Even if everything is done by the book, and there’s a cross on every “t” and a dot on every “i,” U.S. CBP has the ability to delay an entire container full of shipments, even if only one of them is suspect. Suppliers should remember that facilitating customs clearance is just one component of an efficient importing strategy.

Taylor Yu is a freelance business journalist based in Los Angeles. 

Crucial Tips for Dealing Efficiently With Customs

If you’re a supplier that imports items from overseas, you’ll have to deal with the intricate, sometimes inexplicablly confusing labrynth of rules and regulations from the U.S. Customs and Border Protection department. Here are some things to keep in mind to make the process go a little more smoothly. 

1. Know the laws that apply to your products. Being knowledgeable about the laws and regulations applying to your product will help ensure you know what measures need to be taken to ensure trade compliance.
2. File all documentation promptly, accurately and comprehensively. Improper documentation is the number-one reason shipments are delayed by customs.
3. Use an experienced customs broker. Customs brokers help ensure that proper documentation is filed with incoming shipments, and work with customs officials when there are issues to keep delays to a minimum.
4. Work with your shipper to have your goods packed to your specifications. Use a shipper that is willing to organize and pack your shipment in such a way that it can be unloaded and reloaded quickly, in case an inspection is ordered by customs.

For more information, go to www.cbp.gov, the website for the U.S. Customs and Borders Protection agency.

8 People to Watch
By Alex Palmer
Sep-Oct 2010

Want to meet leaders of some fast-growing global companies and trend-setting organizations? Add these international industry members to your contact list.

John Lynch
Owner, Lynka Promotional Products

Talk about fast growth. John Lynch cofounded Lynka Promotional Products in Poland in 1992, and 18 years later it has grown into one of the leading apparel suppliers, not just in that country, but in all of Europe. It now has more than 100 employees, and offers service to hundreds of promotional agencies throughout the continent. Though chiefly focused on the Poland market during its early years, since the country joined the European Union, Lynka’s exports throughout the European Union (EU) have rapidly grown. 

In 2005, Lynka serviced mostly German promotional agencies before adding Austria and Switzerland. Through Lynch’s efforts over the past year, the company is now supplying promotional distributors with product in 22 EU and Central European countries. In 2009, despite the global recession, Lynka grew its export sales by 25%, thanks to significant growth in the Scandinavia market, as well as the “Benelux countries” of Belgium, Netherlands and Luxembourg. Lynka is now selling into most EU nations, including far-flung regions like Malta and Ireland.

Lynka’s success can partly be attributed to its branding as a full-service “one-stop shop” where buyers can purchase products that are decorated, customized and ready for whatever their needs. It does not hurt that the company has also earned more than 40 international awards for the quality of its printing and embroidery – more than any other decorator in the EU, according to Lynka.

Lynch expects the company will continue to quickly grow its export business, though he is taking measures to ensure the high service levels that it has been providing clients for years are maintained as growth continues. The organization just hired a new director of operations, who will help oversee the expansion of its decoration capacity and improvements on its internal systems, and added new sales representatives throughout Europe.
 
Biggest challenges of the past year: “Our biggest challenges this year are related to problems in supply – mostly from our branded apparel partners. After the weak 2009, many brands were caught with their pants down and ran into serious stock shortages throughout the peak spring and summer season. It resulted in many lost sales opportunities.”

On the European market’s slow embrace of going “full service:” “It’s like North America in the 1990s, where blank goods were sold, and it was the distributor’s problem to decorate the product. More and more players are ‘seeing the light’ and starting to offer decoration services, but having started so late, they are running into plenty of difficulties. It has been my assertion for many years now that suppliers who don’t adjust to this reality will be left in the dust. Fortunately, in our sector, there are very few players who realize this, and we are moving as fast as we can to build systems and capacity to support our continued growth. I think this is our number-one competitive advantage.”

Michael Freter
Managing Director, PSI

This year, PSI confirmed its place as Europe’s leading network of promotional product suppliers, with almost 7,000 members and a strong PSI 2010 Exhibition in Dusseldorf. For its managing director, Michael Freter, this was the year to continue to focus on international outreach, and a year in which it began to pay off. For several years now, PSI has put a major focus on connecting with associations and players in the promotional products industry, not just beyond Germany but outside Europe, as well. Since Freter took on the leadership of PSI in 2008, the organization has expanded into a major player for the industry as a whole.

With of 16,464 visitors, the PSI show stayed below the 2009 record number of 18,600 attendees. A total of 883 exhibitors from 31 countries exhibited in Düsseldorf in 2010, and while this was below the year before, it stands as the third-best year the show has seen as far as exhibitor numbers.“Despite of all conflicting interests within the market, it is our aim to better promote the importance of the promotional product industry as a whole,” says Freter. “This includes different forms of advertising, fiscal politics and to improve the end-users’ attitude toward promotional articles.”

