Exploring Chinese Factories
This article is taken from the newsletter I write with my partner, Owen. You can subscribe here to follow our journey to be forever location independent, what we learn along the way, and our real personal updates on our travels, careers, and relationship.
My goals for this gap year evolved to be quite a bit different from Owen’s. I wanted to take advantage of this year to connect with people so that it will be easy for me to build a life and network anywhere in the world.
Coming from Wish, I was naturally drawn to the e-commerce space in China.
China’s e-commerce ecosystem is extremely sophisticated. The customer touch-points, platforms, social commerce, scale, online to offline integrations, and time to door deliveries are far beyond what anything in the West has seen before. There's also a lot of talk about supply chain 4.0.
I knew I had to go visit some manufacturers in China since the country itself is deemed the world's factory.
The Journey to Wenzhou
I visited warehouses in fifth tier cities like Chao Shan, wholesale markets like the Shenzhen electronics market, and factories across 3 different provinces. It was my time in Wenzhou that made the greatest impression.
Wenzhou is a coastal city in South-Eastern China, a third-tier city known for its business and trade entrepreneurship.
I was first shocked by how well mannered the people were and the hospitality I received.
My stepmom's acquaintance's 21-year-old nephew spent the whole day hosting me - treating me to the best restaurants and arranging, accompanying, and driving me to visits with 2 factories and a local new retail startup. For such a distantly connected stranger, I could tell by the thoughtful hospitality that this generosity and proper way to treat guests was engrained in Wenzhou culture.
People in smaller places (even though population of Wenzhou is 3M) know more than anyone that business is done with people; your reputation matters in getting sales, partnerships, resources, and investments and word travels fast. I heard from multiple very successful business owners that "To do good business, learn how to be a good person first."
Everyone I met was so open to sharing as well. There was no hesitation in being transparent with any numbers - including profit!
With such strong business values, it's no wonder that the Wenzhou people are known for their success in business and have support communities like the Wenzhou Chamber of Commerce worldwide.
Next, I was shocked by the state of factories (probably some of the best in the world).
I don't think I ever really thought about how anything was made in a factory. I imagined something like textiles going into a machine, out pops a shirt, which slides down a conveyer belt and is stacked into a box by a robot. Turns out manufacturing robots are pretty hard to build.
What a factory actually looks like for consumer goods...
A transformers’ factory in Mian Yang (makes transformers for Apple products)
Tuxedo Factory in Wenzhou that churns out 1000+ jackets/day doing 50 Million RMB/year
But what surprised me most about the factories wasn't the factory itself, it was the people running it.
I visited a helmet factory that was only 5 years old and owned 40% market share of the Chinese helmet market. They are a Manufacturer to Consumer business, selling on TianMao with their own brand.
And the owner is my age - 25, born October 1993.
His life could not have been more different than mine.
I am a third-generation university grad and I have been taught that education is the way out of poverty. Going to university was a given, and for the first 18 years of my life, that was the only goal. Everyone I grew up with was like me, with highly educated, mostly technical parents who immigrated to Canada. Like all my friends around me, I grew up with the attitude that if we didn't study hard, we would go pick up garbage. I also thought that the value of education was a traditional and universal Chinese value. No education = failure. Again I was wrong.
I was mind blown that even finishing high school in Wenzhou is rare. The youth here don’t aspire to go to first tier cities. They don’t aspire to work for Fortune 500 or the Chinese equivalent. They want to be business owners - because that’s what rich people around them are. They have family and guanxi here to support them, making business easy to do. Unless you go to a top university and get hired by a top company, it is a struggle for young people to make beyond 3-4K RMB (500-650USD)/month, making a home and car beyond reach. However a small business in their hometown could make 100x their salary wage. So why go to school if you’re better off working as early as possible?
My host (stepmom's friend's nephew), was 21, a university drop-out and working for his dad's construction company. It's not a pop-and-son shop at all, his dad owns one of the top companies in the area and with the government projects to take-down of old village houses to build skyscrapers, it's a good business to be in. His grandpa owns a stool factory, his aunt a fabric factory, and his friends are mostly all factory owners or milk tea shop owners.
As for the 25 year old CEO of the helmet factory, after dropping out of school at 14, he built a successful Taobao store selling clothes. 5 years ago, along with 4 investors, he started the helmet factory. The goal is 70% of the Chinese market in 2 more years and brand presence overseas after that. They have 320 workers, 60 running customer side marketplace, marketing, and customer operations. They use a commission-based sales rep in every state to handle all B2B orders. They are forecasting about 500M RMB in Revenue for 2019.
With little formal education and never setting foot in a major city, the CEO didn't know about Luckin Coffee, that Bytedance owned Douyin and Toutiao, or any major happenings domestic or overseas beyond the scope relevant to his company. But he knew how to run his business and impressed me with his EQ and business acumen. Some examples of things we discussed:
1. Every market has a positioning gap. He won the Chinese market by lowering margins: quality material at lower cost. Learn the market first: price, materials, competitors, design - find the gap.
2. Have one product to drive traffic, one for promotions and one for profit.
3. You have to spend money to make money. Spend to bring value then make customers keep coming back with attentive service
4. Watch the stock market to predict trickle-down effects that will affect your business. E.g oil prices affect his raw materials
And he's not even an exception. This demographic of uneducated, lower-tier city, youth all want to be business owners, not corporate slaves. They are also much more wealthy than their first-tier city, white-collar counterparts. They are the reason why China is now paying attention to good and services for lower tier cities.
Others like him
There are hundreds of thousands of young Chinese, in their 20s, poorly educated but with incredible business sense and intuition from their upbringing, who are able to become millionaires from their hometowns (where cost of living is a meal = $2USD and rent = $150USD/month). They don't want the stress of trying to buy an apartment in Beijing - they're fine making a living live-streaming or selling local specialties online from the comfort and familiarity of where they grew up.
They are extremely optimistic in China's future and see opportunities at every turn. They are hustlers and are so powerful at execution. What's scary is that they also have incredible digital EQ. For example, In March 2019, Taobao Live's top star 李佳琪 sold 15,000 lipsticks in 5 MINUTES on Douyin live stream.
When it comes to social commerce, many of us can't imagine trying to sell products to our friends. Yet the Chinese have come up with encyclopedia sized books on how to sell via Wechat and to people you know. These include tactics from targeting second and third degree connections by asking your first degree to share copy/content to scripts for asking leading questions in wechat groups to generate sales leads.
There's a popular phrase in China. With the internet ecosystem, anyone can "move your fingers, feed your whole family." All you need is a smartphone.
One of the best things about this trip is expanding my world view on what is possible to do in life and drawing inspiration from the lives of others as I mold my own future. I left New Zealand feeling like I could live with less and China has got me hungry for more. We can be happy with what we have while also having goals right?!
I was very inspired by the young people in China. Their drive, optimism, ability to opportunity gaps, acute focus and belief that with hard work they can change their fate was contagious. You don't need to be a genius to see and take action on opportunities. I'm already seeing the world with new eyes.