China is the world leader in labor-intensive manufacturing. China is the OEM (original equipment manufacturer) for about half of the world’s shoes and clothing, toys, electronics, appliances, and furniture. For items like security cameras, China controls more than 80% of the $13 billion U.S. market (1). Much of the manufacturing in China is performed in a region of Eastern China, in the Pearl River Delta in Guangzhou, and in particular the city of Shenzhen.
Shenzhen has received more than $30 billion in foreign investment and has grown in population from about 300,000 in 1985, to more than 10 million today (31X). This region of China has come to dominate many world markets in a very short time.
The challenges of importing cameras from China for use in the U.S. include the control of instrument quality, efficient shipping, the safe transfer of money, and the support of equipment warranties.
Quality
Profit margins in China are usually very small for commodity items like security cameras. Competition with other manufacturers is intense, and copy-cat products are very common. There are often several dozen companies making products so similar distinction is difficult. This forces the suppliers to ruthlessly compete on cost.• A thin profit-margin explains the
behavior of the typical OEM in China.
Thin profit margins also equal thin margins for error. If a product fails at your customer, the OEM business model in China may not account for return shipping costs and repairs (2).
Shipping
Shipping costs will be an important component in your total overhead.The major international carriers serving the China to U.S.A. market include UPS, Federal Express, and DHL. Air delivery, which usually takes 3-4 days, will cost on average about 3 times more than delivery for the same package across the United States.
Most OEM are proficient at negotiating a fair rate, and passing that cost to you. The OEM usually bundle a handling charge into the quoted shipping cost.
Payment
The customer will usually need to prepay for goods at the time of order. Wire transfers (TTL) with your bank or Western Union are often used for the transfer of money. Many, but not all, OEM in China now accept credit cards and/or PayPal.I have transferred money many times with both Western Union and banks with reputable companies from China, and to date, have never been victimized. But there is certainly a vulnerability to the process (see “warranty” below).
Credit cards and PayPal do offer some added security, but be advised, the time period for filing a grievance is usually 45 days or less. A transaction from China, if it includes any complications, will probably exceed 45 days.
If in doubt, when approaching the 45 day window, file a grievance. It can be cancelled if necessary.
Warranty
Every OEM has field failures. Electronics from China, including security cameras, are usually of very high quality. My failure rate on received cameras has been less than 5%, and the failure rate of the cameras once past the initial 10 day period, is less than 3% for the first year.
Many times, I have returned cameras to the OEM for repair because of failure during the warranty period. Once, I received fully operational cameras returned within 20 days (it would seem that was an aberration). On the second occasion (same OEM), I received the cameras back, but the cameras were still faulty, I returned them again, and received cameras, faulty for the 3rd time. With a second supplier (you can guess why I changed suppliers), the OEM received the cameras, sent them to their laboratory for “research” and they were never returned, despite many complaints.
A fourth incident with this same supplier resulted in another black-hole of warranty repair cameras shipped to the factory, never to be seen again. If you install many cameras, you may have hundreds or even thousands of cameras in the field before a trend of premature failure, and a derelict OEM, can be identified.
I am now on my third camera supplier in four years. The problems with the first two suppliers proved financially disastrous.
The lack of warranty support from the OEM may be the result of the extremely thin profit margin. When something goes wrong, there is no money in the budget to correct the problem.
If you place significance on customer service, then the costs of a warranty will need to be included in your own local business model. This is contrary to business norms in the U.S., but “it is what it is”. The warranty from the OEM is usually worthless.
This leads the conversation to an important point in the business relationship. In the United States, if an OEM failed to deliver on an important commitment, you as the customer would have options. You might contact the Better Business Bureau, or failing that, you could sue the OEM. As a practical matter, none of these options exist in China.
One option that is supposed to exist is a company called Alibaba, until recently, a China partner of Yahoo. Alibaba runs an Internet directory, and supposedly vets and polices China vendors. Alibaba proved to be asleep at the wheel. Multiple entreaties for assistance did not receive a reply, not even any automated acknowledgment.
• It is worth noting that companies like Apple, Hewlett-Packard, and Dell, companies
with great resources, still choose to do only do business with China
via a Taiwanese intermediary (FoxConn). According to China's Ministry of Science and Technology,
83% of all technology products manufactured in China, are managed by a company from outside of China.
This number has remained stable over the last decade.
Conclusion
Using our example, the security camera, China so dominates the industry, that for the economy application, a choice will almost surely be an instrument from China. In many cases, there is not a reasonable alternative.This can be frustrating if one does enter the business acknowledging the problems. Be prepared to solve those problems without support from the OEM.
But even after accounting for these issues, in a risk-rewards calculation, the China option is still often the logical conclusion.
References/Footnotes:
1 Asia-Pacific to Propel Growth in Global CCTV Market, RNCOS, May 29, 2009
2 Explaining China's Quality Control Problems, Paul Midler, U.S. News and World Report, April 23, 2009
Customs Requirements: Import Rules from U.S. Customs
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