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COTECNA INSPECTION
MISSION REPORT - 04.15.15 Hatem NAJAR
1
I. Executive Summary ....................................................................................................................................... 2
II. Definitions : Cotecna & Quality Control .................................................................................................. 3
1. Some definitions related to quality control ............................................................................................... 3
2. About Cotecna ........................................................................................................................................... 4
III. Mission and project scope ........................................................................................................................ 4
1. Chinese quality control market .................................................................................................................. 4
2. Mission ....................................................................................................................................................... 5
IV. Customer research .................................................................................................................................... 6
1. Identify Customers ..................................................................................................................................... 6
A. Understand retail context in China over the tree selected sectors ....................................................... 6
a) General statement over retail sector in China .................................................................................. 6
b) Focus on the selected sectors ........................................................................................................... 6
............................................................................................... 8
a) Where lies the opportunity of getting new clients? .............................................................................. 8
b) Private label sector in China .............................................................................................................. 9
2. Understand customers’ needs regarding quality control services ........................................................... 12
........................................................................................................................................... 12
....................................................................................... 13
........................................................ 17
V. Recommendations ....................................................................................................................................... 20
1. First target in China: International brands selling in China ...................................................................... 21
...................................................................................... 21
............................................................. 23
a) Set up a flexible team ...................................................................................................................... 23
b) How could Cotecna stand out by specializing in the toy sector? ................................................... 24
c) Communicate in different ways ...................................................................................................... 25
d) The Shanghai Free Trade Zone ........................................................................................................ 26
2. Adapt services to the market: Quality management consulting ............................................................. 27
......................................................................................... 27
........................................................................................... 28
..................................................... 28
3. Educate the market .................................................................................................................................. 29
.......................................................................................................................... 30
........................................ 30
VI. Conclusion ............................................................................................................................................... 32
VII. Feedbacks on the ICP Project .................................................................................................................. 32
2
Cotecna is a Swiss-owned quality control company operating in China since 2006, which
provides inspection and audit services to international companies manufacturing in China. Our mission was to explore the potential of the Chinese market, composed of international brands selling in China and local brands. The bottom line is to know if buyers in China are willing to pay for quality control services, and If yes, how big is the market. Cotecna wants to focus first on three main industries: toys, furniture and Electrical & Electronics. We had also to explore the opportunities of private label brands. Private label brands are retailers’ own brands. Our geographical target was the region of Shanghai.
Our first step has been to gather qualitative and quantitative data, through an online survey, a survey
conducted in a fair, and several interviews. We also made research on these three industries and
on the private label sector in China in order to understand the trends and Chinese consumers’
behaviour. The key points of our analysis are:
Chinese buyers conduct laboratory testing since it is a legal requirement. The Chinese government
has reinforced standards in these industries. However Chinese buyers are not willing to pay for
inspection and audit services now. The market is not yet mature.
International companies selling in China apply the same quality control processes for products
sold in China and for product sold abroad. They work with third-party inspection companies to
face production or geographical issues.
Private label brands are not really developed yet in China. Most of them are international ones.
This trend is emerging within the Chinese retailers, but this is at the very beginning. Since Chinese
buyers don’t require external quality control services, Chinese retailers are not willing to pay for it
either.
Chinese market for inspection and audit is different from the Western one. Nonetheless, some
opportunities exist for Cotecna.
Regarding our results, we recommend Cotecna the following strategies:
1. In order to penetrate the Chinese market by a different way, Cotecna should target international
brands selling in China. To do so, we recommend to :
Set up a flexible team of inspectors able to go to the main manufacturing regions for toys,
furniture and E&E
Stand out by focusing in the toys sector, which is the sector where lies the main opportunity
Increase the client’s database by going to fairs and exhibitions
Set up a virtual office in the China (Shanghai) Free Trade Zone
2. Adapt its services and provide quality management consulting to its clients
Set up a team with a consultant, an operational Product Manager and inspectors
Communicate about its new service through its website and its clients
3. Educate the market. If Cotecna wants to be among the first movers we recommend to :
Watch out for trends by going to specialized fairs
Provide webinars to communicate about the advantages of inspection and audits services
Create partnerships with local authorities to be at the right place when the market will be
mature.
To conclude, even if Chinese buyers are not willing to pay for inspection and audit now, some
opportunities exist for Cotecna to get more business in China and prepare when the market will be
mature.
3
In Europe, United States and more generally in developed countries, product inspections are the
norm for quality control. When a company imports goods from a supplier, it has to be sure that the
products it will receive match with the order. Almost all big buyers from those countries perform an
inspection conducted by a third-party before shipping and paying the totality of a contract. This is
part of a normal working procedure to secure their imports. Besides, when companies choose a new
supplier, they want to be sure that the factory has the capacity to produce what they have ordered,
or that factories respect labour and social regulations. As a result, they will conduct audits to
measure it. This process is even more important today because many companies outsource their
production in China, where a lot of scandals about quality came out.
Over the past 20 years, Chinese economy has been growing very fast, modifying its economic
structure. With the 12th five-year plan (2010-2015), China is seeking to move from an economy based
on manufacturing to an economy based on domestic consumption and value-added products. This
change has lead the government to tighten quality and safety controls of goods produced in China in
order to address buyers’ needs and Chinese consumers concerns about products’ quality. As this
trend is arising in China, it might be an opportunity for inspection companies to address the needs of
companies producing and selling their products into the Chinese market. That’s what we will
determine throughout this project.
The main reasons to conduct a quality control inspection are to ensure that quantity, visual
appearance and product specifications match with the order; and to verify that packaging, labelling,
instructions and markings comply with mandatory standards. It defers from laboratory testing:
before starting the first production, the prototype is tested to check if it meets mandatory standards
(set by government).
Buyers can require several inspection services:
Initial Production Inspection: conducted at the beginning of production. It aims at noticing
defective materials or components before the beginning of the production. The final goal is to
reduce the risk of non-conformities, while still having time to make changes.
During Production Inspection or In-line Product Inspection: it aims at checking if the order is on
schedule and validating that the items produced comply with the Golden product. Adjustments
and improvements could still be made in the process.
Final Random Inspection or Pre Shipment Inspection: the goal is to confirm that the production
meets client’s specifications as well as terms of the purchase order or letter of credit. It aims
also at checking the products before they are shipped. Finally, the goal is to approve final
payment in confidence, or reject the order if it does not comply with the client’s requirements.
Buyers can also conduct two types of audit services:
Factory audits: verify the existence and reliability of the factory - if the factory has the capacity
to comply with the requirements of client’s order. Factory audits also measure how trained and
experimented is the labour force.
Social audits: check that the factory abides by local labour laws, and that health and safety
standards are met.
4
Cotecna is a Swiss family-owned inspection company operating also in China. It used to run a
Joint Venture with Sinotrans since 2006, called Cotecna Sinoswiss Co, Ltd. Today, Cotecna does
business in China through a WOFE, still called Sinoswiss, but communicates under the name Cotecna
Consumer Goods. The main services that Cotecna Consumer Goods provide are: laboratory testing
(mostly outsourced), inspection and audit services. Today, Cotecna would like to explore the
potential of Chinese market, since there is an increase of standard of living in China, and Chinese
consumers care more and more about quality of goods they purchase.
In the past, China has been known to produce sub-par products. However, over the past 20 years quality control inspections have become more and more a necessity for several reasons.
First, overseas consumers want their products made in China to be safe. The numerous scandals have increased awareness of consumers: Lead found in the paint of Thomas & Friend trains in 2007 has involved the recall of 1.5 million
trains and rail components1. This story underlines the need of testing. In November 2014, Mac Donald recalled 1.6 million over the 2.5 millions Hello Kitty whistles
packed in Happy Meals Menu in the United-States and Canada. This toy manufactured in China has been coughed out into pieces by two children. This defective whistle shows how quality control during the production is important2.
Second, as websites and associations warn consumers about recalls of products, the fear of "Made in China" items not only takes place in countries importing products from China, but also in China! Chinese consumers are increasingly requiring safer products. In October 2007, Toys’R’Us Asia Ltd recalled 150 000 "Totally me Funky Room Decor Set" produced in China from its stores in Singapore, Malaysia, Thailand and China. There was an issue with surface paint on the back of the recalled mirror which appears to contain excessive levels of lead, violating standards3.
In this context, buyers need to be sure that a supplier is reliable: they require then inspection and audit services. Chinese products for export are most of the time inspected to guarantee that products match buyers’ requirements and comply with standards. Is the same process applied for products sold abroad to products sold in the domestic market? In this project, we have explored Chinese habits regarding quality control and their willingness to improve quality practices for products selling in the Chinese market.
1Nytimes.com, (2014). As More Toys Are Recalled, Trail Ends in China - New York Times. [online] Available at:
http://www.nytimes.com/2007/06/19/business/worldbusiness/19toys.html?_r=0&adxnnl=1&pagewanted=all&adxnnlx=1418474550-b/UdHC/q3xQOxAkHtmHHCQ [Accessed 14 Dec. 2014]. 2 U.S. Consumer Product Safety Commission, (2014). McDonald’s Recalls Hello Kitty Themed Whistles Due to
Choking and Aspiration Hazards. [online] Available at: http://www.cpsc.gov/en/Recalls/2015/McDonalds-Recalls-Hello-Kitty-Themed-Whistles/ [Accessed 14 Dec. 2014]. 3 Parenting.com, (2014). Toys R Us Totally Me! Funky Room Childrens Toy Decorating Sets. [online] Available at:
http://www.parenting.com/recalls/toys-r-us-totally-me-funky-room-childrens-toy-decorating-sets [Accessed 14 Dec. 2014].
