How I Started a Contract Guitar Manufacturing Business in China
Since childhood, I dreamed of buying a Jackson DK2 electric guitar. In Russia, one cost from $1,000. I didn’t have that kind of money. I found an American on a forum, he offered to help me buy a guitar in the US. Together with delivery, it cost me $300. I realized that I could make a business out of it. I made a website and started buying and selling guitars.
Until last year we were a dealer: we bought instruments from large suppliers and sold them at retail. We decided to start our own contract manufacturing. Through music exhibitions I contacted manufacturers in China, visited their factories and concluded direct contracts.
We decided to produce our own goods to control prices and improve quality. When products are supplied only by third-party dealers and stores, they set any prices. This breaks the market, and we cannot trade at a loss. Therefore, we need a clear pricing policy. We know the product well and can make it better than our competitors without raising the price.
Where to open contract manufacturing? Russia, the West or China?
We started thinking about where to produce. In Russia, producing such goods is unprofitable because:
There is no necessary equipment and technology. Machines will have to be purchased in China or the West.
There are no trained staff. It is necessary to send specialists abroad or hire foreigners to train local personnel.
Requires large investments with a long payback period. Neither large nor small investors will agree to this, even with government support.
The Russian market is too small — only 150 million people. For example, in China the market is 1.5 billion plus the rest of the world.
The options in the West are also out: all capacities are occupied by large corporations for years to come. If you do not have an order for tens and hundreds of millions of dollars, you simply will not get into Western production.
We decided that we would manufacture in China. We considered three options:
Make from scratch. Long and expensive. Will take several years of work. Just searching for a factory that will implement an unconventional idea can take a year. Will have to be constantly on site and monitor the process so that everything is done correctly. Not suitable.
Take the finished model and re-glue the nameplates. Quick and easy. If competitors choose this option, they will end up with the same product with different names. This is unacceptable except for the most budget segments. Also not an option.
Take a finished model and refine it. For example, change the neck cut and the angle of the instrument's deck, experiment with painting. There are many nuances that will affect the final result. Depending on the model and factory, such modifications will cost from one to tens of thousands of dollars.
The last option was considered optimal and they settled on it.
Opening a production: a step-by-step plan
We contact manufacturers directly
A good way to reach a manufacturer in China is to attend trade shows such as Music China.
Foreign economic activity assistants who work with China help prepare for exhibitions. They study the site, look at which manufacturers will be at the exhibition.
Hello. My name is Boris Kolesnikov, I am from Russia. The founder of the company “SKIFMUSIC”, we have 31 stores in Russia. We want to produce guitars with you.
Just like in a regular market.
For the Chinese, we are potential clients. The larger the client, the more interesting it is for partners. They are interested in us, as we are in them.
All communication with the Chinese is tied to WeChat, a local messenger. WeChat has an internal translator. You write there in any language, and the other person immediately receives the translation.
As for live communication, about 70% of all representatives communicate more or less in English. 30% speak only Chinese. With the latter, all negotiations are conducted via WeChat. Therefore, English or a software translator is sufficient for communication.
You need to be careful at the exhibition, because you can easily be deceived.
Firstly, everyone tries to show the best exhibits. It may happen that you order a batch, and a completely different quality product arrives. Manufacturers understand this, but continue to work this way. In case of problems, they will simply apologize for the failure, but the money will not be returned.
Secondly, you can negotiate with a sales agent. These are intermediaries who collect orders and resell them to factories. Such front companies are found everywhere in China. They will tell you about their rich experience, how they work with famous brands. But they do not have their own production. As a result, you will pay additional percentages to the intermediary.
We make trial purchases
When we go to the plant for the first time, we look at the goods. Key factors: the quality of the final product and the cost per unit of goods.
You can also run into a sales agent at the plant. He will agree that he will show you the plant as if it were his own. You will not even understand that you were not talking to the plant employees.
Now we have a special person for inspection, a serious professional in the music industry. A native of Russia, he has lived in China for a long time and understands the local mentality quite well. We send him as an auditor. He goes, watches, shoots videos, communicates with the Chinese. They take him to restaurants, try to appease him with all sorts of goodies.
