This is why western companies choose to manufacture in China

in Business by

When western businesses – either start-ups or established companies – decide to outsource manufacturing to low-cost regions such as China, they face a daunting task. The challenges don’t lie just in the fact that China is halfway across the world from the US or UK, but also because of the differences in language and culture. Each of these
differences bring with them specific challenges that entrepreneurs need to negotiate well if they want their outsourcing project to succeed.

But there are clear benefits to importing from China, which is why no matter what the challenges, western businesses continue to outsource manufacturing and other sourcing to China.

So, what are the obvious benefits of using China suppliers?

China sourcing, for one, helps businesses stay competitive by helping lower manufacturing costs. The lower costs come in the form of a reduction in the cost of overheads and labour, and an increase in production capacity. These savings allow businesses to increase production, innovate or even increase inventory.

Benefits of using China suppliers vs domestic suppliers

It is cheaper to manufacture products in China instead of in the US, UK or Europe because suppliers in western countries have higher costs with regard to training and paying employees, as well as operating costs such as raw materials and electricity. Additionally, Chinese factories are designed to mass produce products, which leads to
lower costs per unit. All this translates into benefits for your business.

China also has designated certain areas as export hubs. The infrastructure in these areas is designed to facilitate manufacturing and transportation – it’s a smooth supply chain through and through. All this means that raw materials and goods in China can move efficiently from warehouse to factory to port to ship. This too contributes to lower production costs.

One may argue that several other countries such as India, Vietnam and Malaysia also offer low-cost manufacturing. That is true. But these countries are yet to catch up with China’s massive infrastructure that facilitates an efficient supply chain. This is why China is still the preferred destination for western companies who want to outsource manufacturing.

How you can proceed with China sourcing

Once you decide you want to look for a Chinese manufacturer for your goods or components, what do you do?

You have two choices before you:

  1.     Look for a Chinese supplier/manufacturer yourself.
  2.     Look for a reliable sourcing agent who can handle this project for you.  

Let’s address these two points one by one.

How to look for a Chinese supplier yourself

A quick look at the internet will throw up several suppliers. B2B (business to business) e-commerce sites such as Alibaba, Global Sources and Made in China have thousands of suppliers on their platforms that can manufacture almost anything you require.

When you look for suppliers on these platforms, try to be as specific as possible in your search. For instance, instead of just typing “aluminium door handles”, which is a pretty generic search, you could type “aluminium door handles PVD plated” if that is the finish you are looking for. This will help filter out irrelevant results.

Use the in-house filters in these websites to filter the results further. Alibaba, for instance, has a “trade assurance” and “verified supplier” box that you can tick so that only suppliers who qualify for these two services – which add an extra layer of security for buyers – show up in your search.

“Trade assurance” is a payment protection service offered by Alibaba that safeguards the interests of both buyer and seller. Through this service, Alibaba promises the buyer a refund if the supplier delays delivery or if the consignment does not meet the desired quality standards (subject to certain conditions). Sellers are protected from cases when buyers collect the shipment but refuse to release payment.

The limitations of this service are that buyers must make the full payment upfront to Alibaba, which ties up their funds from the time they place their order until the time they receive the goods.

In these B2B platforms, “verified supplier” means that supplier has been verified in a limited way (for instance a third party has checked that it physically exists).

You can also look for suppliers through business contacts in your industry. Trade associations and even your competitors are good places to tap, especially if your competitors already manufacture in China. Finding a supplier who already manufactures for a western company is helpful as this means they are already familiar with western quality standards, an important consideration while shortlisting suppliers.

Some business owners also visit trade fairs in China as it gives them a sense of what they can source from China, as well as ideas for the future.

The biggest trade fair in China is the Canton Fair, which is held in Guangdong province twice a year, in spring and autumn. The fair is spread over an area equivalent to over 200 football fields, so you need to be a little organised and do a little research on the participants before you get there. This will ensure you don’t waste time and energy in sections of the fair that you aren’t interested in.

Once you shortlist potential suppliers, you must request for a quotation. Here, you should state your requirements clearly so that the company can get back to you with as accurate a quotation as possible. Your specifications should include your MOQ or minimum order quantity, the raw material you want used and so on. You could also ask for costs for a sample run and costs for mass production (which will be lower).

In this communication, you could also ask the company questions that will allow you to verify the credentials of the company you shortlist.

Remember, no matter how nice any company is on email or on the phone, it is essential to verify their credentials before you send them any money – even if it is for a sample run. This is just to ensure they are genuine suppliers and not scamsters pretending to be suppliers or even middlemen/traders posing as manufacturers. Sourcing products from manufacturers is always most cost-effective because middlemen or traders tend to take a cut, which increases the costs for the buyer.

To verify suppliers, ask for the following…

  1.   Their business licences and other certifications.
  2. Their audited accounts or reports.
  3. Their Value Added Tax invoice.
  4.   References of western companies they have manufactured for.

You could also check if they have a website and compare the contact details on the website with that given in any documents they supply you with.

Another way to verify the factory’s credentials is to identify the government department whose jurisdiction they fall under and look for the factory’s registration records and tally that information with the documents they supplied you with.

Suppliers you find at trade fairs can be considered to be reliable because being at such a fair involves an expense on their part, which indicates that they are legitimate companies.

The B2B sites we mentioned above already do some verification as mentioned earlier, but you must remember that any verification by these sites is restricted in its scope. For instance, they may have verified if the supplier exists, but not necessarily if it produces the product it says it produces.

There is no short-cut to verification as several western businesses have learned the hard way.

This brings us to the second point: How to look for a reliable sourcing agent who can handle your outsourcing project – including verification – for you. 

Who are sourcing agents and why you could consider them?

Sourcing agents are those who help businesses source readymade or manufactured products and components from China. These agents not only help you identify reliable suppliers and help review quotations, but will even verify their credentials, help finalise product drawings, supervise production, conduct quality control inspections and see that your goods are tagged with the correct HSN codes to prevent any delays at customs. They act as your eyes and ears on the ground.

When you’re thinking about how to find a manufacturer in China also remember that dealing with Chinese manufacturers requires you to have a Mandarin speaker on your team, especially when it comes to negotiating quotations and drawing up contracts (for more details check SourcingAllies.com). Most sources agents based in China will have Mandarin speakers who can work on your project, saving you the trouble of finding one.

Sourcing agents charge a fee for their services, which adds to the cost of your project. But given the fact that hiring a reliable agent will spare you the time and effort and money required to identify a supplier, verify them and then follow up with them, it will be worth your while.

A reliable sourcing agent will take care of your entire sourcing project from A to Z and is transparent about payment, so you can factor their charges into the total cost of your outsourcing project.



Ricardo is a freelance writer specialized in politics. He is with foreignpolicyi.org from the beginning and helps it grow. Email: richardorland4[at]gmai.com