Freter came into his position with extensive background in international publishing and services, working previously as managing director for marketing and sales at LexisNexis Germany, which, like PSI, is part of the Reed Elsevier Group (he is also a member of the board of directors for Reed Exhibitions, Dusseldorf). This work, along with earlier leadership positions at the international Data Group, NWB Publishing House and Weka, provided Freter with the marketing and media expertise that has allowed him to develop new media and marketing. 

PSI 2011 will see a raft of new services to help expand the show’s effectiveness. These new services include online ticketing, which allows members to buy and print tickets beginning September 1, avoiding the need to use the event’s onsite cash office. Those who buy before December 1 will recieve discounted rates. Under Freter’s leadership, PSI is also introducing guided tours in 2011. Navigating the 900 exhibitors across the event’s five halls can be overwhelming, even for veteran attendees. These tours, tailored around specific themes of interest to suppliers and distributors, will help get participants quickly up to speed on what’s available.

On PSI’s role in the global ad specialty industry: “PSI sees itself as responsible for increasing its activities to support the entire industry in cooperation with associations. One of the tasks is to highlight the effectiveness of promotional articles empirically in comparison to other forms of advertising. There is potential for further growth, but we have to use it actively.”

On the economy and the future of advertising: “The latest key data of the economy and advertising forecast a slow recovery of the economic cycle. Although we should be careful by talking about the end of the crisis – as the dramatic development of the Southern European financial market has shown – I expect a revitalization of the advertising industry.”

Jack Ma
Chairman and CEO, The Alibaba Group 

Jack Ma, the head of The Alibaba Group, oversees the biggest online product-sourcing site in the world – one that is constantly growing. As of June 30, 2010, the Alibaba.com platform had 39.8 million registered users and 6.3 million suppliers, up 3.6 million and 832,815 from March 31, 2010, respectively. A large portion of this comes from its growing influence in the international market, with 13.6 million registered users and 1.56 million storeowners from abroad as of the end of June.

In particular, Alibaba.com has worked to connect with the American market. Last year its $30 million marketing campaign targeted at the U.S. began paying off, and companies such as Walmart and Procter & Gamble now use its service to purchase goods. Alibaba completed its first American acquisition in July: San Mateo, CA-based Vendio Services Inc. While this focus on the U.S. has raised some concern that it is looking to compete with online marketplaces like Amazon and eBay, the company has emphasized that it is focused on helping those companies, not targeting American consumers.

Most controversial for the North American ad specialty market are charges that Alibaba’s platform makes it easier for distributors to buy direct from Asia, and that it constitutes a viable threat to the traditional supply chain. While there has been no sign to date of distributors buying en masse from Alibaba.com, suppliers are rightly concerned.

Last year had its challenges for Ma, as the Chinese export market faced trouble in the midst of the economic crisis. In the face of this, the company, under Ma’s leadership, focused efforts on reducing prices for export supplier customers and easing the sourcing of products from Asian factories by opening up channels for suppliers and distributors in the ad specialty market.

Ma stressed opportunity rather than challenges, even at the height of the global economic crisis. At the annual shareholders meeting in May 2009, he emphasized that innovation came from those who saw opportunities where others did not. Ma encouraged shareholders, customers and students in attendance to start their own businesses to alleviate the financial challenges, instead of waiting for the government or others to step in and help. The Alibaba Group managed to hire some 5,000 new employees in 2009. These efforts and accomplishments landed Ma on Time’s list of 100 people of the year in 2009.

During his tenure, Ma has established himself as a mission-focused leader, and has directly seen that each of the Alibaba Group’s five business units foster a culture of social responsibility. At the May 2010 shareholders meeting, he announced that the Alibaba Group will begin to put 0.3% of annual revenue toward environmental protection – air- and water-quality improvement efforts in particular. Ma has also served as liaison between small- and medium-size companies and their lenders to help them secure funding.

The efforts are reaping rewards, as Alibaba.com reported that second-quarter net profits grew 45.7% year-over-year, and 9.95% quarter-to-quarter. Gross profits rose 46.5% compared to last year and 11% compared to the first quarter of 2010.

Jack So
Chairman, Hong Kong Trade
Development Council

As president of the Hong Kong Trade Development Council (HKTDC),  Jack So oversaw another successful Hong Kong Gifts & Premium Fair this year. The event, which aims to reach out to companies with opportunities in Hong Kong and on the mainland, continues to be the premiere sourcing show in Asia, and one of the largest promotional products marketplaces in the world. Some 4,000 exhibitors and more than 50,000 attendees flocked to its halls this year, seeking direct access to the Asian-produced promotional products at low costs. A significant portion of these were North American and European suppliers.

The Gifts & Premium Fair is just part of the strong numbers the HKTDC brought in this year. In April, seven fairs the group organized, including the Gift and Premium Show, attracted almost 10,000 exhibitors and more than 200,000 buyers – a 14.7% boost over the previous year. A survey taken of those at its fairs found that 30% were first-time attendees, and that almost 70% of those from Europe and the United States had placed orders.

