Understanding Why You May Want It Made in China
We can name three reasons to source production from China:
| ✓ | Cost: Chinese factories are often able to produce for less because overhead is cheaper and because they can use manufacturing models that are newer and more efficient than in the West. China’s low-cost labor can mean savings on labor-intensive goods. |
| ✓ | Capability: China is set up for business. It has good infrastructure, qualified engineers, and thousands of companies ready to supply parts or services. China can be a one-stop shop. |
| ✓ | Markets: Your company may want to someday sell in China. Setting up a supply chain in China now can make selling much easier when the time comes. |
Outsourcing, brieflyChina offers selective opportunities for businesses to outsource certain functions. For instance, a number of multinationals outsource software development to China, which is where China’s strength in outsourcing lies. However, the software outsourcing market in China is highly fragmented, with about 8,000 providers. Only the 15 or so largest companies have more than 150 people. Most firms are Chinese-owned. China’s cost in this area is usually lower than India’s, but depending on whom you ask, China is 10 to 30 years behind India in developing its outsourcing industry. The main reason is India’s better English capability. As a result, China isn’t as strong in business process or enterprise application outsourcing as India is. China does have a unique feature in the outsourcing market, though. In northeastern China, a number of people are proficient in Korean and Japanese. As a result, China is in a strong position in outsourcing for those markets. |
Just because you can get something made cheaper in China doesn’t mean that sourcing from China is a good idea. Your product may cost a fortune to ship. Poor-quality parts or the loss of intellectual property are important intangible costs to think about. Outsource to China only when
Cost in China + shipping + other costs < cost at home
The best products to source from China are those that require a lot of labor and/or that will be produced in high volumes. In most cases, products that are entirely machine made should be made at home — the machine that makes them will cost the same there as it does in China. Having custom jobs or small batches done in China usually isn’t a good idea because China doesn’t yet have an artisan class of skilled workers who take pride in producing short runs of quality products. Most Chinese factory workers are best at simple and repetitive tasks.