We order samples, bring them to Russia. We give them to our musicians or partners. The guys use them to understand what kind of specimen it is, whether it can be launched into production.
After selecting promising models, we began developing our own brands. We spent more than a year on the design of tools, accessories and boxes.
We conclude contracts for production
Contract manufacturing rarely works on volumes of less than a few thousand pieces.
The factory will not make an order for 20 guitars. This is what small factories do, where there are 10 employees and a batch of 100 guitars per year. This is a custom shop, guitars from $5,000. Expensive instruments, small batches. Doesn't suit us.
Factories have different cycles depending on the tools. Minimum 45 days, average 2-3 months.
We changed partners several times because the quality of the products decreased.
We come to the factory for the first time: everything is great, a good product. We order the first container, everything seems to be fine. Then we order the second one – a completely different quality arrives. Something was not glued carefully, somewhere the glue leaked, some unevenness, sloppiness. This may not affect the game in any way, but it looks unpleasant.
We start to sort it out – the other side shrugs: “It was an accident, we'll fix it next time.” But we prefer not to wait for the next time and immediately change the contractor.
Preparing the batch for shipment
In order to be allowed to import goods into the country, they must be certified. All electrical instruments must be certified: guitars, synthesizers, and digital pianos. It must be proven that they are safe to use. The entire process takes about a month.
Without a certificate, we will not be able to send a ready container. Each day of downtime at the terminal is 30 thousand rubles. If it is standing for a month, we will pay a million for the downtime.
All documents must be ready before shipping. Therefore, we bring goods that require certification in advance. To speed up the process, we specially make several tools outside the series and quickly send them to Russia.
Specialists examine the instrument for safety and issue certificates. After that, we get the right to import it into the country.
We send goods to Russia
There are several delivery methods. Sea: long and cheap. Air: fast and expensive. There is also delivery by rail and road, they are approximately equal in terms of time and price.
We mainly use air and railway options. Delivery of one container will cost 10-12 thousand dollars. This price is currently growing due to the shortage of containers and problems with logistics.
While everything has not yet left China, our employees are simultaneously making invoices and declarations. We collect orders and pack them into containers. We order carriers for the containers.
With these carriers we go from China to Russia. We get to the logistics customs terminal in Moscow. Then we officially clear all this through customs, receive all the documents.
We accept for storage
After customs clearance, the goods will go to the warehouse, where they will be accepted and will become available for purchase.
To automate warehouse operations, we use the system MyWarehouseThis simplifies all operations: receipt, movement, inventory, shipment.
Example. The container leaves China. We immediately enter the batch codes into the system. The goods arrive at the warehouse, we synchronize the data. We unload the truck and start checking. Here we have 250 black guitars, and there 50 white ones. The goods are accepted automatically. We press on the terminal: next, next, done. That's it, the goods are accepted.
It's similar with other operations. Synthesizers are needed in a certain store. Assemblers see this, assemble the necessary items, and send them on.
The warehouse module exchanges data with our business management system. In real time, we see how and where the goods are moving, where what balances are, what goods are needed in which store. It is convenient.
How long will contract manufacturing take?
Bringing a product to market takes more than six months. In rare cases, it can be done in 3-4 months.
Concept development: 1-2 months. If the product is new, it may take longer. In addition to the product itself, we make packaging for it, various decorations on the boxes.
Production: 2-4 months depending on the product.
Logistics: 1.5-2 months.
There are positions that need to be refined.
We want it redone. It's not a quick process. It will take weeks at best, months at worst.
Conclusions
Producing private labels makes the market more stable and allows for better price control.
For contract manufacturing, China is the best option. They will make anything for any budget.
Industrial exhibitions are a great way to make the right contacts and reach manufacturers directly.
If the goods require mandatory certification, it is better to take care of this before sending them to Russia. Downtime at the terminal will cost a pretty penny.
There are subtleties in working with China, knowledge of which saves time and money. Try not to fall for the tricks of sales agents. If the quality has decreased after trial batches, it is easier to change the contractor.
The material was prepared for the blog MoySklad based on an interview with the founder of a chain of music stores SKIFMUSIC Boris Kolesnikov.
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