So took the reins of the HKTDC from former chairman Peter Woo in 2007, and under his leadership, the group has made providing market intelligence to the industry a priority. It offers a range of trade publications, research reports and online information to those in the promotional products industry. The survey taken at its April shows is one recent example, providing the industry with data such that the “mature markets” of Europe and the United States are putting brand, product quality and eco-friendliness at the top of the list in their purchasing decisions.

Beyond its connections to Europe and America, the HKTDC also looks poised to increase regional trade. The organization predicted at the end of July that bilateral trade between Hong Kong and India (which stood at around $12 billion in 2009) would rise 12% in 2010.

As the international marketing arm for Hong Kong-based traders, manufacturers and service providers, the HKTDC is particularly geared toward small- and medium-size companies, the chief drivers of Hong Kong’s trade. Across its more than 40 global offices, including 11 on the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business throughout Asia and with China in particular.

Sarah Benecke
Director, Global Sources Inc.

Sarah Benecke has been a director at Global Sources Inc. since April 2000. Under her leadership, the company continues to oversee some of the most important gift and ad specialty shows in Asia and India, helping source Greater China’s offerings to the rest of the world. In October 2009 alone, the group conducted seven China Sourcing Fairs and one India Sourcing Fair in Hong Kong, with more than 6,620 booths from 15 countries and regions. In total, the organization expects to go from 30 shows in 2009 to 60 shows in 2011.

So far this year has a few highlights. The organization’s China Sourcing Fair held in Shanghai in January featured more than 840 booths – up some 80% over last year’s performance. The success of its fair in Mumbai has led Global Sources to plan for an expansion at this November’s show to include not only gifts and premiums, but also home, security and bathroom products. The fairs will chart new territory at the end of this year, with one taking place in Singapore in November 2010, and another in South Africa the following month.

To top it all off, the company announced in August that it plans to launch five China Sourcing Fairs, including a Gifts & Premiums show, in Miami in July 2011. The choice of Miami allows Global Sources to connect not only with the American and Canadian markets, but also the rapidly growing Latin American market. This show in particular has caused some backlash among North American suppliers because of the access it will afford ad specialty distributors to exhibitors who are representatives for Asian factories, thereby making it ostensibly easier for them to buy direct.

Global Sources also serves the industry by producing magazines from which suppliers can source. Its online marketplace, Global Sources Online, was launched in 1995 during Benecke’s tenure as CEO, and it has continued to grow year over year. By the end of 2009, the number of active buyers on Global Sources Online had exceeded 888,000. The site facilitated more than 136 million requests for information from buyers to suppliers in 2009 alone (a more than 150% increase over 2008).

From 2003 until 2010, Benecke also served as a consultant to Publishers Representatives Ltd. (Hong Kong), a subsidiary of Global Sources, where she helped launch, develop and expand the China Sourcing Fairs in Shanghai, Hong Kong, Mumbai, Dubai, Singapore and Johannesburg.

Under Benecke’s leadership, Global Sources continues to grow.  The company’s joint venture with United Business Media, eMedia Asia Limited, acquired a 70% interest in the China International Optoelectronic Expo, generating a net cash consideration of some $5 million.

William Fung
Managing Director, Li & Fung

William Fung, managing director for Li & Fung Ltd., experienced the impact of the global recession up close and personal in 2009. Sales at the company, the largest sourcing firm in the world, fell for the first time since the Hong Kong-based exporter went public in 1992, dropping 6% in 2009. Fung, who has served as the company’s managing director since 1986, said in a statement in March that sales would have actually grown 1% had it not been for the price deflation of 9%, the bankruptcies of a number of clients, and the tight inventory control of many others.

But Li & Fung took the challenges of the recession as an opportunity to focus on controlling its operating costs and boost its profit. In this way its efforts paid off, as core operating profit rose 29% in 2009, to HK$3.99 billion ($513 million U.S.) – a record for Li & Fung – while net income in 2009 rose to HK$3.37 billion ($443 million U.S.), from HK$2.42 billion a year before.

While this was less than analysts expected, it reflected the disciplined approach the exporter took to its expenses, emphasized by Fung in his statement in March of this year, that Li & Fung’s “focus on operating leverage and cost control in the last 12 to 18 months has enabled us to drive greater profits despite a challenging consumer market. We are confident about 2010 and our ability to capture more market share in this environment.”

The company has set a sales target of $20 billion for 2010 and made some aggressive moves to help it reach this. In January, Li & Fung opened its new 7,100-square-meter sourcing hub in Istanbul, from where it has begun sourcing its clients in Europe, the Mediterranean, Middle East, Northern Africa and former Soviet Union republics.

Li & Fung has been acquiring competitors and other companies using its cash reserves, including Jackel Group, which services the beauty industry, and the jeanswear company HTP Group, as well as acquiring the assets of  Wear Me Apparel, along with several others. It has also recently signed outsourcing pacts, including one with retail giant Walmart as well as clothing retailer Talbots Inc.

