Earthquakes in Taiwan, the Chinese New Year and flooded T-shirt factories in Bangladesh are some of the Acts of God that can cause havoc to sourcing companies already under pressure to trawl the world for quality premiums at competitive prices.
At the same time agencies must balance the tighter lead times that brand clients are demanding with ensuring they do not fall foul of legislation and quota systems introduced by the European Union (EU) in order to crack down on poor quality and dangerous premiums being promoted in member states.
It is no longer a straightforward process to import premiums and many UK companies now employ staff from the import country. International Promotional Resource, for instance, has a Hong Kong office and a sports bag manufacturing facility employing 300 people on mainland China in a partnership with the Chinese government.
Managing director Robin Gale says he opened the factory because local plants can have difficulty understanding that western clients may want to save money, but they still require a certain level of quality and a fast turnaround.
“We now have in-depth local knowledge of market conditions and know what external forces can affect lead times and plan accordingly,” he says.
He adds that factories in China will close down for up to a month around the Chinese New Year as people return to their villages, often 100 miles away, while it is pointless budgeting for a T-shirt order from Bangladesh during its rainy season as many factories are easily flooded.
More recently Gale had to transfer an order for nylon material products after the earthquake in Taiwan. The number of manufacturers in the region has reduced this year and those that remain have been keen to raise their prices, some by as much as 30 per cent. “The earthquake has given them an excuse to do this but because we build into every order the possibility that there may be a delay for whatever reason we had time to shop around and get a reasonable price,” says Gale.
Another UK company with offices overseas is below-the-line marketing agency Tarantula which sources premiums for clients including BAT, Kimberly-Clark and Allied Domeq. Its main base is in London but it has international offices in Russia, Denmark, China and the Ukraine.
Managing director Steve Harding says brands wishing to grow their market share in places like Russia can face bureaucracy at local customs and lengthy delays if the correct paperwork is not in place.
Three years ago after experiencing its own difficulties with sourcing, Twenty20 CbH appointed Maria Rey as internal purchasing director to oversee this part of the business.
She says that when sourcing direct a company needs a reliable agent based in the country of manufacturer who can relate to cultural differences and check the quality control procedures at the factories being used. “We feel happier doing things ourselves rather than using a sourcing agency. When we start researching a promotion we will contact the DTI to find out which import duties, taxes and insurances are payable,” she says.
There are varying import duties for different products and, according to Customs & Excise, premiums can be considerably cheaper if bought from countries eligible for Generalised System of Preferences (GSP) status with the EU.
Those that enjoy GSP status are developing countries which are awarded reduced import duty rates to assist their export trade. The GSP scheme was introduced in 1971 and revamped in 1995 to make the preferential terms partly conditional on countries meeting certain environmental and social requirements.
The import tariff for small toys, such as those used as food premium inserts in a packet or carton, is four per cent, but only 2.8 per cent if bought from a GSP country; fluffy toys are charged at 4.7 per cent (GSP 3.2 per cent) and cotton T-shirts and sweatshirts at 12 per cent (GSP 10.2 per cent).
It is worth noting, however, that the European Commission is aware of which countries have thriving industries for supplying promotional items. Thus China and Thailand are excluded from the GSP scheme for toys and sweatshirts. The EC also refuses to grant a GSP level for promotional footballs and rugby balls that are ordered in their thousands from countries including India for big sporting events, such as this year’s Rugby World Cup.
The EC also has a number of safeguard clauses in place to protect manufacturers and consumers in member states. If it feels producers based in the EU are being threatened by a flood of imports it can revoke GSP status, as has happened with China and Thailand for some products.
This policy has forced sourcing companies working to a tight budget to switch to other countries such as Vietnam or Korea for example.
The EC can also withdraw GSP benefits if it discovers items have been produced using fraudulent or discriminatory trading practices such as employing child or slave labour, a criticism made of some factories in the Far East in the past. Today, however, it is rare for such items to find their way into the UK.