5
Cotecna now needs to penetrate the market in China and obtain local clients as well as increase overall sales in China. That is why we have explored the Chinese domestic market to assess who can be primary target for inspection services and understand what its needs are.
The objectives of the mission are: Source qualitative and quantitative data regarding potential clients : identify them and
understand their needs Provide recommendations for new marketing and/or business strategies to leverage the market
and obtain more sales in China The scope of our mission is limited to specific companies according the following criteria: Specific supply chain: we focus on companies which produce and sell items in China. These
brands can be Chinese or international, as long as products are manufactured and sold in China.
Private labels: pay specific attention to retailer selling private label brands (domestic and
international).
3 sectors: E&E - Electrical and Electronic products (including household items, lighting fixtures,
information technology and audio video product), toys and furniture. Our mission is focused on
these 3 sectors given the fact that Cotecna has gained over years a particular expertise in these
sectors.
Area: We explore Shanghai’s area market, that is to say, companies that have retail stores in
Shanghai or its region. The retailer or the brand is not required to have their head office in
Shanghai.
There is a second group working with Cotecna on different objectives. Their tasks are:
Competitor analysis
Market research : Toys, Furniture, and E&E industries
Find opportunities, gaps and niches within the Chinese market
6
A. Understand retail context in China over the tree selected sectors
a) General statement over retail sector in China4
China is now the world’s second largest retail market. Total retail sales of consumer goods
doubled from 10.8 trillion yuan in 2008 to 20.7 trillion yuan in 2012 . Furthermore, China is expected
become the world’s largest consumer market within five years, before the United-States. The
country’s retail market is evolving very fast. The elements transforming this market are: wealthier
consumers that are more demanding regarding the quality of the products, more affluence to the
retail stores and technologies that change the way of doing business in this sector. So, some new
trends appear in the retail market:
Retailers improve their productivity rather than increase their number of stores
Retailers launch their own private labels or proprietary brands. It is an answer to increasing
competition, which allows them to differentiate and to underline their specificity. The aim is to
improve margins and customer loyalty. This phenomenon is mainly among international brands.
Mobile-commerce is increasingly popular, as is mobile payment
Digital marketing is very present in this sector. Social media has a huge influence on consumer
purchasing decisions.
Improving customer relationship management. The need to create customer loyalty, in an
efficient way is at stake nowadays.
The concept of the omni-channel emerges. Online and offline selling platforms complete each
other
Tier 3 and tier 4 cities become the development focus.
M&A is a source of growth for retailers. It is a way to have a bigger presence in the sector.
However some challenges remain for the retail sector: increased operating costs have squeezed
profit margins for many retailers, increasing competition and more demanding consumers make it
harder to be successful.
It is important to note that the Chinese retail sector is highly fragmented: the top 100 retailers
in China accounts for 9% of the total retail sales in 2012, whereas it represents 54% in the United
States5. Within the Chinese top 100 retailer list, 20 companies are international ones. It means that
there are many medium-size companies suitable to match with Cotecna's capacities.
b) Focus on the selected sectors
E&E sector
Electronics retail market in China is similar to Chinese retail sector: it is highly fragmented. In
2012, the top 5 players of the sector represented 25 % of the total sales, then, none of any other
companies had a market share superior to 1 %. The largest electronics retailer in the country is
4 Retail Market in China. (2013). Hong Kong: Fung Business Intelligence Centre.
5 Retail Market in China. (2013). Hong Kong: Fung Business Intelligence Centre.
7
Suning with 11 % of market share. In 2012, the electronics retail in China was valued at RMB 855
billion but experienced a slowdown in growth in comparison with previous years6.
Electronics products are distributed through different channels having their own specificities:
General retailer: general supermarket which offers a wide range of products and among them
electronics products. (for instance Century Market)
Chain store: the brand has developed its own network of stores where only the products of this
brand are sold. The retail store can belong to the company or can be franchised (for instance,
Povos, a Chinese brand of shavers, has developed its own chain store)
Specialised retailer: retailers lease out retail space to supplier (electronic international or
domestic brands), so that they can sell their products directly. Retailers receive rent or
commission on sales but don’t purchase products or either employ manpower. Suning, Gome
are the biggest players.
Specialised shopping mall: mall dedicated to 3C. Many brands can get their own shops in the
shopping mall. Buynow, CyberMarkt, Ego are the biggest players.
The online market is a big trend in the electronic retail sector and is attractive because of
prices which are 6% to 16% lower than prices in retail stores. Many websites send agents across the
country to gather information about prices and then sell the products on their websites at a discount
of up to 10%. E-commerce has not only penetrated the developed coastal area of China but also
small and mid-size cities. The growth of e-commerce will have an adverse impact on electronics
retailer and lead to erosion of margins (example of online platforms: Taobao, Paipai, Tmall, and
360Buy)7.
We have enclosed a list of E&E retailers in the appendix 2.
Focus on toys sector
The toy market is a very fragmented market in terms of actors. International toys giants
dominate the high-end of the market whereas local brands compete in the medium and low-end of
the market: they get a monopole in the wholesale market and run individually retail stores. There
are more than 100 international companies selling in China including: Mattel, Hasbro, Leap-frog,
Little-Tikes, Disney, LEGO, Playmobil, Simba, Big, Ravensburg, Mega blocks, Tomy, Takara, Bandai…8
Toys are distributed through different channels in China9:
Department stores (such as Toys’Rus and King Jouet),
Supermarkets and hypermarkets: they sell toys among a wide variety of products (such as
Carrefour and Wal-Mart)
Traditional stores
Online
6 Media Markt’ Exit from China, a case study from IBS Center for Management Research
7 Media Markt’ Exit from China, a case study from IBS Center for Management Research
8 China-toy-expo.com, (2014). ::China Toy Expo: [online] Available at: http://www.china-toy-
expo.com/en/whyvisit.asp 9 Business.gov.in, (2014). Business Portal of India : Managing Business : Distribution : Wholesalers and
Retailers. [online] Available at: http://business.gov.in/manage_business/wholesalers_retailers.php 9 Toynews-online.biz, (2014). Retail's private-label toys: The enemy within?. [online] Available at:
http://www.toynews-online.biz/business-analysis/read/retail-s-private-label-toys-the-enemy-within/030682
8
In many cases, toys companies don’t sell directly to retailers but sell through wholesalers, which
will sell, then, to retailers.
Focus on furniture sector
The most important sales places for the furniture industry are Shanghai and Beijing.
Traditional furniture manufacturers distribute their products in 3 different channels:
Consignment through distributors in different places Renting an outlet in different places where manufacturers sell the products themselves Displaying and selling products through large furniture malls
There are different types of distributors:
Specialized stores and chain stores: they generally sell their own brands. Most of them are large
domestic production companies or famous foreign brands (for instance IKEA, which has the
largest share of sales of specialized furniture stores)
Hypermarket clusters: they sell furniture but also many other products
Furniture hypermarkets: they sell a single furniture brand.
Department stores and independent retailers.
It is to note that the "O2O e-commerce model" is increasing within the furniture sales and
represents an emerging trend in the furniture sector. It refers to the linkage between online
marketing and online purchasing with offline consumption. On the other hand, franchised stores are
relatively a new concept in China.
To conclude as consumers are still concerned by price, they turn step by step to hypermarkets,
supermarkets and e-retailing.
a) Where lies the opportunity of getting new clients?
Definition of the target: step by step approach
As we need to define the primary target audience for Cotecna in China, it is important to have an
overview of the potential clients: those who are unreachable and those who could enter into the
target. From this first and theoretical segmentation, we have decided to explore the potential
targets we have retained to understand their needs (or no needs) regarding inspection.
Thanks to insights we got from the study of the retail sector, we have determined different type of
players:
19%
13%
11%
14% 10%
34%
Distribution by type of retailers (2013)
Internet Hypermarket Supermarket Leisure & Personal goods specialist Traditional toys store Other
9
Big International brands and first line domestic brands: they have their own quality control
department. They don’t require inspection companies’ services or they have already long-term
partnerships with inspection bodies. Cotecna’s capacities would not be substantial enough to absorb
such a volume.
These are not our target. Why?
Company has strict scope of work
Capacity/scope of work too large for Cotecna
Company prefers to keep close eye on quality control
Products are too elaborate for 3rd party inspection companies
Second and third line domestic brands and small international brands: companies would be more
likely to outsource inspection and audit services. A lot of them are not big enough to have a quality
control department. The opportunity here is to get to know brands which may not have internal
inspection services and subcontract the production of some of their items.
We are targeting this size of brand companies.
Private label brands: this kind of brands belongs to a retailer. A retailer usually sells products of
other brands and its own brands as well. The retailer is fully responsible for the quality of the
products it sells under its own labels, that’s why the retailer is more likely to call for third party
inspection services. These brands can be international or domestic but we will target only medium
size retailer.
We are targeting retailer selling private labels.
b) Private label sector in China
Concept of private label brand
According to Leonique White, from the PLMA International Council, the basic of private label
brand is that the store is the owner of the brand and not the producer. It means that private label
brands are owned by a retailer that also sells products from other brands. These private label brands
could carry the name of the stores or it can be fantasy names.
Private Label Brands in China
In terms of private label brand development, the world can be divided into two different
categories: the developed world (Europe, North America and the Pacific) and the developing world
(Asia, Middle East, Latin America and Africa). In the first regions, private label brand value share is
above 15%, whereas it is below 10% for the latter10. China is even below the developing countries
average with 3% penetration rate in 2010, and an expected one at 5% in 2015.
