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One challenge all companies face today is the need to get new products to the market as quickly and as efficiently as possible.
We are aware that China is one of those markets that offer the ability of manufacturing an extensive variety of products and at the lowest rates. While outsourcing is an attractive proposition, companies using outsourcing services should be aware of the pros and cons.
Putting your manufacturing unit in China can be advantageous in many ways. To maintain international competitiveness, be strategic. Strategies can be positioned around reducing component costs in existing or future product lines. For American companies the emphasis should be on strategic engagement in manufacturing with Chinese partners, making the investment into people and structures and determining involvement based on indirect as well as all direct costs.
One of the key benefits is that outsourcing enables companies to cut operating costs. For instance, training costs can often cut into profits. This is especially the case in high turnover jobs such as customer service call centers. Lower salaries are a part of this benefit, though the benefits go much deeper. For instance, each employee that does not work “on site” means one less computer, and no extra or costlier maintenance costs, so outsourcing may provide a better option.
Manpower is possibly the most important resource in any company, and is also one of the largest expenses. By outsourcing to China you can reduce costs by between 30 and 80 percent depending on the labor intensity of the product. These outstanding rates will lower your cost of production exponentially.
Outsourcing production of a new product can allow you to get to market sooner than if you had to build your own factory, acquire equipment and hire employees. In addition, it can bring production closer to Asian and European markets, in case you’re looking to expand your global footprint.
When you have the manufacturing team based in China, you additional insights into foreign markets. Most companies who manufacture products in this country are likely to diversify their reach and try some of the common local products and this can help in improving your business growth.
The Asian market is growing at an incredible rate. When your manufacturing unit is in China, it becomes easier to sell into the Chinese market, which expands your global footprint and can lead to massive growth in your company.
As with any business venture, it is always advisable to analyze the pros and cons. Here are some of the problems you may encounter.
A big issue facing companies considering manufacturing in China is quality control.
China can appear very impressive on the surface in that many products look good, but the many standards and regulations differ from American ordinances. That’s why it’s important to have an agent in China that can make sure everything is up to par.
Don’t rely on low quality materials just to keep your cost in check. Regardless of the amount of manufacturing you plan to do, using low quality materials is not encouraged because it’s going to impact the overall reputation of your business.
When you have your manufacturing base in China, you have to be very careful regarding copyrights, trademark and plagiarism. Ip law is very different in Asia, and you should work that into any contract that you and your business associates sign.
Most Chinese are not proficient in English. Your business operations could be hindered if neither speaks a common language. If that’s the case, you’ll need a translator or effective bilingual speakers who can help in establishing the right platform between the two teams. If you can’t deal with this problem, it couldlead to some serious issues for your business.
Manufacturing in China is both challenging and changing. If you are investing in China for the long haul, your business strategy needs to be driven by factors other than low costs.
Now that you have an idea of manufacturing in China pros and cons, you can weigh both the aspects and come to your own decision.
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While Baysource can accommodate varying types of needs related to sourcing in Asia, we generally focus on later-stage businesses who are looking to extend, improve or increase their scope of manufacturing.
If you have a general inquiry feel free to let us know and we will make every effort to respond in a timely manner.
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In the past few decades, China has grown to become a significant economic power. Much has changed for the country since the government decided to allow international trade and embrace the global market. China’s economic wheel began to turn very fast. These days, China is a giant, not only in terms of manufacturing but also in purchasing power. The country’s GDP is expected to reach $17.2 trillion in 2023. China’s large population plays a crucial role in both aspects. The large workforce means relatively inexpensive wages and a huge market to sell products.
It is not surprising, then, that even the most significant most reputable brands in the world have been shifting manufacturing to Chinese factories for a long time. They get the benefits of low production costs and, in many cases direct market access to Asian consumers.
China’s outsourcing market is $23.3 billion with growth as fast as 30% in 2014. Many companies from other countries have moved their own headquarters to China to establish a business. Compared to many of its neighboring countries, China retains its place in the low-end industry segment better. The government has hugely supported this, introducing subsidies, incentives, and good infrastructure to keep local companies in a highly competitive global market.
However, this does not mean that China excels only in manufacturing low-end products. There has been an ongoing effort to make higher-value products. HSBC reported that China’s transport equipment and machinery industries grew 46% in 2015 (a significant increase from 21% in 1995) even when its lower-value exports declined.
The main reason to consider manufacturing in China is the lower manufacturing cost. Low production cost, especially for mass-market products, means you have enough supply to maintain competitiveness in the market. Some companies also choose to outsource to manufacturing facilities in China to ease the distribution process to other countries. When the manufacturing process is properly handled elsewhere, your company can focus its resources on research and development for future products.
Here’s a more detailed explanation of some of the biggest advantages of manufacturing in China.
Working with a manufacturing facility in China means reducing the production cost without reducing volume output. This is by far the primary reason why U.S. firms and entrepreneurs put up with the disadvantages of manufacturing on the other side of the world.
Some domestic factories in the U.S. are limited in capacity and time, but this is never the case with their Chinese counterparts. Once again, cheap labor costs play a crucial role in this aspect. You can hire more people to complete volume-demanding production while requiring less money than domestic facilities. There are certainly ethical considerations regarding the low labor cost in China, but not all facilities are exploitative. Do your due diligence.
When you have products made in China, you can also market the goods to the local market. Companies that outsource production do more than oversee the manufacturing process. They follow up by establishing a supply chain and local marketing efforts. They hire local employees and acquire equipment to support their ventures.
There is no need to ship the goods overseas because the factories are already in China. With over 1.3 billion potential consumers, you get the promise of good returns. This is a big advantage if you plan to sell your product abroad.