On the challenges of the past year: “We are very pleased that the group’s focus on delivering operating leverage has started to bear fruit.”  “While overall consumer sentiment is still weak, we have been able to grow our bottom line at a healthy rate, and this reflects that the our cost-control initiatives have been very successful, particularly in the areas of selling expenses and traveling costs.”

K. Habib Sattar
Managing Director and CEO, Consumark Limited

While Consumark Limited has been providing marketing and human resource management services to Bangladesh for years, it has grown to become a significant supplier of promotional products to the region, as well. This year marked the company’s 15th anniversary, which its management celebrated along with family members in January.

The international reach that Consumark has gained makes sense for an organization that began by developing advertising at the international terminal of Zia International Airport in Dhaka, Bangladesh. From this it developed an in-store retail merchandising service for high-end branded goods as well as out-of-home signage, using cutting-edge illuminating technology, in addition to providing a consulting service to marketers.

It was not until recently that Consumark introduced its ad specialty service to the Bangladesh corporate market, sourcing material for trade promotions, corporate giveaways and consumer incentives. The company estimates that it may be the first in Bangladesh to break into the promotions and consumer premiums market.

Consumark currently offers a full range of ad specialty services, from developing the concept to designing product, sourcing the manufacturers and suppliers, supervising quality control and delivering to the end-user. In addition to the vast number of items that buyers can source through its catalog, Consumark boasts more than 10,000 physical samples at its display center in Dhaka for clients looking to perfect their promotional concepts.

Besides its product offerings, Consumark also sources skilled professionals and technical manpower to international investors with operations in Bangladesh and elsewhere, through its Human Resource Management Services. It also offers consulting services to help clients fine-tune their human resource needs.

Richard, Jamie and Simon Archer-Perkins
CEO, Director and General Counsel, Director,
ET2C International Inc.

The British-owned sourcing firm ET2C International Inc. has grown from a Web-based platform when it began in 2000 to a supply chain solution service provider today, helping its clients overcome challenges to entering Low Cost Country manufacturing bases in Vietnam and China. But, even as the company has ballooned to 250 staff members in seven offices around the globe, working with some 290 regular vendors, ET2C remains at heart a family-run operation.

Founder and CEO Richard Archer-Perkins used his industry knowledge as a chartered accountant in the United Kingdom to develop and establish the company, which he helps run from the head office in Shanghai. His twin sons took on director roles: Jamie Archer-Perkins, a corporate lawyer by trade, holds down the New York office; Simon Archer-Perkins, an accountant like his father, is based in Hong Kong.

ET2C (originally called e-trade2china before shifting from its online-only beginnings) now offers a number of supply chain services, from facilitating trading of promotional products to managing staff on the ground for its clients.

Each of the countries it sources from – Vietnam and China – has benefits and challenges for ET2C’s clients. While Vietnam offers much less expensive labor, unless the client is dealing with garments, getting the raw materials for manufacturing products is much more of a challenge there than it is in China. While China offers the unmatched production and labor efficiencies, the last several months in particular have seen the country working through factory closings and unrest in its labor market, including recent strikes and overcapacity issues – not to mention inflationary pressures.

This difficulty has turned into opportunity in some ways for ET2C, with activity picking up as some companies that had been handling overseas management and sourcing sought out a company with expertise on the region. For the last few months, ET2C has had business increase as its clients have tapped the firm to work with their vendors and manage production to avoid any sourcing interruptions. The business looks poised to expand further as its services grow more valuable for outside clients trying to get the inside track on Vietnam and China.

Jamie Archer-Perkins on expanding into a full-service sourcing company: “We are intrinsically adding value to our clients’ supply chain by managing their production for them. On a strategic level we’re looking at implementing different platforms to facilitate our clients’ supply chains and to enable our clients to further streamline their supply chains from source to shelf. We are complementing this by  working closely with companies further down the supply chain with whom we have developed strong relationships over the past 10 years.”

On clients’ shift away from trying to go direct: “Over the past four or five years, the trend was that companies wanted to source direct, with the Internet enabling them to locate factories from a distance,  believing that was a cheaper option. However, companies are now realizing that the risks outweigh the potential rewards. Even from a price perspective, there are hidden agent/salesman fees when a company goes direct. In addition, there are the production issues, such as quality or delays, which have been commonplace in Asia over the past four or five months. We offer on-the-ground production management as well as, in most instances, reducing the cost of the goods.

Unfortunately, many of our new clients have learnt the benefits of our services by initially trying to do it alone and finding out the hard way that it is not worth it.”

Alex Palmer is a writer and editor based in New York City.

International Hot Spots
By John Moore
Sep-Oct 2010

Yes, the challenging economic situation has made life tough for many ad specialty suppliers. But, strange as it may seem, that’s why there’s no better time to take advantage of the global economy.

While the United States, Western Europe and Japan deal with the residual effects of the recession, demand among emerging marketplaces remains strong and is growing stronger. And, more and more North American ad specialty suppliers are taking notice. According to the U.S. Commercial Service, which helps U.S. companies expand into foreign markets, 23% of its clients exported for the first time, entered a new market or increased their international market penetration in 2009 – a 3% increase from 2008.