10
Label, A. (2014). A Tale Of Two Categories: A Win-Win Situation-for Brands and Private Label. [online] Nielsen.com. Available at: http://www.nielsen.com/us/en/insights/news/2014/a-tale-of-two-categories-a-win-win-situation-for-brands-and-private-label.html
10
Private labels brands are not suitable for every product
Private labels are suitable for commodity-driven products, that are bought frequently and where
consumers perceive little differentiation11. Moreover, private label brands are suitable for categories
with low innovative rate. Among the private label products launched in 2009 in China, more than
40% were from the health & beauty sector, 30% from the food and beverage industries, whereas the
toys, furniture and E&E are among the 30% left of the category "others". The toys, E&E and furniture
are not well represented within the small penetration rate of private label brands12.
Private label brands are not suitable for every retailer
In order to afford private label brands, one retailer needs to have substantial size, sufficient
strength and good reputation, given the fact that it requires many resources (brand development,
design management, market research and product selection) and significant capital investment13.
However, the retail sector in China is still consolidating whereas this is a key success for private label
brand growth. As the retail sector is consolidating, the competition increases, so that retailers will
look for ways to differentiate from their competitors: private label brands would be a way to stand
out from competitors by increasing margins and customer loyalty14. To conclude, private label brands
is a limited phenomenon among Chinese retailers, but this trend has opportunities in the years to
come.
11
World, T. (2014). The State of Private Label Around the World. [online] Nielsen.com. Available at: http://www.nielsen.com/us/en/insights/reports/2014/the-state-of-private-label-around-the-world.html 12
New Zealand Trade & Enterprise, (2010). Private Label in China. NTZE. 13
Asian Social Science, (2010). Research on the Own Brand Marketing Strategy of Retail Enterprises in China. [online] Changchun: Changchun University of Science and Technology. Available at: http://www.ccsenet.org/ass 14
Retail Market in China. (2013). Hong Kong: Fung Business Intelligence Centre.
Source: New Zealand Trade & Enterprise, (2010). Private Label in China. NTZE
11
From now on, the international retailers are the leaders of the private label brand market in
China: among private label products launched in 2009, more than 60% of the products come from
International retailers.
Consumer Behavior towards private label brands
Chinese consumers have a strong desire value-for-money but even with this consumer trend, only 19% of Chinese consumers bought private label brand in 200915. As Hua Li, Assistant professor of Marketing at EMLYON Business School - Lecturer at EMLYON Asian Campus in Shanghai "Consumer Behavior in China" explained:
"Consumers’ attitude toward private labels is a function of their perceptions of the retail stores. (...) In Europe, consumers have long developed a kind of consensus that private labels are good-value for money. In China, such consensus has not yet created."
Even if the private label awareness in China is low, the support of the retailers' brands keeps on growing positively every year16.
Private label brands and quality control
Retailers have then to set up higher quality management processes because quality of their own-
brand products, if not good, could be detrimental to their whole business reputation.
15
New Zealand Trade & Enterprise, (2010). Private Label in China. NTZE. 16
China, R. (2014). Retail Shopping Trends in China. [online] Nielsen.com. Available at: http://www.nielsen.com/us/en/insights/news/2010/retail-shopping-trends-in-china.html
Source: New Zealand Trade & Enterprise, (2010). Private Label in China. NTZE
12
In order to source coherent data, we decided to acquire quantitative and qualitative data. The
initial goal was to validate the analysis of quantitative data with qualitative data. The objective of the
field study is to understand if the potential targets as defined above carry a real opportunity for the
further implementation of inspection services in China.
a) Quantitative data
Online survey
We have created an online survey in English (link: click here or see survey in Appendix 1) and in
Chinese (link: click here).This survey aims at understanding through straight forward 10 questions
what are the quality control needs. The last part would enable us to collect their direct contact so as
to set up face-to-face interviews. It has been sent to private label brands and to international and
domestic brands by collecting their contact details through websites, LinkedIn, or by calling the
company directly.
However, as the rate of answer hasn't reached the expected one, we understood that the
Chinese business culture is not eager to divulgate information online. We then decided to collect
quantitative data by going directly to fair.
Fair
We have been to the China HuaXia Housing and Furniture Exposition on the 9th of November. This
exhibition gathered home appliances companies (hood, heating plate, fridges and water filter). We
were able to filled directly our surveys from Chinese and international companies.
On the field
We have been to the field to look for private-label brand in average mall, specialised mall, or districts
reputed for one of the 3 sectors we are targeting.
b) Qualitative data Throughout this project, we have met different people who have shared with us their practices and
points of view regarding their control quality in China.
Key points - Private Label:
Small penetration (value) in China : 5% expected in 2015
Mostly food & beverage, health & beauty sectors
Growing awareness : 19% of consumers buy private label brands
Quality of the private label products influences the business reputation
Above all international brands, but Chinese retailers would chose to develop private label
brands to stand out in an increasing competitive retail sector in the years to come
13
With different backgrounds and working in different industries, these interviewees allowed
us to understand how the inspection sector works in China and what are the current practices in
China. One interviewee, Julien Cauche from Happy Chic, does not work in the three sectors we are
targeting, yet the information gathered was very useful to understand how international companies
conduct quality controls for products sold in China. We have analysed below what they say and
confront the different points of view we got in order to build conclusions regarding the opportunity
of offering inspection services in China.
How do companies conduct inspections and how often?
First of all, companies that we have interviewed are selling mostly their products to the European
and American markets, where standards and regulations are high. This leads them to conduct
sophisticated quality controls. International brands are used to producing in China and then to
exporting the products. When they penetrate the Chinese market, the production of goods is slightly
different depending the destination of the product.
“International companies producing in China and selling in China have different products for
the different markets : this is the same line of production but not the same process of
production, raw materials, packaging “ Milad Nouri, Managing Director at China Consultants
International Ltd
Yet they apply the same quality control to the whole production either it should go to Western
countries or to China.
“There are different products because there are different regulations. But international
companies apply the same practices including quality control” Milad Nouri, Managing
Director at China Consultants International Ltd
This is a key point: international companies which are selling to the Chinese market are eager to
implement the same quality control practices as they are used to it do for any other production. We
will see this is different for domestic companies only selling in China.
Name Position Company specificities
Toys company X Office Manager Production in China and sell in China & abroad
Happy Chic
Former OkaïdiJulien Cauche
Office Manager
Former Quality
Manager
French fashion brands which own 3 brands, bizzbee, Brice and Jules
Watsons XQuality Control
Manager
Cosmetic retailer based in Hong-Kong selling among others, private
labels, including E&E products for the cosmetic industry
Eurofins Laurence LuoSenior Inspection
Manager
Eurofins Thomas X Sales
China Consultants
International LtdMilad Nouri
Founder & Managing
director
Provide consultancy & services regarding quality control management,
industrial sourcing, products development
Cotecna Joseph Shi Sales ExecutiveFocus on import/export market at Shanghai. Gave us a legal overview of
quality control and Cotecna's activities
EMLYON Stephan Wirtz Teacher Specialized in retail and services in China
EMLYON Hua Li TeacherSpecialized in Consumer behaviour in China (Markets and Innovation
department)
PLMA (Private Label
Manufacturers
Association)
International Council
Leonique WhiteManager Trade Show
DevelopmentGave us insight about private labels
Companies
requiring potentially
inspection services
Interviewees from
quality control
industry
Understand
general context
Company
Testing, inspection and audit French company operating in China
14
Interviews revealed that some companies use a mix of internal and third-party inspection.
They often have an internal quality control team and sometimes work with a third-party.
“We have an internal quality control team, but we regularly work with third-party inspection
companies” Office Manager of a toy company, producing and selling in China17
Depending on the different policies, companies conduct inspection at different frequencies.
While Okaidi inspects 100% of the orders, Happy Chic inspects 1/3 of the orders and the
manufacturer takes care of the rest. The toys company inspects also all its orders but not all its
production. It means that on every order, a sample of items was inspected but not all the items,
which takes a lot of time and is very rare.
What are the advantages of internal quality control?
For companies manufacturing themselves their products, it’s better to have internal quality
control because they know better the characteristics of these products and have more experience
than inspectors from third-party companies who deal with a large range of products. Therefore, the
toys company we have interviewed considers it is cost-efficient and time-saving. Indeed, they have
their own team dedicated to quality control, so they don’t need to waste time looking for a third-
party company, which would represent an additional cost for the company. A company needs to
reach a break-haven point in order to amortise a paid-service.
What are the advantages of a third-party inspection company? In which cases is it
required?
There are also advantages for these companies to hire a third-party. It allows the company to
face peaks of production, when the internal team of quality control is not able to respond to these
peaks.
It is also about geographical issues. In order to conduct quality control, the company needs to
have inspectors where manufacturers are. If it is not the case, they can hire a third-party inspection
which has local offices in this area or free-lance inspectors.
“We have our own staff [for quality control] but we hire a third-party when we cannot go to the
factory”, Julien Cauche, former Quality Manager at Okaïdi
Third party inspection can also be hired in specific cases in order to play an intermediation role:
When there is a conflict with a manufacturer, a third-party is needed to re-inspect the whole or
part of the production.
“In case of conflict with a manufacturer we use a third party inspection company to inspect again
the production that has already been inspected by our inspectors”, Office Manager of a toy
company producing and selling in China.
Some clients ask their providers to conduct external inspection on the products they buy. This is
mainly the case for retailers. Toys’R us is a good example: it requires inspection from its
providers, such as the toys company we have interviewed. A third party inspection company is
required to do so.Here a third party inspection is hired to have a neutral and objective opinion.
However, third party inspection can not only be seen as a complement. Externalise the whole
process of quality control is time-saving as Julien Cauche, Office manager at Happy Chic and the
17
Name not released, confidential data.
15
quality manager at Watsons said. There are different points of view depending on internal
organization and the need of inspection according to the type of products.
When do companies conduct audits and how often?
The analysis shows that audits are less common than inspection services.
