The end of cheap China!?

Posted on 23/08/2013 by Chadanuch Pomankul

084 The end of cheap china

Will manufacturing disappear from China? Is it cheaper to manufacture my products in the U.S. now?

These are questions we often hear from clients who are looking for manufacturing after having completed the Product Design and Product Development stages.

It’s a valid question. Unfortunately it’s also a complicated one that cannot be answered by a simple “yes” or “no”.

So let’s try and answer it.

It is true that labour costs have skyrocketed in the last years in China, especially in Southern China where most products are being made.

In Shenzhen, factory workers make more than double what they made five years ago. The era of willing workers lining up at a factory to work for a few cents an hour is definitely over. And that’s great news! It’s about time that Chinese workers also benefited from their countries success story!

What does that mean for your decision in terms of manufacturing? Is China still the right place?

It all depends on your product.

If your product includes electronics (and if it’s just a small PCB board), you will be forced to source your parts in Asia anyway. The entire supply chain for electronic parts is located in Asia (China, Taiwan, Japan and South Korea). So you might as well do the rest of the manufacturing including the housing and packaging here.

But in case your product is purely mechanical (plastic, aluminium, machined parts) it sometimes makes sense to consider a local production in your home country.

The questions you need to ask yourself are:

  •  Does my product require any assembly?
  • Do I need packaging?
  • Can I plan my production ahead or is flexibility more important?
  • Is my product price sensitive or can I charge a premium?
  • How many products do I want to produce?
  • How important is the label “Made in…..” for me?

If you product requires assembly and consumer packaging, there will be a fair bit of manual labour involved. In this case, China is the best option in 99% of all cases. You might still want to look at obtaining a quotation from a local manufacturer, but we doubt it will be competitive compared to China.

Without a doubt, producing on the other side of the planet requires some serious thinking for logistics. Shipping goods on sea requires 30 days to Europe and 10 to 30 days to the United States depending on whether you send it to L.A. or New York.

In case flexibility is very important for you, you will need to use air freight or a courier service to ship your goods. That adds to the total cost of the product. So it might be the case that producing locally is an option for you.

Price sensitivity is also a factor to consider. If flexibility is important, you are able to charge a premium using a local manufacturer might be a good idea.

In case you’re looking at small production runs (below 1,000 units), you might be better off producing in a small workshop.  However, starting with production runs above 1,000 pieces China will have an advantage.

Finally, it’s all about your clients. Are your target consumers all right with receiving a product that says “Made in China”? For most products, “Made in China” is no problem, after all pretty much anything is made in China nowadays.

Some products, for example luxury bags or watches, heavily rely on being Made in Switzerland, or Europe. If your product falls into this category, don’t produce in China.

We hope our explanation here helps. If you have further questions please contact one of our Product Consultants. Simply fill in the contact form and we’ll get back to you as soon as possible.

 

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