Additionally, the number of small- and medium-size exporters more than doubled between 1992 and 2007, and nearly three-quarters of exporters have fewer than 20 employees.

“There’s a little more urgency to tap into and find additional markets,” says Larry Harding, founder and president of High Street Partners, an Annapolis, MD-based firm that consults clients on international expansion. “The ones that are coming online for the first time or have hyper growth rates are really attractive.”

Expanding your business to global markets can open up new revenue streams, diversify your risk and expand your client base. You just need to know where to look.

Hit the BRICs

The so-called BRIC nations – Brazil, Russia, India and China – have captured a lot of attention as the supercenter of emerging nations. These four countries account for more than 40% of the world’s population (China and India alone account for more than a third). With a growing middle class (China’s middle class will reach 360 million people by 2030, according to the World Bank), opening of trade markets and an appetite for American products and services, the BRIC economies have been the focus of much international expansion for the past several years.

“These countries have experienced a lot of growth the last few years, while the U.S. is going down,” says Mona Pearl, a Chicago-based global-business expansion consultant. “There is a whole new group that can afford to buy. And, they’re always looking for U.S. products because they’re known for quality – and it’s just cool to own U.S. products.”

“China is a rapidly growing market, and the second largest importer of goods,” says Bonni Shevin-Sandy, president of Dard Design/Dard Products Inc. “And India is considered to be the world’s fastest growing auto market.”

Shevin-Sandy, who also runs Dard’s overseas sales and sourcing arm, adds, “China now has the world’s fastestgrowing economy and is undergoing what has been described as a second industrial revolution. In the second quarter of 2010, China’s economy was valued at $1.33 trillion, ahead of the $1.28 trillion that Japan’s economy was worth. China could become the world’s largest economy sometime as early as 2030.”

Experts say Brazil in particular is the hottest growth opportunity for American companies. The country moved up eight spots – the best of any BRIC economy – to rank 56th on the World Economic Forum’s (WEF) 2009-2010 Global Competitiveness Index.

Also helping matters is that Brazil is closer to the U.S. than the other BRIC nations. And, with a population of more than 200 million, Brazil has the largest and the most complex market in Latin America. Brazil’s economy is expected to grow by 4%-6% every year. According to an International Monetary Fund report, the country is at the forefront in taking Latin America out of its recession.

“We have seen a noticeable uptick in the amount of client expansion moving into Brazil so far this year,” Harding says. “It’s definitely becoming much more on par with China and India. The currency’s been stable for the longest time in modern history. They’ve got a pretty stable government leadership in place. And, it’s hosting the World Cup in 2014 and the Olympics in 2016.”

Red Hot BRICETS

While the BRICs continue to be the focus of many businesses looking to expand globally, two new players are providing them with company. The growth of Eastern Europe and Turkey has led to the term BRICET to describe the new core of emerging markets.

Among Eastern European nations, Poland stands out. Now fully committed to a market-based economy, the country moved up seven places to rank 46th on the Global Competitiveness Index.

According to the WEF report, “Poland benefits from its strong educational system and large market size, and has seen measurable improvements in the quality of its public institutions, with greater confidence in the efficiency and honesty of the country’s public servants. This, along with prudent regulation of financial markets and the large size of the domestic market, has helped Poland to weather the effects of the current global downturn and become one of the most economically stable countries in the region.”

Turkey, meanwhile, moved up two places to rank 61st on the Global Competitiveness Index. The WEF noted Turkey’s “strong competition and reasonably sophisticated business practices.”

Ayse Oge, president of Ultimate Trade, an Encino, CA, company that assists small- and medium-size businesses in competing in international markets, notes that Turkey’s business opportunities are no longer centrally located. “There were three big cities in Turkey about 30 years ago,” she says. “Now the growth is in the eastern part, the northern part, almost everywhere. There’s a lot of untapped potential in terms of growth.”

Beyond the BRICET economies, experts say companies can find several opportunities in the Middle East and Latin America. The United Arab Emirates – particularly Dubai and Abu Dhabi – are fertile ground for expansion, as is Bahrain, according to Oge.

“Dubai is facing an economic bubble burst, but they have built the infrastructure,” Oge says. “There’s a lot of admiration toward American products, so the American brand means a lot. And, there’s a lot of closeness on the part of Bahrain toward the United States.”

As for Latin America, Oge says that Chile has emerged as an up-and-coming international market. Since Chile signed a free-trade agreement with the U.S. in 2003, American exports to Chile have more than doubled.

Finding Opportunities

Shevin-Sandy points out that China is the fastest-growing pharmaceutical drug market in the world. “But, here’s the catch: It’s easy to find drug companies working in China, but not so easy to find ones that will let you profit off the trend,” she says. “Most of the world’s biggest drugmakers have anticipated this market shift for years. Pfizer, Merck, Novartis and GlaxoSmithKline have all established Chinese operations within the last decade. British-based AstraZeneca and Germany’s Bayer lead the multinational corporations in market share.” These large entities all offer sales opportunities for North American suppliers, whose products are perceived as being safer than those produced in China.