For Okaïdi, audits are conducted before the production is launched with a new manufacturer.
They realize 50 internal audits per year in China and 20 external.
Watsons conducts factory audits once or twice a year in general. They decide the frequency
regarding the risk of the products and the customers. So these numbers should be considered as
an average.
“We measure the risk of the products and the targeted customer. Then, with this matrix we decide the frequency of the audits to conduct “, Quality Assurance Director at Watsons
In which cases audits are required?
First of all, Laurence Luo, from Eurofins underlined that there are few audits in China, and if
companies lead audits, they will do it by themselves. Eurofins has very few deals for auditing
companies.
There are mainly two types of audits: factory audits and social audits. Interviews highlighted the
fact that most of factory audits are conducted by the company itself whereas social audits are
conducted by a third-party. These audits are needed within different contexts:
Factory audits can be required internally in the following cases: for small volumes or to start
relation with a new manufacturer.
Social audits are often required by the Corporate Social Responsibility strategy of companies
that should show their commitments in terms of social responsibility. That’s why, a third-party
is more relevant since it provides an objective statement that is more recognized by external
actors. Moreover, in case of scandal, the responsibility relies on the third-body.
Third-parties may also the final say: they validate a factory audit already made by the company
in intern. As a result, the role of third-parties is less important, but there is still an opportunity
for them.
“Audits are first conducted internally, and they validated by third-party bodies “, Quality Assurance Director at Watsons.
Choosing a third-party company can be an advantage since it is an independent party. So, it
gives a good image of the company if the audit is successful. It can also play a protection role in case
of scandals.
We should bear in mind that the managers we could talk with work in international
companies, which are much more aware of quality concerns than Chinese companies. But as they sell
part of their production in China, it’s an opportunity for inspection companies operating in this area.
How do they choose a third-party company?
Some criteria are more important than others when choosing a third-party for quality control.
Obviously, the qualification of inspectors is an overwhelming criteria but it is not a criteria of
differentiation between inspection companies since we assume that all the good inspection
companies have experienced inspectors.
Considering this, the other important factors are:
Price: After conducting the interviews, it has highlighted that price is the main factor mentioned
when choosing a third-party to work with. This is coherent with Chinese consumer behaviour.
They are more aware about prices than quality. This is reflected once again in this study.
16
“Of course, they are about experience of inspector, their effectiveness but quite all inspection
companies have this. Finally, clients focus on price”, Laurence Luo, Senior Inspection Manager at
Eurofins
Location of the third-party company: as we saw before, some enterprises work with inspection
companies for geographical reasons. So, if they have a spread network of offices, it is a
competitive advantage for these companies
Accreditations: this is a good way to choose a reliable third-party. Therefore, depending on the
product and legislation, a third-party accredited may be required.
Reputation: very important, even more in China where business relies a lot on relationships and
recommendations. As a result, if a third-party has a good reputation regarding its performance,
it has more chance to make deals.
The graph below summarizes the results of our survey submitted during the HuaXia fair. The
accreditations appear to be the most important criteria, while the experience of inspectors and the
quality of service are following. But as we saw before, it doesn’t represent a competitive advantage.
Source: HuaXia Fairs (survey submitted to exhibitors)
Besides, a key point from our interviews and survey is that nationality of the company is not
a relevant point. But this must be put in perspective with the fact that there a few Chinese
inspection companies.
To conclude, the two key points to remember for an inspection company operating in China are:
Customers focus on prices The geographical network is really important to differentiate from its competitors
How do they gather data on third-parties?
Regarding the results from our survey and interviews, fairs and word-of-mouth appear to be the
main vehicles for companies to gather information on third-parties.
Websites play also a major role, but rather to get more information on a third-party when the
latter is already known by the potential client.
Then, some quality managers of our interviews said that inspection companies tried to get in
touch with them through emails. They receive this kind of emails several times a year.
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
Price Quality of service
Immediacy of service
Tailor-made solutions
Chinese and international accreditation
Experienced and qualified
inspectors
Inspection companies nationality
Ranking of third party inspection company attributes
17
“They [third-party inspection companies] contact us directly through internet. We receive several
emails during the year”, Julien Cauche, former Quality Manager at Okaidi.
Conclusion: Since, it is difficult to influence the word-of-mouth, except with a good reputation, it
is important for third-party inspection companies to attend to fairs and exhibitions.
Source: HuaXia Fairs (survey submitted to exhibitors)
Conclusions: after the analysis of our survey and interviews, the key points to remember are : Inspection: Generally, companies use a mix between internal and external quality control services Internal quality controls are cost-efficient and benefit from the experience of the internal
team Third-party inspection services allow to solve geographical and production issues and satisfy
the requirements of the clients in some specific cases
Audit: Few audits are conducted in China but when they are, factory audits are mostly internal
while social audits are externalized. Advantage of choosing a third-party for audits is its independence.
Information on third party inspection: Main criteria when it comes to choose a third-party are prices and location Efficient way for enterprises to gather information on third-parties are fairs and word-of-
mouth
We’ve seen in this part what are the characteristics and practices of international companies
requiring inspection companies’ services. Now we are going to study the context for the domestic
market to see if inspection and audits can also develop there. Domestic brands are a potential
targets, now we will see if this is a real opportunity for Cotecna.
Respect of standards in China: poor or strict?
Standards in China are not less important or less strict than in any other country in the world. A
simple reason to explain why is: China has imported norms and standards from the United-States and
0 1 2 3 4 5 6 7 8 9
Recommendation
Websites
Newspaper
Billboard
Calls
Exhibitions / Fares
No answer
Medium to get information on third party inspections
18
from Europe. Some of our interviewees think that China has carried out lots of restrictions18 and
standards can be sometimes even tougher19. Especially in the fields of toys, sector where many
scandals have occurred these past years, Chinese market can have specific requirements which
appears like details for companies that are used to dealing with American and European standards.
Yet scandals in the toy sector have rather impacted the production oriented to export than
production for Chinese market. Since China is the biggest manufacturer of toys in the world, most of
manufacturers had still to renew their factories; both Chinese and international markets benefit from
it.
However, are Chinese companies likely to enforce these standards? It seems that, despite
restrictions and equivalent standards to those in Europe and America, there is an issue concerning
the application of standards. The standards do exist but the sanctions are rarely enforced. This leads
to a lack of consideration for standards. Then quality of products in China is still to debate as
standards are not always met and purchasing companies should pay attention to it: they risk to be
responsible for purchasing non-conforming products. This lax context can lead international
companies implemented in the Chinese market to not always apply the same standards as they do in
the Western countries. For example, the scandal of repackaged meat (chicken and beef) done at
MacDonald’s or KFC revealed bad practices on the Chinese market (2014).
Difficulties in standard enforcement also come from the different ways of interpretation of the
law – judge can be corrupted and things can be influenced. For an international company, better is to
be blameless as, in this case, no exception will be made.
In the same time, pressure from consumers is less strong here in China, than in Western
countries. Indeed consumers are not really aware of restrictions or either standards that should be
applied. Then, from this point of view, standards application can be seen as more flexible and not a
priority.
Need of final customers in China: price or quality?
Final customers are also key in the shift to get better quality products. Pressure from the
consumers can put weight on brands. It is interesting to understand how, nowadays, Chinese
consumers buy products and what is the most important creterion in their final decision.
On the production side, Chinese are focused on the total cost. This means that the first concern
is about the price: “price is important and should be cheap”20. To achieve this goal, the production is
built on process and timing in order to produce a lot in a short time. Quality and know-how are not
considered as essential21.
On the consumer side, Chinese have different habits from Western consumers when shopping. A
case study regarding Media Markt, a German electronics retail store which has failed to implement
its brands in China, brings some insights about the Chinese way of consuming22.
Chinese like a good ambiance when shopping, they like to test and try out products. At Media
Markt, it was possible to try products, but sellers were only there to advice if asked by the consumer.
In Chinese electronics retail store, the sellers promote their brand, make discounts and try to attract
the clients by being pushy.
18
Interview : Eurofins, testing laboratory 19
Interview : Toys company 20
Stephan Wirtz, teacher at EMLYON, specialized on retail and services in China 21
Interview : Stephan Wirtz, teacher of retail in China 22
Media Markt’ Exit from China, a case study from IBS Center for Management Research
19
The final decision is solely taken according to the price whatever the services provided are (after
sales services, warranty…). The retail stores offering the better price will be the place where the
customer will buy the product.
“Chinese consumers care the most about price when they buy electronics products. Whereas
Media Markt focused on services”. Qi Xiaozhai, Director of the Shanghai Commercial
Economic Research Center, in 2013.
What we can learn here is that price is and remains a key point to understand how Chinese are
doing shopping. Quality and services that could help to get a more efficient product in the long term
are still not a concern shared by the majority.
Lack of information and many confidential data
In China, corporate information about companies is very protected and most of the time are not
public or released. This lack of information can yet protect the interests of one firm but also prevent
good practices to spread out. In the case of quality control inspection, firms don’t know what the
practices of their competitors are, so they are not pushed to do better or to learn from their peers23.
Services: go under constraints
Inspection is a service that could improve quality of products sold if the buyer was ready to ask
for inspection services to check beforehand the production.
As a result, inspections, as a product service, would only be taken into consideration if
authorities or retailers take action in this direction. As we have seen, authorities still not pay
attention systematically to enforcement of standards but some retailers decide to take things in
hands especially after 2007 recall scandals of Thomas Train:
Walt Disney Company said they would do their own random testing whereas they use to
delegate this to the licensed producers24.
Toys’R’Us ask its suppliers to reach specific requirements
“Toys’R’Us requires quality controls from its supplier and wants its providers to audit
manufacturers” Office manager in a toys company25.
