This article is the second part of a two-part series on understanding the nuances of cluster manufacturing in China/Asia. Click here to read the first article in the series


As costs increase and clusters move to improved, cost-effective locations in China, it’s essential that western companies sourcing from China keep pace with changing trends and benefit from the attendant cost advantages. Understanding regional differences in wages, raw material costs, and produced cost structures will all enable businesses to be best-placed for price negotiations. The best sourcing agents can assist western companies to derive maximum benefit from working with cluster manufacturing businesses in China.

The Advantages of a China Sourcing Agent

The complexity of certification is one of many challenges western companies must face with manufacturing companies in China. A strategic sourcing group will help to surmount these obstacles and find a China manufacturer for your business.

An established China sourcing agent will tap into a network of trusted suppliers and partners, which is particularly helpful for newcomers to the Asian market without prior experience or knowledge about dealing with China.

A western company choosing to go it alone in China will inevitably spend a long time evaluating quotes and prospective manufacturers when trying to find a China manufacturer. A reputable China sourcing agent is best-positioned to identify a cost-saving deal, particularly in a specialist market.

Western businesses who choose to deal directly with China usually meet considerable difficulties without a China sourcing agent well-versed in Chinese languages. Having a bi-lingual China sourcing agent fluent in English and Chinese and China’s business etiquette will reduce misunderstanding and ensure that business negotiations proceed efficiently.

Strategic sourcing groups also provide additional services that go beyond finding suitable suppliers. These include negotiation of terms and conditions and logistics. A skilled sourcing group will also understand and navigate Chinese manufacturing clusters.

A sourcing agent will work for you as a China supply chain consultant. The numerous current supply chain issues make dealing with China difficult, so having a China supply chain consultant will be invaluable for your business.

Product quality control and supervision of ongoing production processes are difficult and expensive for western companies to perform effectively without representation in China. A China sourcing agent will oversee quality control processes, leaving you to concentrate on growing your business.

A China sourcing agent will monitor site management and production quality, instigating all appropriate site inspections and ensuring the legitimacy of your chosen company.

Contract Manufacturing in China

Contract manufacturing in China is particularly suitable for companies that don’t want to own factories or buy equipment.

The benefits of outsourcing manufacturing are obvious for large companies; they will have long-term use of factories and equipment at competitive prices if terms are well-negotiated.

Smaller companies have less leverage for negotiation with Chinese outsourcing companies and risk limiting their options, with little leeway for more favorable pricing after agreeing to initial terms.

In China, contract manufacturers are often third-party companies who work solely as subcontractors or sell their products to other businesses or agents.

A China product sourcing agent will act as a manufacturing broker. They will draft business agreements with nominated China contract manufacturers to create parts, components, or finished products.

Factories For China Contract Manufacturers

There are three factory types in China: raw materials, components, and assembly. Most contract manufacturing in China requires a combination of all three types of factories, but sometimes all three kinds of work are done under one roof.

Resilient Chinese Manufacturing Solutions for Western Businesses

Western companies are increasingly using the China Plus One strategy to decrease their reliance on China for production. Operations in surrounding countries like India and Vietnam are functioning as backups, and companies are benefiting from regional restrictions that are less stringent than those in China.

In some countries, governments are incentivizing businesses to utilize their manufacturing services. The Indian government has a $19 billion proposal to incentivize companies to manufacture in India, with particular emphasis on the electronics, pharmaceutical, automotive, and textile industries. The US government has invested $52 billion in the semiconductor market with the CHIPS for America act.

Logistical Improvements In China

As McKinsey reports, China is mitigating the impact of Covid-related pressures by improving the efficacy of logistics in their country. Digitized supply chains benefit from increased automation, and greater reliance on air freight compensates for shipping delays.

These are encouraging signs that China is looking for ways to satisfy the unquenchable thirst for logistics providers and ease Covid policy-related problems. However, western companies are wise to look beyond China for manufacturing diversification.

To thrive in the future, some western companies are considering decreasing their reliance on China, seeking agile solutions to address further disruptions, and spreading responsibilities and risk in their future strategies.

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