The Pros and Cons of Sourcing from China

2021-11-19

84023014 copy.jpgIf you want to get ahead of your rivals by extending the best deals and lowest prices to your customers, then sourcing from China is imperative.

Before importing from China, you need to assess the advantages as well as the disadvantages fully. Do bear in mind that the disadvantages can be mitigated to a large extent if you have a reliable sourcing agent at the helm.

Here are the pros and cons of sourcing from China.

Pros of Outsourcing from China

1. Vast Supplier Base

There is a reason why China is called the “world’s factory”. In this part of the world, you have a dizzying array of manufacturers, vendors and suppliers to choose from. But how can you tell which one of the myriad suppliers is best for you?

For that, you will need a trustworthy sourcing agent who knows the ins and outs of trading in China. An experienced sourcing agent will know which supplier, manufacturer or vendor is best for your market segment.

Rookies might end up making mistakes while looking for Chinese suppliers. Some “suppliers” are nothing more than middlemen who forward your orders to manufacturers. They will also charge a commission as part of their “service” which means you are paying extra for service that you can do very well without.

There are other possibilities too. Some manufacturers may not offer the quality you are looking for, while others may not have the production capacity for your present needs or future expansion.

It is best to team up with a sourcing who can analyze your business requirements and then take you to the most suitable supplier based on these criteria to avoid all such risks. Since there are so many unknowns and variables in China that you may not have knowledge of, it is best to play it safe and team up with a sourcing agent who is well-versed in all such issues. They will have in-depth knowledge of risks as well as opportunities that you can learn about and incorporate into your selling strategy to let your business grow, thrive and prosper.  

Successful outsourcing depends largely on locating the right supplier, and for that, you will need a good sourcing agent.

2. Low Labor Cost

Labor cost constitutes a substantial percentage of the product cost. Hence, places with a plentiful supply of cheap labor can often manufacture inexpensive products since lower labor costs allow them to set competitively low prices. This is a key reason why China can offer cheaper products than other developed economies with expensive labor.

You, too, can capitalize on cheap Chinese labor to import inexpensive products for your business. You can offer lower prices while still keeping a comfortable profit margin for yourself.

Unsurprisingly, China should have one of the lowest labor costs. Since it is one of the most populous countries in the world, it has an abundant supply of skilled as well as unskilled labor. Hence, a large labor supply translates into lower wages.

Despite being cheap, labor in China is highly valuable since the country is heavily industrialized and has decades of experience manufacturing all sorts of products. As a result, many workers in China are experienced, skilled and knowledgeable in their trade. Skill level, training and experience can have a strong effect on product quality and defect rate. So you can benefit from lower labor costs and relatively high skill level when outsourcing from China.

3. Product Quality

There is a widely prevalent myth that if it is made in China, it can't be good. That's not true. If that were indeed the case, you would not have multinational companies of all stripes outsourcing most or all of their production to China.

Made in China does not necessarily imply poor product quality. The Chinese manufacturing sector now has decades of experience manufacturing all sorts of products. Chinese provinces are now well known for the products that they specialize in. For example, Shenzhen is known for its leadership and quality in electronics manufacturing.

The truth is that much depends on the price that you are willing to offer. If the price you are offering is way too low, you will obviously get what you pay for. Chinese suppliers are businesses, after all, and they have to make profits to continue operating. If you insist on very low prices, then suppliers may have to cut corners by using cheaper and less reliable materials, for instance.

Chinese industry now has a long tradition of working with American and European companies. They also have a long history of collaboration with companies from other developed nations worldwide. As a result, they are now capable of complying with stringent product standards. Hence, Chinese-made products typically boast better quality than other major Asian economies like India.  

The trick is to discuss product quality together with rates when negotiating with your supplier. You will certainly want lower rates. But since quality is paramount, you should ask upfront the effect that lower rates will have on quality. Bear in mind that there is a certain level to which suppliers can lower prices, and beyond that, product quality will be compromised.

So how much can you lower prices while still having respectable product quality? A seasoned sourcing agent can give a realistic idea of how much you can lower prices while still largely maintaining product quality.

So to hit the sweet spot, that is, to find optimally low rates for which product quality will not suffer, you must collaborate with a sourcing agent who will know all about market rates and their corresponding product quality.

ING_52006_03823 2.jpg4. Strong Scaling Capabilities

Chinese industries are now well established. Over the years, the Chinese government has invested heavily in infrastructure to ensure robust manufacturing capabilities.

Also, thanks to their long experience, Chinese manufacturers also have a solid understanding of supply chain best practices. Hence, they can scale up supply and boost production in response to larger orders from you. A reliable supplier who can scale up production to keep up with your increasing demand can prove to be a major advantage for your fast-growing business.  

Another benefit is that many manufacturers have relatively smaller MOQs due to which you can buy easily, especially when you are starting your business. Of course, when you buy in larger quantities, you can enjoy bigger discounts.

To find manufacturers with strong production capabilities that can quickly scale with your growing demand, you will need to contact sourcing agents who know all about such suppliers.

5. Prototyping

China has a long tradition of product prototyping and is one of the leaders in the field. Here in China, you can find companies that are willing to provide a good mix of quality and features for your customized products via rapid prototyping.

Chinese companies have strong expertise with CNC machines, and they are also now becoming increasingly adept with 3D printing, which will increase the speed and efficiency of rapid prototyping. In fact, China is the major producer of CNC and 3D printing machines.

But there is one thing to keep in mind, though. Not all manufacturers are willing to go through prototyping since this is an arduous endeavour that entails a lot of time, energy and resources.

