Manufacturing in China
When outsourcing, cost advantage is the most important thing to evaluate. Breaking into the global market is easier than ever before. International traders want their goods made for the lowest price possible to maximize profits. Many global companies are looking to China for this very reason. But manufacturing in China is complicated, very complicated!
Businesses love a solution that minimizes overhead production costs without sacrificing the quality of products. The manufacturing hub that is China, offers this, allowing business to produce a massive array of goods at minimum cost. Since there are both pros and cons to this arrangement, a savvy and knowledgeable trader will take all of this into account to create the most profitable deal.
Before establishing a relationship with a Chinese manufacturer, an international trader will:
- Conduct an in-depth study of the job requirement being outsourced.
- Find and choose manufacturing entities.
- Take the appropriate steps to ensure the protection of intellectual property rights.
- Make sure that the manufactured product meets the necessary quality standards.
- Consider long-term relationships—Guanxi in Chinese business culture.
You will need a strategic approach to transferring the workload that comes with outsourcing to China. Taking these steps will not only enable you to concentrate on your business core, but also to gain a competitive advantage. Partnering with Chinese sources leaves you room to consider the following models as you outsource manufacturing:
- As the outsourcer, you only own the rights on the goods that are manufactured. This means that the manufacturer owing the machineries and related set ups holds the sole right to determine the technology to be applied.
- Partnership between you the outsourcer, and the manufacturer means that you both share the risks alongside profits.
- An equity venture formed between you the outsourcer, and a Chinese manufacturer, where you have partial ownership over the manufacturer and can manage the outsourced job.
When comparing Chinese manufacturers and establishing trade relationships to their counterparts, Australia for example, a trader needs to be particularly careful with the Chinese manufacturer. A common complaint of international businessmen against their Chinese partners is violation of contract. The prudent businessman will have:
- A comprehensive OEM/contract drafted that states all vital details clearly, including but not limited to payment terms, compensation should the contract be breached, etc. Consider hiring a lawyer or someone well versed in international business regulation for this.
- A purchase order that states everything required for production, from raw materials to production time.
- A system for continuous monitoring of product quality, and an agreed upon mode of communication with those associated with the manufacture of your product.
Manufacturers based in China require specialized treatment while manufacturing or buying goods there. The protection of intellectual property and developing a solid contract is just as important as finding quality, reliable suppliers and manufacturers. When searching for suppliers and manufacturers, it is important to:
- Clearly lay out the criteria a manufacturer or supplier needs to fulfill. The list should detail machineries needed, technology to use, quantities to fulfill, pricing, logistics, etc.
- Register any trademarks, patents, copyrights, etc. in China.
- Draw up a non-disclosure agreement, and have it signed by the official regulatory with requisite stamps.
While creating a short list, the trader must verify suppliers and manufacturers authenticity, taking into account their experience and expertise. The trader should also run a background check and conduct a personal inspection.