A spokesman for Customs & Excise warns that suppliers in non-GSP countries can try to bend the rules. “Although a lot of developing countries in the Far East, Asia and Africa have GSP status there are occasions when manufacturers from other nations will put false labels on goods and claim they were made in a GSP country. The EU demands proof of origin and proof of manufacturer, and if the importer cannot supply the correct documents they will face extra tariffs at customs which might bust a brand’s budget,” he says.
Any brand running a premium promotion is also responsible for ensuring the product, wherever it was sourced in the world, meets European safety standards. This can mean a lengthy testing procedure and possible delays must be built into the marketing schedule.
The main European standard for small toys, such as those inserted into a packet, is EN71. If there is any risk the product could come into contact with food it must be flow-wrapped in a continuous strip using food grade material. A sensory test must be also be carried out to ensure there is no odour contamination from the premium.
Even when these standards have been met and a safety certificate obtained from a testing laboratory, the promoter must check that the CE standard mark is printed at least 5mm high on the wrapper and accompanied by a safety warning or the brand’s address.
Sales promotion agency Megaprint represents Kellogg’s and Walkers and director Brenda Simonetti says an increasing number of EU directives are affecting toy inserts.
“The biggest impact of new directives is on lead times. Gone are the days when premiums could be sourced and delivered in a matter of weeks. Today adequate time must be left for testing such things as inks, varnishes or glues on products that will be near food or could be accidentally swallowed by children,” she says.
Logistix Kids, which specialises in marketing to children, has a close relationship with toy manufactures based outside the EU. Premium development manager, Kate Warren, says it is important sourcing agencies work closely with their client in the early stages of a promotion to ensure all parties are aware of exactly what design and testing rules must be met to ensure a premium is safe.
Product safety adviser at Rospa, David Jenkins, says brand managers should talk to local Trading Standards officers if they are unsure about what products they can use because consumers can take civil legal action if they are injured by a premium. Initially a case would be against the manufacturer, but if this was unrealistic because the factory was located overseas the company running the promotion could face action.
“Any company putting its name to a promotion is liable if something goes wrong, which emphasises how important it is to ensure all safety regulations are met – however long the process takes,” he says. To protect themselves brand managers should ensure they have a system in place to trace a finished premium through each stage of production, right back to the raw materials used.
Companies planning global or pan-European promotions must also remember that countries have different rules about which products they allow. The US has banned nylon and polyester imports from the Far East to protect its own manufacturers, although companies are getting around this problem by using pvc-based substitutes, while Germany has arguably the strictest environmental rules in Europe and insists on Azo-free material.
As well as the DTI, The British Promotional Merchandise Association (BPMA) can advise on which products and materials are banned around the world as well as explaining the impact of EU regulations. BPMA chief executive Marian Elliott says too many companies are unaware of how quotas work, while marketing teams should be looking at ways to reduce the amount of packaging they use for premiums in time for the introduction next year of new EU regulations concerning how companies dispose of their packaging waste.
One way to avoid many of the problems associated with sourcing products from outside the EU is to use UK suppliers. The main argument against this has always been that home manufacturers cannot compete on price with factories in the Far East because labour costs are so much higher.
Yet some UK factories are winning orders, particularly for injected plastic toys, by making their machinery available at a reduced cost when otherwise it would be idle. These manufacturers are not necessarily making a profit from serving the premiums industry but they are covering their own labour costs and some of their other overheads.
One company which makes a point of sourcing from UK suppliers wherever possible is Marketing In Mind, which supplied items to The Referendum Party during the last General Election campaign. “I can supply orders for printed T-shirts within a day and conference cases within a week by using UK firms. This fast turnaround is appreciated by companies used to waiting three to four weeks for an order from the Far East,” says owner Steve Wickes.
Sourcing promotional items can be a minefield for companies that are not aware of the latest regulations, which means everyone involved in a campaign must allow enough time to ensure that what begins as a brand building exercise does not become an expensive disaster.