Knowing which emerging international markets to enter requires a lot of research and planning. There are plenty of statistics readily available, from the WEF’s Global Competitiveness Report to the World Bank Group’s Ease of Doing Business Index (www.doingbusiness.org/economyrankings).

The U.S. government is committed to helping small- and medium-size businesses precisely like supplier companies expand globally. The National Export Initiative, an executive order signed by President Obama in March, is aimed at doubling U.S. exports in the next five years. The program assists with financing and education and works to reduce trade barriers.

But, Oge emphasizes that business owners must get their hands dirty before venturing into overseas markets. “They have to travel to that country and see it firsthand,” she says. “Training is crucial to get to know foreign markets. I would suggest businesses go out to trade shows, talk to people, distributors, agents. Try to look for distributors and agents who are reliable. I would not suggest you go alone, especially for small businesses. It’s always good to be connected with foreign distributors and agents.” (See sidebar, “Things You Should Know Before You Expand.”)

And, as Pearl points out, the countries that offer the biggest opportunities in general terms may not be the best fit for your business. “Looking at the world, forget about the up-and-coming markets mentioned in the press,” she says. “China has billions of people, but can you actually make it happen? As many companies that made money in China, just as many lost money. Find out what you want to do. Do you want to acquire? Do you want to sell? What about pricing? Maybe there’s promise in the market, but what’s the cost of doing business?”

It’s a big world, and the global opportunities for suppliers are getting bigger every day. Emerging economies in Asia, Latin America and the Middle East are increasingly becoming attractive outposts for American products and services.

“They’re young and affluent, in contrast with the aging population of the United States and Japan and Western Europe,” Oge says. “They’re changing the conventional economic order. They are the fastest-expanding markets in terms of the industries they are involved in.”

John Moore, a financial reporter for CNBC, is a frequent contributor to Supplier Global Resource.

Things You Should Know Before You Expand

Doing business globally is a great way to access new revenue streams and diversify during these recessionary times. But, it’s not as simple as shipping a box of products off to China. 
 
“There’s a whole list of questions that companies should ask themselves in order to find out what’s going to work for them,” says Mona Pearl, a Chicago-based global-business expansion consultant. “If they’re looking to export, they need to find a salesperson for distribution. You have to find somebody you can trust. That can take six months to one year. Not to mention all the red tape just to make sure you’ll be able to distribute and get the right contacts and people and do it right.

“And, your stuff is going to come out of customs,” Pearl adds. “U.S. companies are used to shipping something to California and it’s there next week. The whole notion of six months to a year – it’s costing them money and they’re not making money.”

Here are some other points to consider:

• Establishing partnerships in foreign markets is essential for protecting your intellectual property. “Microsoft went to the Chinese market in the early ’80s and a lot of its products were pirated, and they didn’t get the cooperation of the Chinese government,” says Ayse Oge, president of Ultimate Trade, an Encino, CA, company that assists small- and medium-size businesses in competing in international markets. “But, once they had built partnerships with their Chinese counterparts and hired Chinese engineers, then they overcame the problem.”
• Cultural differences can never be overestimated, as they can affect everything from marketing materials to product design. “Here we supersize everything,” Pearl says. “In other places, cups, mugs, simple things can’t be so big.”
• Mostly, it’s a matter of performing due diligence before taking the plunge. “Dunkin Donuts went to Brazil without doing their homework,” Oge says. “They found out at the last moment that Brazilians rarely have breakfast. They decided to change the product; they positioned the product as snacks and desserts. After a while they found out they would appeal more to consumers if they included local fruit fillings like papaya and guava, and the sales soared.”

Culture Clash
By Betsy Cummings
Sep-Oct 2010

Heading abroad for business? Don’t stuff a business card into your pocket in Japan or gloat about your success in Korea. Our overseas etiquette primer helps decode the dos and don’ts of conducting business abroad. Harris Cohen suspiciously eyed the squishy item on his plate. “It’s jellyfish,” the Chinese businessman who was dining with him proclaimed. Knowing that it’s rude in China to refuse a dish at a business dinner, Cohen, president and CEO of All In One, took a deep breath, hacked off a piece of the slimy substance, and put it in his mouth. “It was kind of yucky tasting, but I got through it,” he says of the dinner that took place a few years ago. Since then, on his several visits to the country, Cohen has sampled a number of other Chinese delicacies, including a whole chicken that was chopped up tableside, that he had to politely chew, and which required him to gracefully remove the bones from his mouth. In each case where he’s served an unpleasant meal in China, Cohen says: “You just have to eat it.”

Indeed, rejecting a dish is one of many etiquette “no-nos” in China. Read on for a guide to proper business behavior in Asia, Europe and Mexico.

ASIA

“We coach and advise business owners to go with us to China to educate them beforehand so they don’t make a fool of themselves,” says Savio Chan, president for the northeast region for the U.S. Pan Asian American Chamber of Commerce and the president and CEO of U.S. China Partners Inc., a New York-based business consultancy for companies looking to expand business abroad in places like China.

