Setting up China manufacturing
It is becoming increasingly common for corporations to enter China and set up manufacturing or assembly operations. It is hard to resist the low cost of labor, especially if you have a labor-intensive manufacturing or assembly process.
In order to outsource to China without running into product safety or quality problems, you’ll need to be willing to reconfigure your preconceptions of how business “should” be conducted. The rules are different, and you’re not going to understand the full range of those differences until you’ve actually lived in Chinese firms for quite some times, perhaps years.
In an article on Money Watch by Geoffrey James, he explains the necessary steps to set up manufacturing in China. He reinforces the notion that you’ll need a local intermediary to conduct business in China, an agent who can represent your interests, provide the right introductions, and negotiate agreements. The ideal agent should be fluent in both English and the local Chinese dialect in the region where you plan to do business.
Christopher W. Runckel, a former senior US diplomat, offers some guidelines help to eliminate misunderstandings and the potential for unexpected costs.
- Sign an NDA (Non-Disclosure Agreement)
- After the NDA is signed, give a complete and accurate scope of the project to the sourcing agency including goals, deadlines, milestones, and final products
- Stay interested and in constant communication.
- Be prepared to pay some costs up front. This is a high cost, high reward venture.
- Remember that sourcing takes time. Don’t expect that the first solution is necessarily going to be the ideal situation.
- Keep an open mind. Sometimes new options will come into play. Be flexible and remember that you’re looking for the BEST situation, not just the one you had in mind at the beginning of the process.
- Price is important, but you cannot underestimate the value of the ability the importance of protecting your Ip, being able to communicate, good customer service, access to seaports and other key factors.
- Be ready to travel. That’s the best way to figure out if you’re making the right decision.
- If you’re unfamiliar with the new culture, find an experienced professional to assist you.
- Keep in mind the costs and effects of inspections, shipping charges, customs fees, etc.
- Don’t rush things
If you need fast access to local expertise, labor, Chinese customers and distribution channels, consider a joint venture with a local Chinese partner. A well-chosen Joint Venture (JV) partner will give you everything you need to trade successfully in China. What’s more it will save you the considerable time and expense needed to start your own operation from scratch.
A Wholly Foreign Owned Enterprise (WFOE) enjoys complete independence from Chinese partners and is permitted to sell products manufactured outside China directly to the Chinese public. Moreover, local currency profits from WFOEs can be freely converted and taken offshore.
Companies wishing to maintain complete control over their operations and who need the highest level of protection for intellectual property rights (e.g. outsourcing of manufacturing) should consider an WFOE.
Baysource Global has over 10 years of experience helping all sorts of companies set up many different types of operations in China.
If you have any questions about how to set up manufacturing, or how outsource manufacturing could benefit your business, contact Baysource Global today.