This kind of service in between counter parties is possible and efficient in China, because the
supply chain is far less intermediated than in Western countries. It means that the manufacturer will
provide a final product by itself unlike requiring the services and semi-products of many other
companies. China is not a Haciendas System (lots of outsourcing in the production): the supply chain
is quite direct. Few intermediaries make things easier to control in between counterparties.
Retailers start to gain more power over the producers. If producers want to keep their clients,
they will have to comply with their new requirements. Retailer can be the first to apply by the
standards before authorities requirements.
Conclusion: Poor context of incentives in China & slow change
Brands have few incentives to improve quality.
Chinese government is not keen to enforce the strict respect of standards
Customers are still focused on price as the essential component of their final buying decision
23
Interview : Stephan Wirtz, teacher in retail in China 24
Nytimes.com, (2014). Disney to Test Character Toys for Lead Paint - New York Times. [online] Available at http://www.nytimes.com/2007/09/10/business/media/10toys.html?_r=0&ei=5088&en=e860e1b136f91c24&ex=1347076800&adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1418378888-idHGEo7AeqEE5rxCRh7ouw 25
Name not released, confidential data
20
Parallel and cost effective way to do inspection: as relations are more direct with suppliers, if
things don’t go well, they will complain to manufacturers without thinking that inspection could
be one solution.
In this context, brands are not really pushed to be stricter on quality, check closely the
production or to require inspection services.
A change in the market could occur with a stricter and enforced regulation, from retailers in first
place and then from authorities. Today testing services are required even for Chinese companies.
Inspection services could arise after when quality will become more important than price.
Nevertheless change should be slow and the estimated horizon is around 5 or 10 years.
“There is no future for inspection services in China for the next 5-10 years” Thomas, Sales at
Eurofins.
From the different points of view we have explored through interviews and reports we have
studied, we have built up recommendations regarding the opportunity of doing inspection in the
Chinese market.
The inspection for domestic market in China is not yet mature and doesn’t seem to offer that
much opportunities for an international inspection company right now. Yet, as China changes and
evolves, it is important to keep a close eye on how things are going and to understand how the
inspection market is going to behave. In the meantime, international companies are eager to apply
good practices regarding quality control for their production designed to the Chinese market.
1. We recommend them to be the first target audience in China for the time being.
Yet it’s important for Cotecna to build reputation into the domestic Chinese market and be a
reference player in the years to come when Chinese companies will require inspection services. So,
we recommend to:
2. Adapt services by doing consulting for implementation of quality control
3. Educate the market by positioning Cotecna as a player wanting to improve quality practices in
China.
21
a) High demand for quality
Practices: already well implemented
International brands are used to produce in China and then to export the products. When they
come to sell in the Chinese market, the production of goods is slightly different depending on the
destination of the product. Yet they apply the same quality control to the whole production either it
should go to Western countries or to China.
So international companies who are looking to sell in the Chinese market, are also eager to
implement the same quality control practices as they used to do for any other production.
Standards: international brands need to be beyond reproach
International companies are more controlled regarding the quality of the products they sold in
China. Indeed as enforcement of standards can be subject to various interpretations, an international
company should better be beyond reproach, because if guilty, it can be exposed to serious
consequences.
b) Which international brands should Cotecna target?
International brands
Cotecna should target medium and small international brands:
So that it can match Cotecna’s capacities, as a medium third party inspection company
This kind of companies is likely to outsource quality control services.
International private label
Some international private label brands have emerged with success in the Chinese market and
work quite well, but most of them belong to food and cosmetic/healthcare sectors. Yet the
perception of Chinese people regarding international private labels could be a good opportunity in
the years to come for the retailers willing to launch their own products:
“So, China is like a white canvas for an international private label brand. It has the opportunity
to create the kind of image they want in China, whether it’s prestige or good-value for money”
Hua Li, Assistant professor of Marketing at EMLYON Business School - Lecturer at EMLYON Asian
Campus in Shanghai "Consumer Behavior in China".
So there is perspective for international private label as Chinese consumer will see the branded
product as any another international brands. It means there is also perspective for Inspection
Company to offer their services.
Focus on toys: raising awareness on quality
Chinese toys market is a growing market: on the consumer side, China has emerged as the
second largest market for toys and games in the world and the average annual growth of the sector
over the last three years has been 14.2 %. On the production side, 75% of toys over the world have
been produced in China.
Currently the “one child policy” is easing so that we can expect more demand for toys in the
future. Moreover quality awareness has been increasing as the unique and beloved child should
22
receive toys that will not impact their health. Many scandals have also raise concerns in family about
toys quality:
Recall of about 15 000 “Funky room decor sets” from Toys’r’us shops worldwide including
from Shanghai shops because of too high level of lead in paint26,
Recall of Thomas & friends train in 2007 in the US also because of lead paint27
Standards are stricter in toys sector and better enforced. Since the 2007 Chinese recalls, Chinese toy safety standards are strengthen.
“Standards in China are not lower than in France or the US, they are even tougher
sometimes. They don’t accept any default and have very specific requirements for Chinese
market” Office manager in a company producing toys28.
Chinese norms: Since 2011 & 2012, there are more requirements (according to ICTI – International Council of Toys Industries)
29
SO 8124-1:2012 Safety of Toys—Part 1: Safety Aspects Related to Mechanical and Physical
Properties
GB 9832-2007 Safety and Quality of Sewn, Plush and Cloth Toys
GB/T 27708-2011 (national voluntary standard) General Technical Requirements of Inflatable Toys
GB/T 27730-2011 (national voluntary standard) Determination of Dimethyl Fumarate in Toys—Gas
Chromatography-mass Spectrometry Method
GB 28482-2012 (national compulsory standard) Safety Requirements of Soothers for Babies and
Young Children
Since July 2013, China at equal levels to the European Union regarding the use of plastic softeners.
For all those reasons, Cotecna should develop and underline its expertise in the toy sector
which is today the one where quality is seen as very important. Companies producing sophisticated
toys (electronics, wooden and plastic toys) could be a first target as they will require more tailored-
made inspection services.
c) What are their needs in term of third party inspection companies?
Inspection
1. A company fully outsources inspection services: in this case, Cotecna can be the third party
inspection company in charge of the whole inspection process.
2. Company does a mix of internal and external quality control: Cotecna can act as a complement
for these companies which can sometimes require services from third party inspection. But in which
cases the help of a third party will be required? We have seen 3 main cases:
Geographic constraint
Production peak
Intermediation
26
msnbc.com, (2007). Toys ‘R’ Us recalls 16,000 military toys for lead. [online] Available at: http://www.nbcnews.com/id/21562570/ns/business-consumer_news/t/toys-r-us-recalls-military-toys-lead/#.VIqMljGsVqU 27
Nytimes.com, (2014). As More Toys Are Recalled, Trail Ends in China - New York Times. [online] Available at: http://www.nytimes.com/2007/06/19/business/worldbusiness/19toys.html?_r=0&adxnnl=1&pagewanted=all&adxnnlx=1418474550-b/UdHC/q3xQOxAkHtmHHCQ 28
Name not released because confidential data 29
Toy-icti.org, (2014). Toy Safety Standards Around the World. [online] Available at: http://www.toy-icti.org/info/toysafetystandards.html
23
Knowing what is the demand from international companies operating in China in term of third
party inspection, Cotecna could adapt its service and focus on those areas.
Audits
Regarding factory audits, most of international companies often lead factory audits internally
because this is the starting point of a relation with a supplier. Nevertheless international companies
point out the need of a third party Inspection Company to lead social audit. This kind of audit is
usually part of a global Corporate Social Responsibility policy led by the company which requires an
independency of statement.
So Cotecna should focus on social audits rather than on factory audits services for
international companies.
To implement this strategy, Cotecna should follow 4 main steps:
a) Set up a flexible team
As we have seen before, international brands selling in China require third-party inspection
services when they face geographical issues. Cotecna has to consider this opportunity by setting up a
flexible team which is able to move among the main manufacturing areas of China.
First, Cotecna should in priority work with in-house inspectors because they have a much better
image than free-lance inspectors, with whom it is more difficult to ensure quality of services and
trust. Indeed, they are sometimes perceived as inspectors more eager to accept extra-fees. Cotecna
should communicate about its in-house inspectors on its website.
Then, Cotecna has to reinforce its team of inspectors among the main areas where E&E, toys and
furniture are manufactured in China, and communicate about their geographical flexibility.
The different areas of manufacturing in E&E, toys and furniture are presented below. They
indicate the regions where Cotecna has to send inspectors or reinforce the teams it already has.
Set up a flexible team
Focus on toys industry
Increase the client base thanks to fairs and exhibitions
Set up a virtual office in the Shanghai Free Trade Zone
24
Toys
The three main regions of manufacturing for toys in China are: Guangdong province, Jiangsu
province, and Zhejiang province. Those three provinces gather 75% of Chinese toys’ manufacturers
and 1500 manufacturing firms.30
E&E products:
The four main regions of production of electronics in China are: The Pearl River Delta Region, The
Yangtze River Delta Region, the region of Shandong and Liaoning, as shown on the map above31
Furniture:
China is now the largest producer and exporter of furniture. The Pearl River Delta is the main region
of production in China, followed by Fujian, Zhejiang, Jiangsu, Shandong and Shanghai.32
b) How could Cotecna stand out by specializing in the toy sector?
Cotecna has to differentiate from its competitors by specializing on toys inspection, as we have
explained in the previous part. How to do that?
The first thing to do is to dedicate a page on their website about toys. The information to gather
on this page is:
Regulations about toys in China to raise awareness among buyers
Specificities of inspection on toys regarding the different types: plastic, wooden, electronic.