Chan, who is only half joking, says the faux pas committed by Americans, particularly in Asia and culturally traditional places like China, can undermine business deals and cause U.S. firms to burn bridges for years. For example, while Asian executives often exchange and expect gifts during initial meetings with business leaders, giving the right gift is crucial, as one client of Chan’s found out after giving a Chinese executive what he thought was an exceptional gift – a $400 Tiffany clock. The executive refused all contact with Chan’s client for months. Turns out the word for “clock” in China is a word similar to “death.” Repairing the relationship took more than six months, Chan says.

Those kinds of cultural and language issues often get lost in translation during business meetings, experts say. For example, while white might be an innocuous color in America, it’s funereal in China, Chan says. Jokes often don’t translate. And, above all else, Chinese business leaders care about being embarrassed in public. “If they lose face, forget it,” Chan says, adding that they often avoid all confrontation.

Relationships are often built by referral, Chan says, and by being respectful of dress codes, following businessmeeting protocol and avoiding blatant offenses, US. business owners can quickly gain an inside track on contacts. One of Chan’s American clients recently experienced this when the mayor of Dalian, a town of 6 million, pulled out his cell phone during a meeting to cut through red tape by calling local manufacturers on the client’s behalf.

Introductions are very important in Asia, and must be conducted respectfully. For instance, not recognizing the stature of a Japanese business executive is probably the quickest way for an American to offend him. One common way to do that is to take a Japanese contact’s business card and stuff it in your pocket. Or scribble a quick note on it. While that gesture would go unnoticed in the U.S., business cards, which are carefully crafted with business names, titles and other pertinent information in a hierarchical society like Japan’s, are to be handled with great care, says Lucy Siegel, president and CEO of Bridge Global Strategies, an international public relations firm based in New York. “When given a business card it’s proper to study it carefully, not just take it and shove it in one’s pocket,” Siegel says.

Sales deals and contracts are usually drawn out over longer periods of time than they are in the U.S., and meetings can be misleading. Executives may not do the talking – sometimes because of a language barrier – and Americans should be sensitive to seating positions around a conference table, which are often prearranged. Also, “Promotion is much more subtle in Asia than it is here,” Siegel says, which means an understated tone to a sales pitch is often more effective.

Other than the Philippines, where business attire tends to be more casual in a very hot climate, workers tend to dress more formally for work in Asia, and definitely for business meetings.

EUROPE

“There are tremendous differences between parts of Europe,” says Dr. Ted Sun, the self-titled chief dream maker of Executive Balance, an executive coaching and organizational development consultancy based in Columbus, OH. “Even between the U.K. and France” the differences can be vast, he says. Lumping all of Western Europe into a single entity with one culture is one of the biggest mistakes American firms often make, Sun and other experts say. It’s a fatal flaw, one that seriously offends their European counterparts, long before the first sales pitch is ever made. “It’s the number-one thing that American businesses do that hurts their credibility overseas,” says Erica Benton, marketing communications manager for oDesk, a Menlo Park, CA-based company that virtually connects contractors worldwide.

More surprising than anything, says Fran Ford, senior vice president of J Charles Quarry International and Etching Wine & Spirits, is how much mediating he has to do on the fly while abroad. Certainly the disdain for Americans can be palpable at times among Europeans, Ford says. But, their distaste for each other is often greater, and sometimes a potential deal breaker. While leaving a German trade show one evening, Ford, walking to his car with a group of 10 others, noticed a German counterpart ask the British man in their group to get in the back of the car. When Ford asked him why, the German man said he couldn’t stand having a British person ride up front in his car. “I said, ‘The war is over,’” Ford recalls. “He said, ‘I don’t care.’”

On another occasion, an Italian partner of Ford’s was so offended by a British prospect correcting his English during a meeting that he almost called off the deal.

Particularly in Western Europe, Americans tend to identify with cultures more similar to their own and often fail to see the nuances between them. But, it’s understanding and responding to these seemingly small cultural distinctions that can make the difference in getting business or not. 

Ford has endured the brunt of anti-American hostilities in recent years, and says the assumption that Europeans and Americans share a lot of cultural commonalities is one Americans should not make. Even the general tone of voice used in an America office seemingly without impact can illicit contempt in Europe. “I was told by my assistant, ‘You raise your voice too much,’” Ford says. He had no idea of how he sounded.

When it comes to meetings, show up to one in London when it starts and you’d be considered on time. Do the same in Germany or Austria, says Sun, and you’re late. Five minutes early is when executives from those countries would appear. Germans are more formal in business meetings than say, Italians, who often conduct business meetings over dinners where wine flows freely, according to Cohen.

Cohen realized just how formal Germany can be when he was meeting with a German supplier who was talking negatively about a British company that was late on payments and tough to work with. Knowing the British contact in question, and feeling as though he had been brought into the German’s confidence, Cohen referred to the British person as an “aushloff,” the German word for ass***e. The look on the German contact’s face was “one of horror,” Cohen says. “She recoiled.” All In One still managed to land the German company’s business, but Cohen says they’ve never developed an easy rapport.