Once more, you will need to team up with a reliable sourcing agent who can list Chinese companies willing to prototype your designs.

Cons of Outsourcing from China

1. Getting Stuck with the Wrong Supplier

Since China boasts such a massive industry, some brands will be better than others. If you are new to China and decide to find a supplier on your own, you have a greater risk of running into the wrong one.

There is a lot that you must check up on when finding a good supplier. Don't be just carried away by low prices. There are a lot of other things that you must check up on to arrive at a good supplier for your needs.

Good manufacturers, suppliers and vendors often have certifications for quality control and production capabilities. It is important to request certifications to ensure that your supplier is committed to providing the best quality and improving their processes to remain competitive.

You will also need to know the time they take to supply their products. You don't want to be let down by delays in supply. Problems in production and supply disruptions could mean customer dissatisfaction since your valued customers will not receive their deliveries on time under such circumstances. Your supplier should have a strong history of delivering on time.

You will also need to know about the financial strength of your supplier. If your supplier is suddenly forced to shut down their business, you could be left on your own. Cash flow problems can also mean issues with buying raw materials, manufacturing and transporting finished goods on time.

You will need to look for established players that have been in business for a long time. Such companies often have good financial standing and a big customer base which allows them to operate without problems in the foreseeable future.

There are also other characteristics that you need to look for when finding good suppliers. Once again, sourcing agents can help you with all of this.

Standards in China are different from those found in the US and the EU. Hence, a product made in China could be compliant with local standards, but it may fail to meet standards in other countries.

2. Different Standards

Hence, you should specify all necessary standards that the supplier must fulfil. You should get a few product samples early on to verify that products outsourced to China indeed meet all US safety and quality standards.

A sourcing agent can tell you about manufacturers who have experience in making products for international markets that fulfil strict standards found in developed countries.

3. Language Barrier

Although more and more Chinese people are learning the English language, most of the population still has issues with basic English.

To overcome the language barrier and avoid miscommunication, it is best to work alongside a sourcing agent who is fluent in both Chinese and English.

You will also need to be aware of local sensibilities and customs to fit into the community and create a good impression on your business associates.  

86009122 2.jpgWhat Else You Should Consider When Outsourcing from China

When sourcing products overseas, you want to ensure that the economy is robust, resilient and growing quickly. China ticks all the right boxes and is thus the premier outsourcing choice for businesses around the world. This includes multinationals as well as SMEs.

Even after the covid outbreak, the Chinese economy continues to thrive. Although the Chinese economy initially took a big hit early on in the crisis, it soon rebounded with breathtaking tenacity that astounded the whole world. This shows that even when supply chain disruptions are endemic worldwide, the Chinese economy has the strongest capability of bouncing back. Hence, you can be certain that your supply of products will not be disrupted that easily. Even if there is a disruption, the supply chain will likely be restored in a relatively short time.

While the world is still reeling from the sharp disruptions wrought by covid, China advances its economy. In fact, China never really underwent a recession with the onset of the covid; an economic boom followed just stagnation.

China has managed to virtually end covid due to which industry and society have returned to normal. Right now, China is undergoing economic growth thanks to digitization and innovation. The pandemic has actually kicked off increasing investment in digitization and innovation in China, and the rapid economic growth is advancing it further.

Considering that the US and European economies are undergoing a major recession, the sharp economic growth of China is all the more astonishing. In the second quarter of 2021, China’s GDP recorded a remarkable growth rate of 7.9%, according to the National Bureau of Statistics. However, the GDP growth was even faster in the first quarter of 2021. Overall, in the first half of 2021, China’s GDP grew at a breathtaking rate of 12. 7%.

Even in 2021, China underwent economic growth while major economies were struggling with recessions and fiscal turmoil. By reporting growth of around 2.3% in 2020 when the pandemic was in full swing across the globe, China showed that it is one of the very few economies that can prosper even during a massive global crisis.  

You may be aware that Shenzhen is the global hub for electronics production. The province has set the benchmark for economic development.  Besides heavy government investments in infrastructure, the province boasts a young, dynamic and enterprising workforce that is keen to innovate and excel.

Shenzhen’s remarkable success story started way back in 1980 when it was designated a Special Economic Zone. No one at that time could have imagined that this humble community would soon become the global nexus of electronics and smartphone production.

The rural background has transformed to a bustling, thriving and prosperous urban environment with towering skyscrapers gracing the skyline. Foreigners visit the futuristic region to marvel at the technological innovations and advancements taking place.

It has been 40 years now since Shenzhen was designated a special economic zone. During that time, the region has recorded a breathtaking growth rate of around 20%.

The Shenzhen success story is a remarkable case study that shows where the Chinese economy is headed. As a matter of fact, Shenzhen’s GDP is now greater than that of Singapore.

With the Chinese president’s ambitious Belt and Road initiative, China will become an even more attractive destination for outsourcing.

Bottom Line

You now have a better understanding of the pros and cons of outsourcing from China. Although there are a few disadvantages of sourcing from China, its benefits outweigh them big time.

To get the most out of your available opportunities in China and to mitigate the drawbacks, you will need to collaborate with a good sourcing agent. This is particularly important if you are a newcomer to the Chinese trade scene. You will need the services, help and advice of a dependable outsourcing agent to avoid common mistakes that newbies tend to make when outsourcing from China.

The outsourcing agent can purvey valuable information that you may not know, which can translate into high profits when incorporated into your business strategy.

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