Gain the Competitive Edge by Manufacturing in China

By Michael Evans and Jack Toolan

When China opened itself up to the world twenty years ago, many realized how its huge market of almost 1.3 billion consumers could impact the biggest manufacturers and retailers in the world. Few anticipated, however, that China's large population base would also provide competitive advantages against the most dominant players in the outsourcing industry.

China's current outsourcing market is growing an estimated 30 percent annually, and many countries have relocated their headquarters to China to establish businesses. Manufacturing in China opens a world of possibility to create a wide range of products and innovations. In addition, bringing product manufacturing to China allows you to create a higher volume of product for reasonable cost. With a little research and sourcing, you can build a partnership to manufacture your latest product invention. If your competitors successfully outsource manufacturing in China, they can offer prices to your customers that are 30 percent to 50 percent less than they are currently paying.

[Be sure to read 8 Common Mistakes U.S. Companies Make When Sourcing Goods and Suppliers in China]

The most important lesson: there is no shortcut to success in working with Chinese business partners. China is a country where anything is possible -- but nothing is easy. Understanding the business culture, getting all your business disciplines intimately involved in your manufacturing operations there, and mastering the details are the prongs of a winning approach.

Here are four key points to consider:

1. Business Culture: Face the Differences

Despite the fact that China has modernized a great deal over the last 25 years, it can still be difficult to understand for an American doing business there for the first time. The same fundamental differences between American and Chinese business culture still exist. Understanding and accommodating those cultural differences is essential. One example is that business in China is based on relationships -- as opposed to the US where business is a transaction based and primarily focuses on economics. That doesn’t mean that economics aren’t important. It means that collaborating closely with a Chinese partner like a factory owner on the details of a mutually beneficial business model can come only after the other party knows and trusts you.

Another example is that entertaining is a critical part of the overall business culture, and it is very important that you be prepared to spend time developing your personal relationship with the factory owner -- often at his luxurious home that is located within the walls of the factory.

A final example: communication style. Americans tend to be outspoken, looking to cut to the chase and look for resolution. They style of many Chinese business people is to be quiet and reserved in meetings, so that you need multiple sessions with them to get the information you seek.

2. Make the Time Commitment

Companies sourcing product from China can control their own destiny if they commit to establishing and nurturing deep working relationships. Whether you establish your own organization in China or you use third-party providers, it is critical that the Chinese manufacturer believes you are “all in” at all levels in your company, particularly at the highest level. If they sense you aren’t all in, they will not maintain the high level of scrutiny on quality control, safety issues, and performance needed to prevent mistakes and drive quality and on-time production. That will cost you money and potential harm to your company’s reputation.

3. Sweat the Details with Your Partner

Producing in China proves the old saying “The squeaky wheel gets the grease.” Chinese factories pay the most attention to customers who spend the most time working closely with them -- on issues ranging from sample making, purchase order placement, production planning and scheduling, quality control, and shipping performance.

Best practices would indicate that having a team of at least three people working directly with the factory on a daily basis produce the best results:

• A logistics person focusing on purchase orders and shipments
• A product person focused on the design of the product and packaging requirements
• A quality control person making sure that the product was being produced to proper standards

If you get your top team closely involved, you will be much more in control, and you won’t be inclined to blame the factory when the finished product isn’t on the retailers’ shelves. As far as your customer is concerned, you are the factory.

4. Overcoming Problems

Even with all the cultural understanding and time and financial commitment, there will be problems to be dealt with. Long-term relationships and a group of dedicated factory partners are critical to building and maintain a successful outsourcing operation.

The bottom line is: your sincere commitment to work respectfully with your Chinese suppliers as a trusted partner -- not as a disposable source of low-cost labor -- will help you identify and solve problems. Remember, in China anything is possible but nothing is easy.

[Be sure to also read 8 Basic Things U.S. Companies Must Know When Sourcing Goods and Suppliers in China]

Jack Toolan is a partner in Newport Board Group in New York City.