As the Chinese government measures slowed the COVID-19 spread in China, the local manufacturers have been working hard to return to the pre-COVID-19 level. At the same time, the COVID-19 also brought to the surface the dependency on the production facilities in China. Many companies – including those in the Netherlands – had to face up to this form of reality. Is it time to relocate the offshore production from China?
In this article we will deepen the advantages and disadvantages of manufacturing in China and to which extent this could be a factor to move the manufacturing away from China.
For the last decades, China attracted many businesses across every industrial sector due to low production costs. However, the attention may have drifted to other Southeast Asia locations. Between 2016 and 2020, manufacturing labor costs for China differs from $5.00 to $6.50 per hour while that of Vietnam lies between $2.40 and $3.00 per hour.[1] In terms of cheap labor costs, China has lost its monopoly.
Despite of the above, it should be kept in mind that producing in China has no limits in capacity and time. More people can be hired to complete higher volume productions without any difficulty. The costs are still manageable. Environmental considerations could yet be the downside of having the products manufactured in China.
‘Made in China’ has built a certain stigma that the products are of poor quality. Regardless of whether this is correct, simple bulk products (clothing, glassware) are in general good in terms of quality. More advanced products (technical machinery) may give some complications. Best practice does show that having warm contact with your manufacturer and regular visits to the production facilities ensure that the manufactured goods are accurate and upholding high standards.
Current trend is that consumers are willing to pay a higher price for quality products manufactured elsewhere than in China. This is something to consider if the profits of having made in China are marginal. Another aspect of working with Chinese manufacturers is the high minimum order quantity. Higher volume order offsets the costs of production for the factory. As for small-batches or one-of-a-kinds, it is difficult to find suitable manufacturers in China.
Common concerns associated with manufacturing in China include factory scams and intellectual property (IP) risks. Although not every production facility can be trusted, progress has been made in reliability and authenticity in China’s manufacturing industry. This can also be seen in terms of required licenses and regular inspections from the Chinese government.
However, risks and challenges remain in the field of IP protection. To reduce the risk, you must register your trademark or brand name with China’s National Intellectual Property Administration. Alternatively, you could set up a Chinese joint venture or research development and innovation department to strengthen the relationship with the Chinese factory. Developing a good relationship with the manufacturer will create an incentive of feeling important and avoiding any leakage of your IP product. Good manufacturing contracts will also ensure that Chinese manufacturers know what the arrangements are and what will happen when they are violated.
The advantages and disadvantages of manufacturing in China need to be weighed up carefully. The mix of costs, time and legal matters must be well-understood before relocating your production location. Whether or not you choose to stay with your Chinese manufacturing partner, the key is to be aware of your current position and anticipate on future scenarios.
If you have any questions or would like to have advice regarding manufacturing in China, the Marxman Chinadesk will be more than glad to assist you.