The Black Box Concept

The Black Box Concept with Mike Bellamy

from Fiducia Management Consultants

Recently China Focus had the opportunity to speak to Mike Bellamy, Founder & China Operations Director of PassageMaker, a US owned China based sourcing agency providing vendor coordination services. He moved to Asia in 1994 and has structured sourcing investments in over 200 production classifications for US and European clients during his time in China. Mike has double degrees in Diplomacy and Economics and an International MBA from the University of South Carolina.

What is the Black Box Concept?

Put simply, the Black Box Concept is designed to protect the intellectual property of our clients by having semi-finished or finished products delivered to our facility and behind closed doors, where we do the final branding or final assembly and inspection. In that way, the sub suppliers don’t see the finished product and it’s much harder for them to steal the ideas.

What kind of products can this concept be applied to?

We use the concept for everything from electronics to toys, from medical equipment to weapons and everything in between. So a wide range of projects, but they all have three things in common.

Everybody wants the China price, no matter what industry you’re in, that is important.

The Black Box makes sense if the customer is worried about intellectual property protection, controlling who has access to their ideas.

And the third factor is quality control, because we’re touching the product to assemble it – taking widget A and putting it in a box to make product B. Since we’re touching it, it’s very easy to inspect 100% of components at no extra cost, because the labour is the same, looking at something and checking the quality while you’re packaging it.

When and why did you come up with this concept?

I wish I was smart enough to come up with it on my own. In the beginning when I was starting PassageMaker almost a decade ago, we were serving primarily as an advisor, helping research suppliers and make suggestions about quality control. And then one of my customers had some really unique packaging and he didn’t want to share the packaging design with the Chinese supplier of the components for fear of being knocked off, so he asked me to put some people together in our warehouse and start doing assembly and inspection for him. So once we did that, our company grew from a few people to the 150 we have now doing assembly and inspection for a range of products including hardware, electronics, toys, car parts and even medical equipment.

Since its inception, how has it been accepted in the market? Has it been adopted, developed and widely used?

I think the problem is that unlike a doctor or a lawyer or a consultant, people just don’t realise that this service is out there. So we have to go out of our way to explain it as it can be a little bit complex at first. In terms of its adoption, there are a lot of trading companies out there and a lot of warehousing companies but I don’t know too many foreign owned companies, like us, based in China offering this service. So it seems to be unique.

What are your “tricks of trade” to ensure success?

That’s a good question, because it sounds simple: you just have a warehouse and some people assembling things, but in reality you guys at Fiducia know how important and difficult it can be to structure the business licencing in a way that allows our WFOE (Wholly Foreign Owned Entity) to legally do the things that we’re doing. So we have a trading WFOE and a manufacturing WFOE and that gives us the flexiblity to process a range of goods. We need the latter for activities that the Chinese government would perceive as manufacturing: a Bill of Components and Material come into the Black Box and something new comes out the other end- that’s manufacturing. So we have a manufacturing WFOE with a wide scope of business including toys, car parts, fabric and others, in total 45 codes long. If a product comes into our warehouse and maybe only needs packaging wrapped around it, or the addition of a barcode or a proprietary logo, in the eyes of the Chinese government, that’s not manufacturing, but rather is considered trading. Certainly one of the tricks of trade is that we have our business licence set up in the right way so we can import and export and process the VAT on behalf of our customers. In addition, we have the people, quality manuals, and training, but we also have physical infrastructure and all that is 100% under American ownership. This ensures that no local suppliers compromise or steal your ideas.

What role does your team and the team composition play?

Almost all of our customers, except for a few in Hong Kong and Taiwan, are Western and as diverse as Australian, Canadian, all over Europe, adding a few from Africa and recently, India. So we have a wide range of customers from around the world but they all want that American level of service at a Chinese price. Our niche is we have some well trained Chinese staff but our middle and top management are Westerners – people that speak both languages but may have an MBA or engineering degree from back in the US, and have been living in China for at least 5 years.

How does the work that PassageMaker do link in with Fiducia’s work?

Fiducia is excellent at helping foreign companies set up their operations in Hong Kong for controlling their supply chain in China and Asia, and we recommend our customers that want a permanent foothold in Asia, especially the customers that want to set up their own offices, to Fiducia. On occasion, Fiducia’s Hong Kong clients may like to have operations in China and perhaps would like to have a Black Box, but are not ready to set up their own operations immediately. We have been able to provide some mid term and short term services when the customer wants to outsource it’s assembly. We can use our own Black Box in China in coordination with the purchasing office that the client has set up in Hong Kong – so all of the good and none of the bad.

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