Most Important Things to Know About Offshore Manufacturing
Why Offshore Manufacturing Still Works
in an Ever-Changing World
Most U.S. companies already know and understand what outsourcing manufacturing to China enables them to do. Overall, they get to continue focusing their domestic operations on the core competencies of R&D, marketing, and customer service. This process takes place because many top-notch offshore manufacturing companies still offer a combination of low-cost and high-quality production services. Furthermore, China’s service offering combination remains difficult to replicate elsewhere, despite its constant evolution in a changing world.
However, if your company is considering outsourcing some or all of its manufacturing overseas, there’s a lot you need to know. U.S. companies and start-ups that are new to offshore manufacturing need the 4-1-1 on all the systematic ins and outs. They’ll also need to know how their products become “good fits” for outsourcing, along with how the manufacturing and legal processes work, especially in China.
Chinese manufacturing changes will always have a global effect.
In 2018, China accounted for roughly 28% of manufacturing output worldwide.
Whether companies are new to the process or keep experiencing challenges, they must embrace Chinese business culture and etiquette. Asian culture and their way of doing business is, in fact, very different from American norms. So, to avoid the potential pitfalls of offshore manufacturing, we’ve provided ten most important things your company should know for success. Enjoy the read!
Know How Outsourcing and Offshore Manufacturing Began in the USA
Outsourcing to factories in other countries began for U.S. businesses in the mid-twentieth century. The move to offshore manufacturing was enabled by the rise of instantaneous trans-pacific communications and faster, more efficient transportation options. Companies in the U.S. could communicate in real-time with their counterparts anywhere in the world. Moreover, they soon had the ability to manage just-in-time inventory via a combination of air and ocean freight.
However, outsourcing manufacturing to China, in particular, became practical after President Nixon’s 1972 visit that helped thaw trade relations. After the visit, companies rushed to take advantage of lower labor costs in China and other Pacific Rim countries.
In more recent years, China has proven particularly popular with manufacturers because of its large pools of skilled labor. China’s manufacturing sector also has a strong work ethic, and less-stringent rules regarding benefits and work environment. In reality, it’s difficult to find an industry today that doesn’t outsource at least part of its manufacturing to China.
Be Aware of China's Government Regulations for the Manufacturing Sector
When companies do business outside the U.S., it’s essential they understand the other country’s laws and government regulations in place. For instance, companies familiar with complying with certain American manufacturing standards will quickly see how different China’s regulations are. While the U.S. has a bevy of regulations and standards regarding the environment, operational hours, health and safety, and minimum wage, China has a lot fewer. And because of their less burdensome government regulations, their factories’ overall production costs are often considerably lower. Manufacturing, also provide their clients with deeper insights for successfully working with foreign government regulations.
Unfortunately, this regulatory laxity also applies to laws that protect American intellectual property. That is why it’s not uncommon for companies to see knock-offs of their products from Chinese competitors. Although there’s little legal recourse when this happens, China’s government is making improvements in this area.
What’s most crucial, however, is that you consult with a professional manufacturing liaison or an IP attorney first. They will properly advise you and help ensure your protection before engaging in any legal activity in any foreign country. Professional liaisons, like ITI Manufacturing, also provide their clients with deeper insights for successfully working with foreign government regulations.
Consult with a professional manufacturing liaison or an IP attorney to help ensure your protected
Understand the Possible
Impacts of China’s Economy
Figure 1: China’s GDP Growth 2018-2019
With about a third of all Chinese workers employed in the manufacturing sector, manufacturing is important to the Chinese economy. Conversely, their economy has a tremendous impact on the U.S. manufacturing industry – as well as consumer markets.
The recent trade war between the U.S. and China, and the resulting tariffs on Chinese-produced goods, has affected the economic environment in both countries. U.S. companies have seen dramatic cost increases on many China-manufactured goods. And as a result, some companies have began seeking manufacturing options in other countries like Vietnam. Yet, despite China’s slowing GDP growth, their economy grew by a little of 6% by Q4 2019, according to a January 2020 article from CNBC.
The value of the Chinese yuan is also a factor in the cost of goods manufactured in the country. When the yuan is low compared to the U.S. dollar, as it currently is, Chinese exports become more attractive. In the end, this occurance benefits those companies using Chinese factories.
Know China’s Top-Tier Cities and Key Offshore Manufacturing Hubs
Much of China’s manufacturing is centralized in seven major hubs or SEZs (Special Economic Zones), and their related ports. As such, it’s important that U.S. companies that are interested in outsourcing overseas know why manufacturing location matters. Professional liaison companies can also help U.S. manufacturers benefit from these areas that may also be free trade zones. These major cities include:
Located on the Pearl Delta River with a direct route to Taiwan, this city is a major source for automotive, electronics, and petrochemical manufacturing.
A major trading center known for a variety of major industries, including education, testing, and certification services; medical equipment; and other innovative technology.
Located just south of Shanghai, Ningbo is a prime logistical hub. Manufacturing industries include chemicals, electrical machinery, IT devices, and telecom equipment.
On the coast of the Yellow Sea, Qingdao is a host to a diverse array of manufacturing industries, including automobiles, biopharmaceuticals, building materials, chemicals, electronics, machinery, metallurgy,
China’s financial hub, Shanghai is also home to various heavy industries, including steelmaking. It is also a leading manufacturing hub for automobiles, microcomputers, mobile phones, and plastics.
