The pioneers for China sourcing were sport shoes and garment manufacturers, as well as the computer industry - followed by white goods and brown goods. China has long been the world’s leading manufacturer in categories such as toys, air conditioners, and televisions.

But in recent years China has moved up the value chain, also offering high-tech products. Increasingly manufacturing companies in light industrial fields find competitive advantage in sourcing their parts, components and semi-finished products in China and let it flow into manufacturing processes in their home country.

What’s more, in some sectors more and more European factories are starting to buy finished products in China. There are two reasons for this: quality is more and more reliable and they find it increasingly difficult to compete back home by just sourcing semi-finished products from China.

The best products for sourcing in China are those where you can exploit the advantages of purchasing in China and where the impact of the disadvantages is small. Here are some factors to consider:

• Little upfront design work needed; avoid highly specialized design with critical processes
• Stable design (long product lead times, low variability, low degree of customization)
• Cost of item usually greater than 5 USD
• High Labor Content (e.g. more than 25% of the product cost structure)
• High Mechanical/Electrical Engineering Content
• Large number of a few SKUs
• Low freight costs (low weight and volume, high packing density)
• Large raw material content (locally sourced from competitive suppliers)
• Obtainable technology
• Initial bulk order greater than 50,000 USD (after sample order), unless the product is already under production

Currently the main industries for sourcing in China are:

• Textiles, Garments and Silks: China, the world's top textile exporter produces good quality at low costs
• Light Industrial Products: good quality thanks to the use of imported machinery
• Machinery, Equipment, Hardware: low price, but not always world-class standards
• Optical and Electronic Products: China blows the competition away with its price-quality ratio
• Chemical Products: China is one of the world's major exporters of chemicals
• Arts and Crafts: produced by thousands upon thousands of small local companies
• Foodstuffs: cheap production costs, but can be risky if not managed well

Chinese suppliers are quickly developing increasingly sophisticated skills, e.g. in process-sensitive products, such as rubber and machined parts. However, China is not yet a viable option for highly specialized manufactured products made with customized equipment.

For a more evaluated analysis we suggest analysing your specific product requirement along Booz Allen Hamilton’s “Five-dimensional analytical model” for deciding when (and when not) to consider sourcing from China. Download PDF here.