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Category Archives: Silk Road

It’s common to evaluate potential supplier and supply chain partner’s financial position before placing an order or signing a contract. In fact, most purchasing departments these days, require obtaining supplier key financial data as a standard part of the procurement process. This financial data is then evaluated by the company finance or accounting department and the risk associated with the supplier or supply chain partner is determined. If the supplier is a publically traded US company, that’s easy to do as these companies must comply with SEC rules on financial reporting. But you should be leery of accepting information provided by Chinese suppliers at face value.

China’s largest banks typically only lend to the largest corporations, leaving small and medium sized suppliers to obtain loans from friends and relatives or from a “shadow bank.” Shadow banks are private lending companies that are not regulated by the Chinese government. These shadow banks lend money at a much higher rate of interest, squeezing the small suppliers’ already-thin profit margins. So if you are buying from a Chinese supplier, you should ask and verify where their working capital comes from. You just might find that some suppliers cannot make their loan payments and will simply shut their doors and disappear, leaving you scrambling to find another manufacturer. Finding working capital in China is risky business.

Enter: The Bank of Foxconn. Foxconn, the world’s largest contract manufacturer and maker of iPhones, iPads and many brands of laptops, has ventured into the lending world. To protect its suppliers from the pitfalls of shadow banking in China, Foxconn is now making business loans. That makes Foxconn the banker for the world’s electronics supply chain. And Foxconn isn’t the only company to provide banking services in China. Baidu (the “Google” of China), Alibaba (the “Amazon” of China) and Tencent ( WeChat and mobile games) all have lending banks, too. Lending to small and medium businesses provides higher returns to Foxconn than they can make on their contract manufacturing business. It also provides an opportunity for suppliers to borrow at a lower rate than from shadow banks. Foxconn reportedly has obtained licenses from Chinese local governments to provide loans, factoring, financial guarantees and equipment leasing.Foxconn

When evaluating suppliers, be sure to ask where their funding comes from, and don’t be surprised if the answer is the Bank of Foxconn.

Spices have been traded in Istanbul for 2000 years

I spent the holidays on vacation in Venice and Istanbul on a mission to understand more about these two important end points on the Silk Road. Starting around 200 BC and extending 4,000 miles, the Silk Road got its name from the lucrative Chinese silk trade and tea trade in exchange for spices, nuts and jewels from Europe and the Middle East.  In addition, various science and technology innovations were traded along with religious ideas as well as the bubonic plague.    The Silk Road was a significant factor in the development of the great modern civilizations. 

Very few people actually traversed the entire Silk Road.  Mostly it was made up of agents and merchants who bought and sold goods along the way.  At major points, great bazaars opened to facilitate a meeting place for traders.

Istanbul is a city that spans the continents of Asia and Europe and was the end of the overland Silk Road.  Merchants took their goods to the Grand Bazaar where they also traded ideas and innovations.  Walking through the Istanbul Spice Market and Grand Bazaar you can just imagine what it must have been like centuries ago packed with merchants bargaining with one another.  The influences of both Asia and Europe are evident here in the architecture of places like the Blue Mosque and the Hagia Sofia representing Islam and Orthodox Christianity.  And of course in the history of its name: Constantinople and Istanbul.

Venice became a major trade port in the Middle Ages when the Chinese Treasure Fleet (at least 100 years ahead in the mathematics needed for navigation) sailed in, ladened with treasures from China.  In Venice you can see the influence of Asian architecture in the mosaics installed in the Basilica of San Marco.  In the Doge’s Palace the famous maps show the Americas and Australia long before Columbus “discovered” the new world.  Plenty of evidence indicates that the Chinese heavily influenced Venetian map making in the 1300s and early 1400’s.  Just imagine what the Europeans and Chinese thought of one another.

I tried to imagine what it was like in these two cities in the Middle Ages.  With a little site seeing at the Spice Market and a walk through San Marco, it wasn’t hard to do.