The second busiest port in the entire world, Shenzhen is a major hub for electronics manufacturing. Other manufacturing industries in Shenzhen include computers, technology, digital electronics, and telecommunications.
Tianjin is the largest manufacturing hub in northern China, serving eleven Chinese provinces as well as Mongolia. It is home to China’s textile and mechanics industries.
Need to speak with an offshore manufacturing expert about your product(s)?
Call ITI Toll-free at 888-574-6823
Know China’s Top-Tier Cities and Key Offshore Manufacturing Hubs
To both negotiate and work with Chinese manufacturers, it’s important for U.S. companies to understand and adhere to the proper business etiquette. Chinese business culture is quite different from that of the United States. Their business customs can be somewhat complex because they build on the foundations of developing respect and lasting relationships. When it comes to business culture, two concepts are crucial – “saving face” or Gei MianZi, and “building relationships”, which is Guanxi.
For clients that work with ITI, we teach them that Chinese businesspeople prefer to work with people they can trust. Therefore, they tend to avoid focusing on contracts, laws, and money initially. During negotiations, your company will be able to get to those details after all parties can first establish an initial relationship.
Also of note is the importance of age and seniority position in Chinese business culture. They prefer to deal with older (50+) business partners because they see them as being more experienced compared to younger ones. This will also help U.S. companies determine who on their team to send for working through business negotiations
Here are some simple tips on Chinese business etiquette when you meet your potential offshore manufacturing partner…
Familiarize Yourself with Shipping and Logistics
Utilizing offshore manufacturing introduces a variety of new process issues for most U.S. companies. In addition to managing the manufacturing process, companies have to figure out how to package and ship their products back to the U.S. This includes making sure that all shipments pass customs.
While companies can try to handle their own shipping and logistics, it is a steep learning curve — especially if you haven’t before dealt with offshore manufacturing. For this reason, many companies contract with a manufacturing liaison like ITI to handle all aspects of the process, including logistics.
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Know There Will Be Potential Pitfalls with Offshore Manufacturing
What types of potential pitfalls can a company encounter with offshore manufacturing? There are many; however, the most common issues include:
• Language barriers
• Time zone differences
• Misunderstanding materials and specifications requirements
• Unexpected production changes
• Misunderstanding production schedules
• Adapting schedules to Chinese national holidays
• Unacceptable quality levels
• Shipping delays
• Passing customs and other inspections
• Stolen IP
This is why it’s always best to work directly with experienced companies like ITI Manufacturing. We have been helping U.S. companies navigate through the issues that come with offshore manufacturing for over 45 years! There’s no product manufacturing issue that we cannot handle when it comes to working with Chinese or other Asian factories.
Understand the Importance of Quality Control
One of the most challenging issues when outsourcing manufacturing is making sure that products are made to your exact specifications. The first step in ensuring quality control is choosing a manufacturer with a reputation for quality. In addition, you need to negotiate acceptable quality levels and establish regular product inspections.
You don’t want an unpleasant surprise when the first shipment of products arrives. Embracing proper quality control procedures can guarantee that your outsourced products meet or exceed all of your manufacturing requirements. Learn about ITI’s “No Manufacturing Defects” Guarantee.
Know There Will Be Potential Pitfalls with Offshore Manufacturing
The outsourcing process starts by identifying the best Chinese factory to manufacture your company’s goods. This requires research and investigation.
Communication & Negotiation
Once you’ve selected a manufacturing partner, you need to open communications and negotiate a contract that is favorable to both parties.
Specifications & Samples
When the contract is signed you need to send detailed specifications for the product to the factory. This may include sending product samples or prototypes for the factory to match. In return, the factory should provide you with preproduction samples of the desired product.
If the factory’s samples are acceptable, the factory is authorized to begin production. Manufacturing should be in accordance with an agreed-upon production schedule.
Inspections to ensure the manufactured product meets quality standards should be conducted during and after the manufacturing process.
Shipping & Logistics
The manufactured product needs to be packaged, labeled, and processed for customs and shipping to your location(s) in the U.S.
It’s Vital That Companies Utilize a Professional and Experienced Manufacturing Liaison
For many U.S. companies, the best and easiest way to manage the entire offshore manufacturing process – and deal with any issues that arise – is to engage the services of a manufacturing liaison. Liaisons have years of experience dealing with Chinese manufacturers and understand how to deal with problems that might occur. Learn about the many benefits of partnering with an expert liaison like ITI Manufacturing.
You Can Prepare for Successful Offshore
Manufacturing in China or Other Asian Countries
With more than 46 years of experience working with overseas manufacturers, ITI has a host of information and knowledge that can help U.S. companies outsource their production to China and other countries. Since the start of the new relationship that the U.S. developed with China, we have been around and continue to forge ahead to help companies build strong partnerships with Asian manufacturers.
Overall, we care very much about your offshore manufacturing success. We’ll help you find the right partner, negotiate contracts, and put professional staff onsite to manage the entire manufacturing process. We are here to make the whole thing easy for you. To get started, give us a call toll-free at 888-574-6823.