Geographical spread of Cotecna’s inspectors, insisting on regions where toys are manufactured:
Guangdong, Jiangsu and Zhejiang.
Then, Cotecna should set up a team sourcing toys companies. Among its sales people, two
people should be in charge of sourcing exclusively toys companies manufacturing in China, so that
they can build a reputation in this sector, which is a key criteria to choose a third party company.
Finally, Cotecna has to register in the China Toy & Juvenile Products Association. It is the only
official representative in the toy industry that is recognized by the government. It has more than
4500 members today and it gathers producers, distributors, laboratories testing and educational
30
Import-from-china-business.com, (2014). Import From China Business. [online] Available at: http://www.import-from-china-business.com/ 31
Import-from-china-business.com, (2014). Import From China Business. [online] Available at: http://www.import-from-china-business.com/ 32
China-trade-research.hktdc.com, (2014). China’s furniture market | HKTDC. [online] Available at: http://china-trade-research.hktdc.com/business-news/article/China-Consumer-Market/China-s-furniture-market/ccm/en/1/1X000000/1X002L63.htm
25
institutions. One of the objectives of the association is to guarantee product quality and enhance
compliance in safety standards for toys.33 In order to join the China Toy & Juvenile Products
Association, Cotecna can contact them by email: [email protected].
c) Communicate in different ways
The first thing we recommend is to leverage the data base. Cotecna is nowadays working with
international clients in China and it should contact them to see if they plan to sell in China, as they
would certainly apply the same quality processes.
Then, Cotecna should go to fairs to meet potential clients and get known. We selected some
fairs where Cotecna should go in the following year:
China Toy Expo. It is the largest international toy fair in mainland China and the third largest
worldwide. It will be held between 20th and 22nd of October 2015. The price to get space and
stand at this fair is $185 /sqm + a surcharge of 15% for corner stand. Buyers come to this fair to
find suppliers for their toys, so that’s better for Cotecna to have a stand to meet those buyers
that may require quality control for their new suppliers.34
China International Furniture Expo which gathers international and local brands. It will be held
between the 9th and 12th September 2015. In order to exhibit, Cotecna should register on this
page : http://www.furniture-china.cn/en-us/exhibiting/application35
PLMA : Private Label Manufacturer Association. It will be held between the 12th and the 15th of
December 2015. The goal is to gather manufacturers and retailers. It has more than 200
exhibitors. It is the largest private label event in China. Cotecna should contact the PLMA
International Council : [email protected] to attend or exhibit.36
These fairs are a way for Cotecna to meet buyers looking for manufacturers. Those buyers
will potentially need quality control services as they subcontract a producer. Cotecna can also raise
awareness among buyers, about inspection and audit services.
33
Tjpa-china.org, (2014). About TJPA -China Toy & Juvenile Products Association - About TJPA. [online] Available at: http://www.tjpa-china.org/html/Page/120/list120.html 34
China-toy-expo.com, (2014). ::China Toy Expo::. [online] Available at: http://www.china-toy-expo.com/en/whyvisit.asp 35
Furniture-china.cn, (2014). 中国国际家具展览会-上海博华展览. [online] Available at:
http://www.furniture-china.cn/ 36
(PLMA), S. (2014). PLMA Shanghai 2015, Shanghai Private Label Fair, Shanghai, China. [online] tradekey. Available at: http://tradeshow.tradekey.com/plma-shanghai-e18487.htm [Accessed 13 Dec. 2014].
We recommend Cotecna to communicate about its services among its clients, websites and fairs.
26
d) The Shanghai Free Trade Zone
In order to source international clients selling in China, we recommend Cotecna to set up a
virtual office in the China (Shanghai) Pilot Free Trade Zone.
The main objective remains to target companies selling in China, but it will allow Cotecna to
reach also international companies exporting their products, and by doing so, increasing its business
in China.
The Shanghai Free Trade Zone is a laboratory for economic reforms that facilitates foreign
investment as well as administrative and legal procedures to set up in this zone. It promotes more
liberal trade and financial services. Goods can be imported, manufactured and exported without
tariff and non-tariff barriers.37
It includes four zones in the district of Pudong: Waigaoqiao Free Trade Zone, Waigaoqiao
Free Trade Logistics Park, Yangshan Free Trade Port Area and Pudong Airport Comprehensive Free
Trade Zone.
It was officially launched on 29th September 2013. So this zone is very recent and still moving.
Rules change all the time but it attracts lot of companies: since 11th November 2014, more than
12 000 companies had registered in the Free Trade Zone38.
The government promotes third-party inspection within the zone, which is an opportunity
for Cotecna to get more business.
“The General Administration of Quality Supervision, Inspection & Quarantine requires all
inspection institutions to further enhance their initiative to help develop local economy, fully
implement the policy of grasping quality, ensuring safety, promoting development and
strengthening quality supervision, so as to contribute to socio-economic development.”
The Investment in the Shanghai Free Trade Zone is regulated by a Negative List that restricts
investment in some sectors. Cotecna meets the requirements of the government to set up in the
zone, given the fact that it is a third-party accredited in its home-country and it has 3 years of
experience, as specified in the Negative List39 :
“A foreign investor of a certification institution must be accredited by authorities in its home
country and have three years of experience in certification actives.”
Then, the Shanghai Free Trade Zone is tax-friendly with companies willing to manufacture in
the Zone. First, the income tax rate for companies in the Zone is 15% (compared with a corporate
income tax rate of 25% in Mainland China40). But manufacturing companies are also exempted of
taxes during the two years following their first year of profit and have a reduction of half price on
taxes the three following years. Manufacturing companies don’t need manufacturing and working
license certificates when operating in the Shanghai Free Trade Zone. Besides, they can import
machines and materials without paying taxes.
As a result, this is a real opportunity for those companies to manufacture in the Shanghai
Free Trade Zone, and it represents a potential business for Cotecna. The opportunity for Cotecna lies
in the fact that the Shanghai Free Trade Zone has attracted a lot of manufacturing companies due to
light regulations, which are encouraged to conduct third-party quality controls. By setting up a virtual
37
By-cpa.com, (2014). Shanghai Free Trade Zone Policies -- China Business -- kaizen. [online] Available at: http://www.by-cpa.com/html/news/20076/748.html 38
The Economist 39
Shanghai Free Trade Zone. Available at en.Shftz.gov.cn 40
Source : Deloitte
27
office in the Zone, Cotecna will have access to the information about the companies registered in the
Zone and can be among the first movers to catch the opportunity to get business with companies
manufacturing in the Zone.
Besides, the price of setting up a virtual office in the Shanghai Free Trade Zone is only
20 000RMB41 per year, with a facilitated process to register and no requirement for minimum capital
registered. We have contacted Grace from CRIS (Chemical Inspection & Regulation Service), which is
an inspection company operating in China but in the field of chemicals that confirmed us that foreign
inspection companies can set up an office in the Shanghai Free Trade Zone.
“Foreign inspection companies are allowed to operate a branch in FTZ. The procedures are
that: submit applications to Shanghai Entry-Exit Inspection and Quarantine Bureau; subject to
administrative examination and approval; public consultancy; obtain a certificate for
operation. Foreign companies have to entrust a third- party for inspection and registration,
even though they have operating in SFTZ.” Grace, CIRS, 08/12/2014
As the opportunities for quality control in the Chinese market is limited to international brands
selling in China, Cotecna needs to adapt its services for the Chinese companies, while the market is
maturing. We advise Cotecna to broaden its services, while still capitalizing on its core expertise.
Indeed, Cotecna could provide consulting services in Quality Management Process in order not only
to increase sales among international companies manufacturing in China, but also to deal with
Chinese companies and develop a good reputation among the Chinese companies.
Consulting companies can provide quality management process solutions: it aims at
implementing a complete management of the quality from the training of employees to the final
inspection before the exportation.
As described by China Consultants International Ltd42, the quality management process can be
defined by three main services:
Quality planning: determine with the client how and when the quality controls will be scheduled
during the production.
Quality Training: prepare the labour force at the manufacturing plant
Quality Control: according to the Quality Planning, the consulting company will conduct the
inspection services, or require third-party bodies to do so.
41
Observatorio Asia Pacifico Ftz-shanghai.com, (2014). Services_Free Trade Zone In Shanghai WaiGaoQiao,Pudong Airport,Yangshan|Invest and Company Registration|Virtual Registered Address. [online] Available at: http://www.ftz-shanghai.com/Investment_Services/ 42
User, S. (2014). Quality Management - China Consultants International Ltd. [online] Chinaconsultants.cn.com. Available at: http://chinaconsultants.cn.com/en/our-services/quality-management
We recommend Cotecna to set up a virtual office in the China (Shanghai) Free Trade Zone, to get
business with companies manufacturing in the Zone.
.
28
Before quality management process, the consulting companies can provide sourcing solutions,
which imply factory audits and /or social audits.
As explained by Milad Nouri, Managing Director of China Consultants International Ltd., quality
management process goes beyond inspection services: not only do they conduct inspections
services, but they are also providing solutions to fix quality issues within the manufacturing plant.
Quality management process is generally implemented by international buyers, given the fact
that a manufacturing plant could produce both high and low quality products43. However, it is to note
that there are potential Chinese clients that could require these kind of services. Indeed, Chinese
companies are not eager to pay for product services, such as inspection services, but they are willing
to pay for quality system consulting, like quality training44. Alliance PKU is a Chinese company that
provides quality system consulting also for the Chinese companies.
Asia Inspection, an inspection, audit and testing company, is allegedly widening its services to quality
management consulting. Inspection and audits
companies can broaden their services while
capitalizing on their core activities.
