Newport Board Group, a Firm of CEO Advisors, Provides 4 Tips to Emerging Growth Companies on Outsourcing Manufacturing Operations to China

Companies Worldwide Have Outsourced Manufacturing to China: Opportunities Still Exist Despite Rising Labor Costs

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Manufacturing in China opens a world of possibility to create a wide range of products and innovations.

San Francisco, CA (PRWEB) February 25, 2014

Newport Board Group, a firm of CEO advisors, found that emerging growth companies who are deciding whether or not to outsource manufacturing operations to China, have many pros and cons to weigh. As expert business advisors, Newport Board Group offers companies important information to consider before making the final decision.

When China opened up to the outside 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 companies have relocated 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 U.S. companies to create a higher volume of product for a reasonable cost. With a little research and sourcing, middle market companies can build a partnership to manufacture products and provide innovation. Competitors who successfully outsource manufacturing to China can offer prices to customers that are generally 30% to 50% less than U.S. manufacturing costs.

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 business disciplines intimately involved in manufacturing operations in China and mastering the details are the prongs of a winning approach.

Newport Board Group's expert business advisors offer 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 as 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 U.S. where business is 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 trusts the other.

Another example is that entertaining is a critical part of the overall business culture and it is very important that company CEO's be prepared to spend time developing personal relationship with the factory owner—often at the owner's luxurious home located within the walls of the factory. A final example: communication style. Americans tend to be outspoken, looking to cut to the chase and looking for resolution. They style of many Chinese business people is to be quiet and reserved in meetings so that multiple sessions may be needed to get the information you seek.

2. MAKE THE TIME COMMITMENT

Companies sourcing product from China can control destiny--if the company commits to establishing and nurturing deep working relationships. It is critical that the Chinese manufacturer believes that the American company is “all in” at all levels in the company, particularly at the highest level. If they sense the opposite, Chinese manufacturers will not maintain the high level of scrutiny on quality control, safety issues and on time performance needed to prevent mistakes and drive quality and on-time production. That will cost money and cause potential harm to a company’s reputation.

3. SWEAT THE DETAILS WITH THE CHINESE PARTNER

Producing in China proves the old saying: “the squeaky wheel gets the grease”. Chinese factory executives pay the most attention to customers who spend the most time working closely 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

4. OVERCOMING PROBLEMS

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

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


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