Outsourcing Manufacturing to China
If you are a new start-up or SME (Small and Medium Enterprise) wanting to keep costs down and considering outsourcing your manufacturing to China, you may find, what should be a relatively simple task, is a challenge more daunting than expected.
Unfortunately, outsourcing your manufacturing to China is, in reality, quite a difficult task and not for the reasons you might think.
Before we go any further along this downward slope, let me also emphasise that there are many benefits of having your products produced in China.
Disadvantages/risks of Having Your Products Produced in China
- The protocol of being able to enter Southern China, which is now recognized as being the global manufacturing centre is complicated.
- Unless you speak the correct Chinese dialect (of which there are many) there is the language barrier.
- A translator / intermediary may be required. Efficient and easy technical communication cannot be taken for granted.
Advantages/benefits of Having Your Products Produced in China
- Production costs are generally lower than in the West.
- Products can be produced to a very high standards, at least ISO9000 accredited.
- Speed of manufacture from prototype to finished article.
- Low cost prototyping.
Start-up Scale Up
For a start-up business aiming to scale up its manufacturing output fast, China, is definitely the place of choice at the moment.
Although reduced production costs are certainly a factor, the speed at which you can go from drawing board to prototype to manufacture to customer is the other major reason for choosing China.
For designers and manufacturing start-ups, places like Shenzhen, just north of Hong Kong, is a huge production resource. You have access to the latest, high tech prototyping tools, combined with high speed manufacturing.
If you are tempted to take your manufacturing to China, it may be beneficial for you to work with an intermediate company based in both your country and in China. This overcomes any language barrier and gives a greater opportunity to strike profitable deals.
Companies such as Red House Global, enable start-up companies to negotiate directly with the factory. They can make regular factory visits to check on quality and resolve problems quickly, saving you time and money.
Disadvantages of Using an Intermediary
- You lack control over where your products are manufactured.
- Intermediaries are not charities and need to take a cut on the profits as well.
Advantages of Using an Intermediary
- Should have the relevant export/import licenses that are required.
- Can combine orders for different companies, enabling a lower freight cost per unit.
- Has an established network of manufacturers in China and the ability to further expand.
If you only require relatively small quantise, less than a container, an intermediary can usually maximise container space by combining several smaller orders from several companies into one container so saving delivery costs.
The Future of Manufacturing in China, Higher Wages and Rising Currency
As far as the long term goes with regards manufacturing in China, it’s no longer a guarantee for manufacturers looking for the lowest cost.
- The cost of manufacturing in China is going up and it’s rising quickly.
Due to an increased standard of living, higher labour wages, the rising value of China’s currency, the rising cost of fuels and the cost of shipping goods from China to global destinations, all have made manufacturing in China far more expensive than in even the recent past so eroding China’s manufacturing advantage dramatically.
It’s estimated by some that the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the West by 2020.
Hourly wages have been going up steadily due to China raising minimum wages, an average of over 10 percent annually in some cases, while competition for labour has forced manufacturers to pay more to attract skilled workers and keep them.
As the cost of manufacturing in China has risen, so have reports of companies relocating to inner or western China where labour costs are lower or pulling their manufacturing plants out of the country to find cheaper locations, though it’s unlikely there will be a mass exodus of manufacturers from China.