The biggest caveat is that manufacturing overseas typically only makes sense if you deal with large production runs. Manufacturing in China also comes with many drawbacks, which can only be offset when you take advantage of bulk ordering. Depending on the type of products you plan to make, overseas outsourcing may not be a viable option at all. Weigh the benefits of cheaper labor against the following significant disadvantages:
The first challenge is the difficulty finding the right factory that’s willing to manufacture your products. It takes extra effort to develop relationships with facilities on the other side of the planet.
It’s critical that you do your due diligence here, not only so you know you’ll receive good service but also to make sure that the facility you’re considering is reliable and above board. You should make at least one trip over to visit them for yourself if you can.
You can look for companies online or visit tradeshows. This involves added costs, stress, and time. It can also be challenging to find factories in China interested in dealing with you unless you’re looking to manufacture hundreds of thousands of units.
Here’s a worst-case scenario that’s more common than you’d believe. A factory will agree to take you on as a client, but because they are typically dealing with multi-million-unit orders, you barely register on their radar at all, and your product order is delayed and neglected.
China has opened itself up to international trade, but that doesn’t mean everyone is proficient in English, and you probably don’t know much Mandarin or Cantonese. Hiring a translator can make the business run smoother, starting from the initial negotiation to the production process. There are a lot of things you’ll want to discuss with your Chinese partners, making a translator necessary. But, again, this is a cost that you need to weigh against the savings in labor costs.
Shipping can be a real pain. Shipping from China means having your products packed up and put on cargo ships that sail around the globe. This leads to long lead times and significant shipping costs. Depending on your distribution network, these costs can vary. How you deal with the items once they arrive state-side is also an important consideration.
It is usually much easier in this regard to deal with local manufacturers. Inventory management becomes very important when you’re dealing with international lead times. If your items are out of stock, your customers will go elsewhere. The added time spent in transit means you always need to think two or three steps ahead when dealing with overseas manufacturers.
There is a certain stigma attached to the ‘Made in China’ label and a certain prestige attached to products ‘Made in the U.S.’ Whatever you might think about the validity of these notions, the reality is that many consumers value domestically manufactured products and are often willing to pay a premium for them.
This is something to consider if the margins you would make by manufacturing in China are marginal. Once all the shipping, travel, and translation costs are taken into account, consider that you might be able to sell your product at a higher price point with that coveted “Made in the U.S.” label.
We’ve all seen those knock-off purses and sneakers that are made in China out of shoddy materials and are quick to fall apart. However, manufacturing in China isn’t necessarily a death sentence for your product. In fact, Chinese manufacturers produce good products more than they do bad ones.
There is one caveat to that, which is that you shouldn’t manufacture complex, sophisticated items in China like electronics or clothing with intricate designs. If your product is a simple textile or gadget with just a few parts, you shouldn’t come across any problems as long as you vet your manufacturer. Make sure to routinely check the factory for quality. If you do go with the Chinese manufacturer, connect with an agent who can ensure the factory is always following best practices and that the goods are being produced accurately and on time.
Because Chinese workers typically work for less (meaning lower profit margins), the factories require very high minimum orders. If you’re looking for small-batch manufacturing or one-offs, you’ll have trouble getting your needs met in China.
One of the concerns associated with manufacturing in China is the risk posed to intellectual property (IP). The enforcement of IP protection is an issue consistently raised by the US-China Business Council (USCBC), and fortunately, the Chinese government has recognized this concern and IP protection is improving. For example, the Chinese government has begun to increase the number of IP courts to help manage IP issues.
However, there are still challenges. With long-standing issues in terms of uneven enforcement, trade secrets, and procedural barriers, it’s important for companies to be aware of the level of IP protection that they’ll need and to then develop corporate protection strategies to combat these risks.
Ways to Counteract Intellectual Property Risks: Patenting is a simple way to reduce the risk to your IP. Before manufacturing, you should register your IP with a trademark, brand name, copyright, or domain. This prevents copycat manufacturers from stealing IP without consequence and preventing someone else from patenting your IP. You don’t want to be in a position where you have to buy the rights for your own IP to continue manufacturing.
Changing the value chain of a product’s development can also help protect IP. One way to do this is by splitting research and development tasks between departments in the US and China. Compartmentalization can help keep critical components of the manufacturing process out of China, reducing the risk of copycat manufacturers employing reverse engineering tactics. Without the full picture, there is less risk to IP.
Alternatively, a company can establish a Chinese research and development department to strengthen its relationship with Chinese partners. Creating a level of trust with your manufacturing partners creates a greater incentive to avoid leakage. In addition, developing a good relationship between your company and the Chinese workforce is essential. If employees feel secure and wish to build a long-lasting career with your company, they will be more loyal, reducing risks to IP.
Whether you compartmentalize your company or expand research and development, the most straightforward tactic to protect your IP is to be proactive. Browse Cad Crowd’s patent services for more information on how to begin the patenting process so you can start protecting your IP.
The advantages and disadvantages of manufacturing in China need to be balanced out. You can’t have only one without having the other. The key to a stable manufacturing process is to consider your options carefully and take precautions.
Regarding rapid manufacturing and prototyping, you want to work with U.S. companies. U.S. manufacturing has seen a bit of an upswing in recent years as manufacturing becomes increasingly automated and labor costs gradually become less important. Starting with Trump’s presidency, the US government’s promise to penalize American companies manufacturing overseas is also something to consider. However, many of these promises have yet to come to fruition.
If you’re looking for U.S.-based manufacturers, Cad Crowd can help. Take advantage of our contract manufacturing services to connect with 3D printing, molding, or CNC providers in the United States. In you need help with design and engineering, you can launch a design contest or get a free quote today.
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