43
Nouri, M. (2014). Chinafrica. [online] Chinafrica.cn. Available at: http://www.chinafrica.cn/english/business_ease/txt/2011-02/28/content_334304.htlm
Alliance PKU Current Consulting Actin PacificChina Consultants
International Ltd.
Where are
located
offices?
Beijing, Shenzhen, Shanghai Shanghai, Sweden, Hong Kong Shanghai, Hong Kong, Toulouse Hangzhou
Quality assurance system * Sourcing & Procurement *Consultancy and market research *Industrial sourcing
*Quality Assurance *Sourcing and supplier audits *Development and manufacturing
*CSR and strategic consultancy *Product Development *Quality management
*Market entry and sales
support*Production Monitoring *Business Development
*Quality Controls
*Logistics
Players
Services
By broadening its services, Cotecna will keep on increasing its sales with international companies
manufacturing in China clients, but above all, Cotecna will create a Chinese network. This is a way
to educate the Chinese companies to higher quality management processes, and to enable
Cotecna to be the first mover when the Chinese companies will require inspection and audit
services in the years to come. Cotecna could differentiate from its direct competitors by providing
incremental services on top of its core competencies.
29
a) Build up a specialised team
In order to extend its services to quality management consulting, Cotecna needs at first to
allocate two inspectors that can conduct inspection and audit in the toy, furniture and E&E
industries. Moreover, Cotecna would need to hire one consultant expert in this field in order to
source clients and take care of the commercial part; but Cotecna needs also to hire one Product
Manager that has the technical skills to resolve quality issues during the production. Cotecna would
need to find these two profiles in other companies as they do not correspond to Cotecna's expertise.
The Product Manager and the Consultant would have to speak both Chinese and English, as they will
deal with both International and Chinese clients.
We advise Cotecna to first focus more on a small amount of clients, so that they can provide
tailored services.
b) Communicate about your new services
Cotecna would need to promote its services through its website with a dedicated webpage.
Cotecna could also leverage its database in order to promote this new services to international
clients.
To reach the Chinese Community, Cotecna could promote its new services to wtoqc.com, which
is a website where Chinese companies are looking for quality control information. This website also
provides online advertising.
Source : Wtoqc.com, (2014). Available at: http://www.wtoqc.com/
Quality is not a top priority for Chinese buyers, making the whole market for third party
inspection quite down at the moment regarding the domestic market. We can easily think that as
China continues to develop, the value of its products will naturally rise but the bottom line is to know
if the quality will increase at the same time. Manufacturers have been engaged for years in “quality
30
fade”45 practice, not only since booming years, it was already the case at the beginning of the 20th
century when Chinese silk sellers started to cut corners on quality because of increasing competition.
Quality and profits have long time been seen as completely antithetical.
Now, the most important is to understand if a shift towards more quality is going to happen and
when.
Most of our interviewees estimate that domestic inspection market should arise at the horizon of
5 or 10 years.
“There is no future for inspection services in China for the next 5-10 years”, Thomas, Sales at
Eurofins
Here are some things to keep in mind in order to “take the market’s temperature”:
a) Forum about testing and inspection: TESTLAB46
Testing and inspection are discussed by Chinese administrative bodies in charge of quality and
third party inspection companies (foreign and domestic) during this forum held once a year at the
end of August in Beijing. Today testing is the centre of discussion because this is the first concern of
Chinese authorities but tomorrow it could be inspection and audits. The advantage of this forum is to
gather the biggest quality players in China: Certification and Accreditation Administration of the
People’s Republic of China (CNCA), China National Accreditation Service for Conformity Assessment
(CNAS) and the forum is held by the Chinese Academy of Inspection Quarantine Institution (AQSIQ).
Being aware of what are the Chinese trends in quality is strategic. This is a way to understand
how the industry is going to evolve in the coming years and how the Chinese authorities plan to deal
with those issues.
b) Scandals: trigger point for new regulations and opinion’s awareness
Scandals in China happen unfortunately quite often (poisoned baby milk -2008 or not to
mentioned repacked meat in Western fast foods - 2014). If they concern most of the time food, it can
also appear in the consumer goods sector. The scope of these scandals can’t be overestimated but it
is a good indicator of change. For instance, toys scandal has impacted the exported production but
not really the domestic market. Yet in most cases Chinese manufacturers had to renew their factories
for export production that is to say for the whole production and this has benefited to the domestic
market as well.
The development of the inspection among local buyers requires a long term view. Raise
awareness in the field of inspection is not an easy thing as Chinese companies keep on thinking this is
an additional service which is not important because it is not required by the Chinese authorities.
45
Midler, P. (2007). Dealing With China's 'Quality Fade'. [online] Forbes. Available at: http://www.forbes.com/2007/07/26/china-manufacturing-quality-ent-manage-cx_kw_0726whartonchina.html 46
http://www.cntestlab.com/2014/english.html
31
a) Webinars
Webinars are an online tool for communicating and setting regular meetings to discuss a specific
topic. Webinar, standing for web-seminar, allows a company to organise seminar with limited costs.
Set on a regular basis, a speaker, someone from the company like inspectors or engineers, or a guest
speaker having specific skills, is invited to talk. The seminar is broadcasted online. The company can
invite its client to attend the seminar as well as advertise on other websites in order to increase the
attendance. Registration allows to get email address from people interested in the subject of the
seminar – some among others can be new prospects.
For Cotecna, this is a tool of communication, in order to get known in China, but also a way to
obtain more prospects. Many blogs exist already (QualityInspection.org47 or China Law Blog48 for
instance) giving advice to incomers into the Chinese market. In the same perspective, webinars can
focus on quality issues in China – latest scandal, latest regulation released by the Chinese
government, make an update about quality requirements in one particular sector, debate the need
of inspection… This tool can increase the influence of Cotecna over the Chinese inspection market
and in the same time raise awareness of stakeholders in the quality sector.
b) Work with local authorities
As we said, scandals regarding quality of products do not always lead to a better regulation at the
national level. However local initiatives can be taken because scandals make local authorities aware
of serious problems.
For instance, after toxic baby milk and many other food scandals, the government had carried
out a Food Security Law in 2009. Thanks to this regulation several companies have offered Food
Liability Insurance, hoping that it would be a growing business. However very few food companies
subscribed to these insurances and there were little incentive for food producers to seek coverage.
Yet if the Chinese government had taken action and made food liability insurance mandatory to
subscribe for food companies, insurance companies would have benefited from a rapid growth of
their subscription.
“Until compulsory/strict liability is put in place by the Chinese government, sadly there will be
little incentive for food producers to seek coverage. It is therefore clear that as soon as the
Chinese government imposes strict liability in this context, this will become a rapid growth
product area for insurance companies” 49
As nothing happened at national level, local authorities have decided to push food producers to
subscribe to liability insurance or even make it mandatory for certain category of food. This kind of
pilot project was led by Jiangsu Administration of Industry and Commerce, local Bureau of Quality
and Technical Supervision in Xuhui District Shanghai (2007 and 2008) and by Guangxi Bureau of
Quality and Technical Supervision in 2010.
47
Anjoran, R. (2014). QualityInspection.org - Quality Assurance and Sourcing Strategies in China. [online] QualityInspection.org. Available at: http://qualityinspection.org/ 48
Chinalawblog.com, (2014). China Law Blog | China Law for Business | Harris & Moure Law Firm. [online] Available at: http://www.chinalawblog.com/ 49
”Total Recall? Milk scandals and food liability insurance in China” by Carrie Yang and Amanda Li, Clyde & Co
32
“Currently, there has not been a nationwide pilot scheme for food liability insurance in China.
However, there are regional pilot projects in place across various provinces” 50
This example shows that national government is not always willing to enforce regulations but
local authorities do have power and sometimes are more willing to make things evolving.
Partnerships with local authorities can be a solution to develop Cotecna’s network in China (as public
entities are a necessary relation to look for when doing business in China) but they are also likely to
consider inspection issues. The following authorities could be good partners or at least good relations
to entertain:
Administration of Industry and Commerce
Local Bureau of Quality and Technical Supervision
To conclude, the only way for Cotecna to penetrate the Chinese market in the short term is by
focusing on international brands selling in China. Cotecna could focus on International private label
brands selling in China, that pay attention to their business reputation, and toys companies, which
have substantial opportunities and where most of the companies are medium-size. Indeed, from now
on, there is not a substantial market for inspection and audit services within local companies.
While the market is maturing, Cotecna could broaden its services to quality management process
consulting in order to build a reputation within its Chinese network, and be one of the first movers
when Chinese companies will be willing to pay for inspection and audit services. At the same time,
Cotecna will increase its sales by keeping on providing services to international companies
manufacturing in China.
Finally, Cotecna would need to educate the market by raising awareness among local companies,
but also among local governments. Cotecna has to adapt its targets and services while the local
companies will step by step consider paying for these services. The shift will not come from the local
companies themselves but thanks to the pressure from local government or retailers. The Chinese
government, through the last Five Year Plan, intended to high up the value chain, but does higher
value mean better quality? The bottom line is that as far as consumers will require better quality but
still choosing price over quality, the pressure on the government and retailers will not be enough to
change the companies' quality processes.
Throughout this project, we discovered the inspection and audit services, and the legal
framework in China. More generally, we could analyse the cultural differences between doing
business in China and in Europe, and put what we have learned so far in perspective.
By meeting people and trying to get interviews, we noticed that it was easier to get information
in China when you meet people, and take time to speak with them, rather than sending just an email,
as we do in France for example. For example, we had little feedbacks regarding our online survey.
50
”Total Recall? Milk scandals and food liability insurance in China” by Carrie Yang and Amanda Li, Clyde & Co
33
Therefore, as we were a multi-cultural team, we could share different point of views, which was very
useful at the time to make recommendations.