In Eastern European countries, particularly those once part of the former Soviet Union (a place where business attire is often more conservative), many are trying to establish their own business and cultural identities as they separate politically and culturally from their Soviet background. Showing interest in their struggle to do so goes a long way in gaining their trust as a business partner, Sun says. How to do that? Ask lots of questions. “What is your experience in leaving the Soviet Union? How is your economy adapting to the current system? How did you go about this law or these customs? Anything that says, ‘I’m interested in your culture’ will help Americans gain ground in business negotiations,” he says.

In some sense, Sun says, how Americans and Europeans build rapport is similar – through sporting events, for example. But, being sensitive to sports interests is key.

As has been the tradition for years, many Europeans take the month of August off, which would make it a poor time for Americans to reach out for business meetings or sales pitches.

MEXICO

Many Americans find it easier to do business just south of the border rather than in countries further away. The fact that Mexico neighbors America makes it a country easy to access, as well as easy to import from. That said, there are certainly issues Americans should keep in mind when conducting business in Mexico, not the least of which is safety. “The media makes it sound like all of Mexico is a war zone right now, and that’s just not the case,” says Michael Hetzel, vice president Americas for Pro QC International, a quality control and engineering consultancy based in McHenry, IL.

And while there are plenty of dangerous hot spots when it comes to drug wars, those incidents are, for the most part, taking place in the towns that border the U.S., and are almost exclusively isolated to flare-ups between drug warlords and police. “The chances of an American business owner going to Juarez (a border town) and being in the middle of something, it’s probably a higher chance of them having a car accident in their home town,” says Ruben Melendez, president and CEO of Glomark-Governan, an enterprise solutions provider based in Columbus, OH.

That said, there are ways for Americans to be smart while traveling in Mexico. For starters, Melendez says, they shouldn’t get into taxis off the street, but should arrange for transportation within the country through a trusted contact in Mexico – the person they’re doing business with, perhaps. In addition, he suggests staying at large American hotel chains. A hotel “like Hyatt … when you check in they’ll give you a booklet of dos and don’ts regarding safety and travel within the city,” he says.

Hetzel says, “dress for success” but don’t be ostentatious. Not only is it unnecessary for many meetings (“often you’ll find an open collar” instead of a tie in meetings, he says), but business people who do so risk drawing unwanted attention to themselves.

Perhaps because of its proximity to the United States, the Mexican culture is surprisingly close to that of the U.S. More to the point, Mexican executives looking to conduct business with Americans are often keen to discuss American interests.

As for sourcing materials and working with Mexican factories, Hetzel says, looks can be deceiving. Some local factories might be beautiful inside but not produce quality work, while others that might scare people away with their dirt floors can be some of the best production facilities in the country. What’s more, beautifully appointed facilities often pass along the costs for those cosmetic enhancements to their customers.

Want to get to know the people behind those facilities? It might take awhile. “Americans say, ‘Hi. How are you? Let’s get down to business,’” Hetzel says. Mexicans often aren’t that direct. “You’re likely to have dinner, drinks and talk about family before you get down to serious talks.”

Betsy Cummings is senior writer for Supplier Global Resource. 

Negotiating the Cultural Landscape

Heading abroad to conduct business in an unfamiliar country? You don’t have to assimilate to be successful. But, you should keep the following in mind, depending on the country you’re visiting. Here are a few places in which Americans may find themselves and tips for navigating the environment more easily.

China: Put electronic devices away. Texting or e-mailing on a BlackBerry in the middle of a meeting is tantamount to dismissing the person you’re meeting with.

Japan: Teamwork, above all else, is crucial, and singling out the top seller the way an American company would is never done. When accepting a business card, take it with both hands and take a moment to study it before putting it away.

Korea: Modesty is a virtue. Likewise, self-promotion is a major faux pas. Client dinners can take on a very local feel here. Not sure what you’re eating? It’s best to shut up and eat it if you want to remain in your company’s good graces.

Mexico: Many Mexican executives like to hear about American interests and pop culture. Arm yourself with the latest news in the NFL and you’ll pique their interest.

England: The British may be the most similar to Americans both in culture and business sense. That doesn’t mean there aren’t differences, but Americans may feel most at home here.

Germany: Show up on time to a meeting and you’ll be considered late. Germans are rule abiders and notoriously punctual. Being on time here means showing up five minutes early.

Italy: Many business meetings here take place over long, informal dinners. Don’t start talking business right away: Follow your host’s cue and don’t start the shoptalk until the time is right.

Kazakhstan: In former Soviet Union countries business is still tougher to negotiate and support once the deal is closed, compared to their Western counterparts. Americans may be able to negotiate better deals but may have to provide a more robust support system to back up the deal. Business attire also tends to be more conservative in Eastern European countries than it does in Western Europe.