China Manufacturing: Take 10% And Call Me In The Morning
The All Roads Lead To China Blog did an interesting post the other day, entitled, "But I Thought Everyone Saved Money In China?" on how "not everything should be made in China."
The post starts out talking about all the hype on how China is the place where "everything is cheap, of poor quality, and ready for the taking" is not reality. China's advantage lies in labor and overhead "and for products that do not have a high percentage of either we often find that the reduction is just not enough for a customer to move their supply base [to China]. " The post then notes that raw material prices in China are pretty much the same as everywhere else "and any piece with only a few hands touching it will probably not result in much savings."
I know this stuff sounds rather basic, but I have had a number of clients who end up surprised at the low or minimal cost savings to be realized by manufacturing in China, particularly after adding in the transportation costs, the increased legal and administrative fees that come from doing business internationally, and then accounting for the increased risks of quality and other problems.
I am certainly not saying to avoid China for manufacturing, but I concur with All Roads that China is not the panacea for every manufacturer and that a complete cost analysis using true China numbers must be undertaken before just going right in.
Comments (2)
Read through and enter the discussion by using the form at the endAudall - June 7, 2007 12:37 AM
I have been meaning to write a post on this topic: when not to go forward with sourcing in China, or overseas for that matter. Thanks for nudging me with this post. I came up with a rather cheesy term recently in another blog post I wrote about "best cost country sourcing", a term which came from another blog: sourcinginnovation.com. Anywho, I came up with the term "riskturn" (just for fun), to convey the idea that you can't consider return without risk (just like Hollywood can't consider Angelina Jolie without Brad Pitt: "Brangelina"...or so dubbed by celebrity gossip mags). Slam two words together, and you've got a dreamy match made in heaven. A company has to take risk into account when making decisions. The problem is, it's much more fun to fantasize about low hard costs and high profit margins. Not so fun to think about what risks exist, and how can they be quantified and measured. But it can be essential. IP, quality, time, landed cost, trade and economic climate, infrastructure, all issues to consider in making an educated decision...
China Biz Guy - May 19, 2011 9:10 PM
Amen. I have learned that everything in China has at least an additional 10-40% attached to it. I have also learned that many companies new here do not know that.