The main difficulty we faced was to find the right people to talk with, about our project, since
we were not all able to speak Chinese. Besides, the access to information regarding the quality
control in China is very limited: it was hard to find updated data. Another difficulty was to
communicate efficiently with Cotecna: based in Hong-Kong, communication was only possible trough
skype. Human relations could have added a lot to the project: to our understanding of the quality
control industry, avoid misunderstandings and share more our ideas on specific subjects.
To conclude, the ICP project was very constructive at the professional level: we learned a lot
about the quality control services in China, but also at a social level since we were working in a
different environment and with people with different cultures and way of thinking.
34
Appendix 1 - Survey
35
36
Appendix 2 - List of retailers
Contact list
Shopping mall specialised in 3C
Retailers selling Private Label Brands
Domestic brands (2nd or 3rd line) sold in retail store / franchise store / specialised supermarkets
#
Na
me
of
reta
ile
r
Ch
ine
se
Na
me
of
reta
ile
r
En
gli
sh
Co
nta
ct
Pe
rso
n
Ph
on
e
Co
nta
ct
Pe
rso
n
Ge
ne
ral
Ph
on
eE
ma
il a
dre
ssA
dre
ssW
eb
site
lin
k
1颐高数码
EG
Ohtt
p:/
/ww
w.c
npcm
all.
com
/en/index.a
sp
2百
脑汇中国
B
UY
NO
W
htt
p:/
/ww
w.b
uynow
.com
.cn/
4五星
电器
5S
TA
RS
?
?htt
p:/
/ww
w.5
sta
r.cn/
5新明珠
XIN
MIN
ZH
U021-
52187514
上海市仙霞路
620弄
32号
108B
座n/a
6正克
ZH
EN
GK
E &
RO
GO
M.L
iu
(sale
s+
qualit
y)
186-0
175-7
371
400-7
05-8
708
2191478170@
qq.c
om
中国
上海市金山区
枫泾工业区兴坊路
505号
htt
p:/
/ww
w.m
yro
go.c
om
7雷瓦
RIW
AM
. W
u189-1
615-9
035
400-6
08-2
662
TIR
A@
riw
a.c
om
.cn
上海市松江区沪松公路
1399弄
68号
6楼
9号九坪来一份大厦
htt
p:/
/ww
w.r
iwa.T
MA
LL.c
om
8奔腾
PO
VO
SR
eception
021－
23092309
86-0
21-5
7777777
wyatt
fu@
povo
s.c
om
.cn
(genera
l)w
ww
.povo
s.c
om
.cn
9赛博
CY
BE
Rhtt
p:/
/ww
w.c
yberm
art
.com
.cn/
10
九阳
JOY
ON
G0571-8
1639093
jgy@
jiuyang.c
om
.cn
shaojis
heng@
joyoung.c
om
.cn
(Genera
l)
htt
p:/
/joyoungbra
nd.t
mall.
com
/
11
美的
MID
EA
Qualit
y
depart
ment
0510-8
5347199
0757-2
6338888
0510-8
3704003
serv
ice@
mid
ea.c
om
.cn
广东省佛山市顺德区北滘镇美
的大道6号美的新
总部大楼
htt
p:/
/ww
w.m
idea.c
om
/cn/
12宝柏小霸王
BB
XB
W杨先生
18029326810
400-6
78-5
122
htt
p:/
/ww
w.b
bxbw
.com
13
半球
PE
SK
OE
Ms L
ijing
13823935497
400-6
86-9
345
sale
s@
peskoe360.c
om
htt
p:/
/ww
w.b
anqiu
jituan.c
om
/about.
asp
?id
=3;h
ttp:/
/ww
w.p
eskoe360.c
om
/help
.
asp?id
=666(fty
)
14
老板
RO
BA
M0571-8
6281888
0571-8
9176329
robam
@ro
bam
.com
htt
p:/
/ww
w.a
iqin
.com
/
15
家家
乐G
AG
ALE
M.
Chen
(sale
s a
nd
qualit
y)
18680185286
0760-2
3978333
总机
639593651@
.com
htt
p:/
/ww
w.g
agale
.com
.cn/b
rand.a
sp?ci
d=
17
16
龙的
LO
NG
DE
86-7
60-2
3822888
longde@
longde.c
om
longde@
longde.c
om
.cn
广东省中山市小榄工业大道中
3
3号
htt
p:/
/ww
w.longde.c
om
17
艾美特
AIR
MA
TE
CH
INA
0755-2
7642857
0755-2
7655988
or
27642482
serv
ice@
airm
ate
-chin
a.n
et
(售后服
务)
广东省深圳市宝安区石岩黄峰
岭工
业区
ww
w.a
irm
ate
-chin
a.c
om
18
人民
PE
OP
LE
0577-6
1731103
(SA
LE
S)
0577-6
2738888
people
@chin
apeople
.com
ww
w.a
irm
ate
-chin
a.c
om
37
Na
me
of
reta
ile
r
En
gli
shC
ate
go
ryM
ain
pro
du
ct
Se
ll
inte
rna
tio
na
l
bra
nd
Se
ll d
om
est
ic
bra
nd
Se
ll p
riva
te
lab
el
bra
nd
Re
tail
sto
res
Ch
ain
sto
re
(on
e b
ran
d)
Sp
ace
in
spe
cia
lize
d
sup
erm
ark
et
Sh
op
in
sho
pp
ing
ma
ll
On
lin
eC
om
me
nts
EG
OE
&E
To c
heck
To c
heck
No
Shoppin
g m
all
Vis
it s
hoppin
g t
o fin
d m
ediu
m s
ized b
rands if any
BU
YN
OW
E
&E
Dig
ital pro
duct
To c
heck
To c
heck
No
Shoppin
g m
all
Vis
it s
hoppin
g t
o fin
d m
ediu
m s
ized b
rands if any
5S
TA
RS
E
&E
Yes
Yes
2Y
es
3C
reta
ilers
with p
riva
te b
rands (
2),
inve
ste
d b
y
bestb
uy
XIN
MIN
ZH
UE
&E
Speaker,
Am
plif
ier,
Pro
jecto
r
confe
rencin
g s
yste
m,
DJ
equip
ment
Yes
Yes
Yes
Reta
iler
selli
ng 3
rd lin
e d
om
estic b
rands
ZH
EN
GK
E &
RO
GO
E&
EW
ate
r heate
rB
rand
Yes (
ie.
Sunin
g)
3rd
lin
e d
om
estic p
roducts
(ow
n facto
ries)
RIW
AE
&E
Hair d
ryer,
Curlin
g iro
n,
Hair
clip
pers
, R
azors
, S
havi
ng,
Beauty
pro
ducts
Bra
nd
??
Yes
3rd
lin
e fore
ign b
rand,m
ain
ly focus in
desig
n,m
ark
eting..
facto
ry in d
ongguan (
OE
M),
40%
benefit
, e-b
usin
ess
PO
VO
SE
&E
Hair d
ryer,
razor,
ele
ctr
ic
irons…
Ow
n a
nd o
thers
Yes
2nd lin
e d
om
estic b
rand w
ith facto
ry
CY
BE
RE
&E
Dig
ital pro
duct
Yes
Yes
No
Shoppin
g m
all
Vis
it s
hoppin
g t
o fin
d m
ediu
m s
ized b
rands if any
JOY
ON
GE
&E
Sm
all
household
(fo
cus o
n
soym
ilk)
Bra
nd
Yes (
ie.
Sunin
g,
Gom
e)
2nd lin
e d
om
estic b
rand w
ith facto
ry..
..as it
focus
on s
oym
ilk p
roduct.
..is
it
possib
le for
them
to
subcontr
act
the o
ther
pro
duct?
MID
EA
E&
EA
ir c
ontd
itio
nin
g,
3C
Bra
nds
(inclu
din
g s
ub
bra
nds lik
e
Little S
wan)
Yes
Yes (
ie.
Sunin
g,
Gom
e)
Second lin
e d
om
estic b
rand w
ith facto
ry,
subcontr
act
the s
mall
hom
e a
pplia
nce
bra
nd(O
EM
)
BB
XB
WE
&E
Wate
r heate
r, h
ood,
sto
ve,
cooker
Bra
nds a
nd
sm
all
sub
bra
nds
Fra
nchis
eS
econd lin
e
bra
nd (
and s
om
e s
mall
bra
nd),
facto
ry?
PE
SK
OE
E&
EH
om
e a
pplia
nce
Bra
nd
Yes &
Fra
nchis
e
+ a
gent
No
3rd
lin
e b
rand w
ith facto
ry,
whic
h a
uth
orize its
bra
nd t
o b
e p
roduced.
RO
BA
ME
&E
Kitchen a
pplia
nce
Bra
nd
Yes &
franchis
e
Yes (
ie.
Sunin
g,
Gom
z)
2nd lin
e k
itchen a
pplia
nce b
rand in C
hin
a w
ith
ow
n facto
ry
GA
GA
LE
E&
EK
itchen a
pplia
nce
Bra
nd
Yes &
franchis
e
Yes (
ie.
Sunin
g,
Gom
z)
2nd lin
e k
itchen a
pplia
nce b
rand (
main
ly b
ott
om
of th
e lin
e)
with facto
ry
LO
NG
DE
E&
EH
om
e a
pplia
nce
Bra
nd
Yes &
franchis
eN
o2nd lin
e h
om
e a
pplia
nce b
rand (
bott
om
) w
ith
facto
ry
AIR
MA
TE
CH
INA
E&
EH
om
e a
pplia
nce
Bra
nd
Fra
nchis
eY
es (
ie.
Sunin
g,
Gom
z)
2nd lin
e h
om
e a
pplia
nce b
rand (
bott
om
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ut
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n
38
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