US/China Ceramic Summit
 
September 2nd, 2008

September-October 2008

Sorting out the differences in two diverse business models

How much can you learn abut the Chinese ceramic and stone business in five days? A lot, say the participants in CTDA’s recent trade mission to China. In a schedule worthy of any business Olympics, forty-plus participants traveled via plane and bus from Beijing to Yunfu where they spent two days visiting stone factories and showrooms, before moving on to tour New China Ceramics in Gao Yao and then to Foshan for the 2nd U.S. China Ceramic Tile Summit.

In addition to being royally welcomed at each stop, the trade mission participants got the close look they had hoped for at both products and manufacturing processes. When they sat down with their Chinese counterparts at the summit on June 26th in Foshan, China, the conversation was polite, lively, and also frank. U.S. distributors, who already import substantially from Europe, South America, and Mexico, are used to a business model far different from that in China. The opportunity for both sides to discuss these differences is key to building a better business relationship.

Indeed, Mr. Li, China City Ceramics, began by saying that he believes the ceramics gap between China and the west is diminishing. China exports 80% of its products to Europe, but, he says, after three trips to the US, he still cannot “crack that market.”

What’s different about the US marketplace? CTDA distributors ticked off a list of concerns, some large and some small, but all of them contributing to the caution American distributors are employing in doing business with Chinese manufacturers.

Tom Carr, Pan American Ceramics, explained that US Distributors are able to import small quantities from Italian manufacturers, giving the distributors the opportunity to test their marketplace here for a new design. Chinese manufacturers want to ship much larger quantities, more than US distributors can realistically accept.

Carr went on to point out that expectations regarding payment terms are also significantly different. European manufacturers require no deposit or cash up front, yet Chinese manufacturers want products paid in full before shipping.

US distributors pointed out that yet another difference in the business models is the custom of exclusive geographic distribution. Distributors in this country often look to become partners with the manufacturers supplying them, developing a long-term relationship, and enjoying some product line exclusivity in their geographic area. “Who else do you sell to?” is a question they want to ask, because US distributors don’t want their nearby competitors to sell the same products.

Harold Yarborough, D&B Tile, said he qualifies all suppliers the same way: do you have product for my marketplace? The ability to effectively communicate is important, Yarborough said, in order to build a long-term relationship. He agreed that quantity is a concern. He cannot absorb the quantity that Chinese manufacturers would like to ship.

More than one distributor pointed out the importance of having testing data available for the tiles they sell. Not only is this a requirement for commercial installations, but its availability on competing products is an advantage to those materials.

Some differences are more practical than philosophical, but just as important for a distributor running a business. Packaging is important. First, tiles need to be stacked vertically rather than horizontally for safe shipping. The packages themselves need to be consistent in size and appearance from one shipment to another, or the product won’t be identified as new stock for an existing line.

US distributors are accustomed to marketing tools—in English—including technical data and photos their customers can relate to. Other overseas manufacturers regularly provide this.

Chinese manufacturers seemed to relish the frankness with which the US distributors spoke. They responded that value in China is achieved by the economies of scale and warned that they may not be able to meet every request. However, they emphasize that the dialogue initiated by the summit is very important to future growth.

Among distributors there is also a wide range of opinions and requirements for doing business with China. Some have established relationships with Chinese manufacturers and are working closely with them to meet product line needs. Other distributors are relying on an agent in China to help them overcome some of these obstacles. Both scenarios, however, require time and money to facilitate.

CTDA’s Executive Director, Rick Church, added a few closing comments about the growing importance in the US marketplace of greenbuilding, a topic that the summit participants did not get to discuss. Sustainable products may offer the Chinese manufacturers an opportunity to enter the US market.

Five hours after it began, summit participants realized they had more to discuss but had run out of time. In the end they agreed this was an excellent beginning to a conversation that will continue for some time as participants on both sides of the Pacific learn more about each other’s businesses and products and develop the trust necessary for a successful, prosperous working relationship.

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