Searching for Price competitiveness
 Ever-increasing demands on competitiveness in terms of price force Western companies to cut production costs. Thanks to a shift from “made in…” to “made by…” the company label is getting more important than the product’s origin. This allows Western companies to outsource production to contract manufacturers in low cost countries, while focusing their resources on their core business of developing, marketing and selling products. In an increasing integrated world economy this means that labor division becomes efficient and resources are optimally allocated.
Low labor cost and much more
No doubt, China’s average hourly labor rate is one of the lowest in the world, in relative as well as in absolute terms. Even considering regional differences and the steep growth rate, China will remain one of the cheapest low-cost country sourcing destinations for the coming decade. However, manufacturing cost, of course, is not everything;
transportation efficiency, lead time, product design, and technical
capabilities all come into play.
Let us look at some pros & cons
of China as a sourcing base:
Pros |
Cons |
China ’s low manufacturing cost
- Low overhead costs (rent, utilities, taxes, product design, R&D…)
- Low raw and processed materials cost
- Low labour cost (average wages approximately 80 USD per worker per month)
- Flexible working conditions
- Large supply of low-cost labor for years to come
- Labor savings are best realized in manual operations
Comparatively good quality output
- Highly trained, motivated and literate work forces
- Improved productivity, quality and product sophistication
- Substantial export experience
Business-friendly environment
- Manufacturer-friendly governmental policies
- Tax advantages
- Stable economy and currency
- Established and dynamic industrial infrastructures
- Flexibility of suppliers (open to supplier development, implementation of new techniques, etc.)
|
Distance (to Europe)
- Higher transportation costs, incl. duty and freight costs
- Higher cost of inventory because of long supply lines
- High inventory and defect risk due to purchasing in large volumes - being far away makes control and follow-up more difficult
- Time difference (telephone calls, jet lags)
Cultural differences
- Language and communication problems
- Lack of understanding of western quality requirements
- Time consuming negotiations: Chinese are smart, shrewd business men and tireless negotiators
- Violations of intellectual property rights
China is still a developing country
- Substandard quality control
- Substandard product design
- Substandard technical capabilities
- Things are constantly and rapidly changing
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Aibix is convinced that China offers a great value proposition. If you have a partner like us on site that manages the issues of distance, communication problems, quality and design standards, then China is where you can let your products been produced without compromising your requirements, while gaining a tremendous competitive edge on the cost side.
If you are interested in further background information on China, we suggest to consult the CIA World Factbook or OECD information by country.
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