China has emerged as one of the important sourcing destinations for all businessmen particularly from the western countries to increase profitability and reduce manufacturing costs.
However, China sourcing is not a cakewalk that one can do it so easily. There are plenty of challenges that one has to encounter to make this project workable and sustainable on a long-term basis.
China is located on the other end of the globe, having a much different industrial culture than what prevails in the western world. Besides that in China, there are very few who can effectively communicate in English.
Unless one takes help from trustworthy China sourcing companies, the whole thing can fall flat and things may not work as you expected. Therefore, in this post, we shall talk about various strategies that one should adopt to minimize the risks of sourcing directly from China.
An expert in outsourcing recommends that before you consider global sourcing in China the following things need to be considered to start with.
Define your business agenda and also set your priorities and all these you should not do in one go
Explore how modern technology is able to facilitate your green sourcing programs
Overcoming various resistances and getting various suppliers on board that meet your goals
On the surface of it, overseas sourcing from China appears to be a too risky project. Sure enough, to work with a company that is almost halfway around the world, having a totally different system and culture. Besides that, the language barrier can be really a great problem.
However, you know very well that unless you take a certain risk, you will remain stagnant and cannot expand your business. Today, we all are aware that China has not only become the world’s largest manufacturer with reasonably good quality, but also one of the major markets in the world.
China can be a country to help you to cut your cost of manufacturing, and also an emerging market or your direct competitor, and sometimes all three.
Therefore, if you do not factor in China Sourcing within your business plan now, then there can be a very good possibility that you will miss the bus and put your business at great risk by just playing it safe.
There are a few China sourcing companies that can be very useful to you and can help and support you in your China purchasing strategy. There can also be a risk involved in that but it is your better planning that can convert your challenges and risks into an opportunity, growth, and stability.
The following are a few mistakes that can totally derail your China sourcing plan:
Identifying a certain China source through the internet
Not doing enough research about your sourcing partner
Not developing a personal rapport with your China source
Not being very clear about your quality parameters
Not having a clear strategy on how to monitor the quality of your product
Not comprehending the "total cost" structure as well as financial objectives
Not having any written agreement regarding the intellectual property clause
Ignoring the political and legal risks
Not properly understanding Chinese operational and cultural dynamics
Not keeping any observer in China who understands both Chinese and English language
Not considering all the possible risks and how to overcome them
Not utilizing a continuous contract management process and guarantee that the outsource agreement is effectively designed, managed, negotiated, controlled, and executed
Therefore, if you have any trustworthy China sourcing companies on your side, then your chances of success will certainly increase while dealing with your China source plan.
Any kind of outsourcing can have certain risks, which is also true for China too. However, in today’s business environment outsourcing is the only proven management tool. Let us discuss a few of the risks in a little more detail so that they can be properly recognized and also managed.
If you do not manage them properly then your outsourcing project may affect adversely your business operations. Your regulators, customers, and all other stakeholders will remain indifferent whether you are managing your business through outsourcing or indigenously.
Some of the specific risks that we would like to discuss a little more elaborately include the following:
1. Competitor risk
Offshoring can create unwelcome competition since it frequently involves the transfer of important intellectual property and several other pieces of information to a certain country.
For example, American automakers have increasingly relied on China for automotive parts during the last 20 years. China has taken use of this knowledge and announced that it will compete with the American automakers by selling Chinese-made vehicles in the USA.
When a corporation moves its manufacturing and service operations to any other country, it transfers the investment that it would have made in the native market to another country’s market.
This practice has the potential to backfire. As a result, it is critical that your outsourcing/offshoring decision be thoroughly assessed in terms of the long-term influence on the source of the competitive benefit of the company.
2. Risk of delays
Due to supply chain delays, on-time delivery performance, as well as customer satisfaction levels may suffer. When a product or service is outsourced, this risk increases dramatically.
As per a recent poll conducted by InformationWeek, 5% of respondents said that a certain Asian service provider failed to meet their expectations in terms of completing projects on time.
Many circumstances beyond the control of the outsourcing company might create delays, including port/customs delays, labour issues, weather, and political upheaval. Delays can also be caused by a country's infrastructure's lack of scalability and also the existence of certain regulatory constraints.
As lead times and also variability increase, then overall confidence declines, the outsourcing/offshoring firm may be obliged to compensate with increased stock levels and also other expensive buffers.
Any China sourcing companies appointed by you can effectively work as your eyes and ears and keep you informed about the possible delay well in advance, so that you may take a certain corrective action.
3. Performance risk
Companies may often lose their control and visibility over their entire supply chain, besides the possibility of delays. Outsourcing can lead to a lack of flexibility when it will come to respond to changing business climate.
For example, in case a provider is impacted by a certain terrorism-related delay or disruption, or if there happens to be uncertainty as a result of a pandemic outbreak in an offshore area, the outsourcing/offshoring organization may not be able to respond as soon as it would want.
Furthermore, as per the InformationWeek, time zone disparities, as well as cultural and language differences, make it difficult to communicate with clients.
4. Financial viability risk
Customers may be exposed to supply disruption risk if providers are not financially sustainable. If any dominant customer withdraws its outsourced business, for example, your provider may be vulnerable.
Furthermore, the outsourcing arrangement may not also be financially sound due to hidden risks and costs, such as legal fees associated with contract negotiations and management time needed to oversee and also coordinate the relationship, settle out contractual misunderstandings, and also resolve issues during the contract renewal.
Financial viability is critical, yet it is often underestimated.
5. Transition risk
If timetable and budget fails to meet owing to poor preparation and/or resources, your outsourcing transition phase can fail.
A well-run and large-scale systems implementation, for example, demands the same preparation and discipline as any IT outsourcing project.
If production or service tasks are outsourced, it can have a direct impact on the company's capability to meet its obligations to consumers and shareholders. Therefore, proper discipline and planning are vital.
6. Security and confidentiality risk
If a corporation decides to outsource procedures such as medical transcriptions, payroll, or other secret information, it must carefully consider which processes to outsource and also to whom.
7. Political and also reputation risk
Offshoring has always been a contentious topic, with politicians, economists, and policymakers debating who will benefit and who will lose when businesses offshoring operations and processes.
Opponents of offshore frequently claim that jobs lost to outsourcing in affluent countries are being totally replaced by ones of poorer quality and salary in developing countries.
Whether or not such an argument is valid, corporations that choose for offshoring to a large degree are subjected to the certain public relations components of the continuing discussion.
The message is obvious. To ensure that both product and also service quality is improved, or at the very least does not degrade, companies should carefully select, qualify, negotiate with, and manage all their outsourcing partners.
Effective cross-training between firms, as well as adequate transition times and/or parallel production processes, assist in managing the risks. However, because of the emphasis on your cost savings, these crucial features are frequently overlooked.
If you can find a good Chinese partner and keep in mind all the risks that were mentioned in the post, definitely you can take benefit of global sourcing and make a good business.
Any trustworthy China sourcing companies engaged by you can always play a very effective role to make your project a success.