Manufacturing in China – What Are the Advantages and Disadvantages?

China is the world’s top manufacturer. However, in recent years China’s dominance in manufacturing has come under threat. Rising labour costs and geopolitical tensions have some businesses beginning to look elsewhere. With this in mind, we think it’s time to take another look at the advantages and disadvantages of sourcing from China.

Advantages

China produces roughly 1/3^rd of the world’s manufactured goods. Given their absolute dominance in this space, there must be good reasons why businesses tend to choose China for their sourcing needs. Let’s break it down.

Labour Costs

China’s economy has grown rapidly in recent years, and with it, labour costs have started to rise. However, they are still much lower in China than in western countries. In addition, the ratio of cost to skill is very good. This means that overall production costs are significantly lower.

Supply Chain

Take a quick look around the room you’re in. Choose any object. There is almost certainly a factory in China primed to produce that exact item en masse.

This robust network of factories contributes to fast, efficient supply chains within China. It means that many parts and items can be manufactured within the country, rather than imported from outside, saving time and money.

Infrastructure

China has invested massively in its infrastructure, resulting in excellent roads, railways, ports and airports. These allow goods and parts to move in and out of the country with ease.

Economies of Scale

China has some enormous factories. Thanks to the size of these factories, the advanced technology involved, and the huge pool of workers they can draw from, China can manufacture goods on a massive scale without sacrificing quality or consistency. Producing goods in such massive quantities results in a lower cost per unit for buyers.

Disadvantages

Intellectual Property Protection

Protecting your intellectual property (IP) in China can be challenging. Before manufacturing a product with a valuable IP, remember that China’s legal system does not respect judgments from foreign courts. As such, if you wish to have legal protections for your IP, you will need to register it within China’s legal system.

Choosing a trustworthy supplier is also important here. Even if you have the legal basis to protect your intellectual property, it is much cheaper to avoid having to sue.

Distance and Logistics

Shipping and customs can introduce unexpected delays. When you source from China, be sure to plan out your logistics thoroughly. Consider shipping times and customs procedures. Think about shipping costs. And include backup plans, so that you do not disappoint customers if a shipment gets held up.

Geopolitics

In a world of tit-for-tat tariffs, geopolitical tensions and trade wars, allowing your business to depend on China can feel like a risk.

Thankfully, there are ways to hedge these risks. Including break clauses in your contracts is one way to protect yourself from sudden changes of circumstance. Another is to spread production between China and other countries. This way, if you cannot source from China for a period, your second manufacturer can ramp up production to cover the shortfall. This might be overkill for most businesses, but it could be worthwhile if your product has a particularly hard to duplicate supply chain (e.g. smartphones).

Ethics

Chinese manufacturing has come under fire in the past over working conditions and pay. This is an area where China has been improving in recent years, with higher pay rates and worker protections.

However, if you are worried about the ethics of manufacturing in China, know that China is a huge country with countless factories. You can mitigate this risk by choosing your supplier carefully, and conducting a site visit yourself to see working conditions in the factory.

Sustainability

Sustainability is a key concern for businesses these days. China has a bad reputation on this front, as it is considered to be one of the world’s top polluters. This is slightly unfair. Given that roughly 1/3^rd of the world’s goods are manufactured in China, it is natural that much of the world’s CO₂ output is concentrated there. In addition, China’s CO₂ output per person (8.5 tonnes) is significantly lower than the USA (14.3 tonnes) and Australia (14.5 tonnes).

Nonetheless, there are some genuine concerns about environmental practices in China. Notably, their reliance on coal power. For their part, China is showing increasing concern for the environment, and has promised to peak carbon emissions by 2030.

Wide Spectrum of Quality

China has a massive variety of suppliers to choose from. This variety means you can find fast, reliable production at great prices. However, it also means that you can find unresponsive, low quality production, at unfair prices. Thankfully, it is possible to tell these suppliers apart, if you know what you are looking for.

How to Avoid Problems

Have People on the Ground

Having people on the ground in China makes life a lot easier. A representative in China can conduct impromptu factory visits, ensuring production maintains consistent quality. They can also assist through real-time, face to face interaction with your Chinese partners. This minimises the risk of delays and misunderstandings. It also facilitates the development of a business relationship, which can be hard to form through a computer screen alone.

Keep on Top of the News

The global marketplace is fast-moving. By staying on top of the news, you keep yourself informed about geopolitical disputes that might affect the movement of goods, potential tariffs and new regulations. Armed with this knowledge, you can adjust your sourcing decisions accordingly.

Build Relationships

Building relationships is key in business, and China is no different. Having a good relationship with your supplier will make your sourcing process a lot easier. It can allow you to secure a more favourable contract, take greater priority when they are dealing with multiple clients, and assist with smoothing over disputes.

There are two key things to remember when building a relationship with your Chinese supplier.

First, Chinese cultural norms can be quite different from in the west. It is important to familiarise yourself with these norms, in order to avoid misunderstandings.

Second, when building relationships, there is no substitute for in-person meetings. If you cannot regularly travel to China to meet with your supplier, we recommend having a third party do this for you.

Use a Sourcing Company

Working with a sourcing company, such as Easy Imex, protects you from some of the disadvantages of working with China. Sourcing companies can connect you with excellent, reliable manufacturers. Using a reliable manufacturer protects you from concerns that they will violate your intellectual property.

A sourcing company can support with logistics, mitigating the risk that an error will disrupt your supply of goods.

Finally, sourcing companies have people on the ground who can act on your behalf, conducting factory inspections and meeting in-person with suppliers.

Conclusion

There are some disadvantages to manufacturing in China. These include logistical challenges, geopolitical tensions, and the risk of having intellectual property duplicated. However, working with a sourcing company can mitigate many of these risks.

Meanwhile, low labour costs, an efficient supply chain and massive economies of scale mean that China continues to be an attractive option for manufacturing.