What Is The Real Difference Between Manufacturing In China Vs The USA?
These days, two superpowers are battling for supremacy on the world manufacturing stage – the US and China. China’s manufacturing capacity has been growing steadily in the twenty-first century and with GDP of $13.2 trillion in 2018 it has become a powerful force on the world stage. Traditionally, China offered a large and relatively inexpensive workforce compared to what is available in the West. It also offers an enormous seller’s market so it is hardly surprising that some of the world’s biggest companies have brought their manufacturing operations to Chinese factories over the years.
Here is an overview of the advantages and disadvantages of manufacturing in China:
Advantages of Manufacturing in China
- Slash Production Costs – US firms can slash production costs by manufacturing goods in Chinese factories (which tend to offer significantly lower production costs than their US counterparts). It is for this reason that business owners and manufacturers put up with the inconvenience of manufacturing goods on the other side of the world (and the subsequent need to ship the goods long distances.)
- More output, Less Time – While US factories are often limited in their capacity and can’t always turn things around quickly, this is rarely true of Chinese factories. Low labor costs mean that Chinese factories can almost always find the staff to get the job done – even with little notice.
- Big market for selling – Manufacturing in China gives companies ready access to the gigantic Chinese market. Offering over 1.3 billion potential consumers, selling goods on the Chinese market can lead to massive profits and cost savings for the manufacturer – who can translate these wins to the Western market by dropping prices there too.
Disadvantages of Manufacturing in China
- Finding a Factory – It’s not always easy to find a suitable factory in China. You have to work on building relationships with suitable facilities which can mean multiple visits to China to attend trade shows and network. Many manufacturers have built their relationships with Chinese suppliers over decades and it can be hard to break in if you are “new.”
- Language barrier – The language barrier makes it hard to communicate. While many Chinese people do speak some English this is not true across and the level may not be sufficiently high to discuss complex manufacturing specifications. Most businesses have to hire translators and this is an additional cost that must be weighed against the potential savings in labor costs.
- Quality issues – If you’ve ever bought a fake designer handbag or knock-off sneakers in China, you’ll know that the quality is just not the same as the “real thing.” Products labeled ‘Made in China’ can be perceived as inferior to those ‘Made in the US’ This may or may not be true in every case, but it is a factor you need to consider. Many customers favor domestically manufactured products and are willing to pay more to get them. This might not be relevant if you produce cheaper items that are not required to last – like stationary and Christmas decorations – but for quality items and electrical goods, this is a huge consideration.
- Shipping Delays – Shipping from China is no simple matter. Long lead times and high shipping costs are big deterrents to manufacturers from the West.
- High Minimum Orders – If you are not manufacturing in huge quantities, Chinese factories can drop you with minimal notice in favour of more lucrative clients. Many Chinese factories specify high-volume minimum orders from the outset which, while fine for mega-corporations, simply won’t work if you are a smaller business and want a small-batch or one-off line.
- Risk of Intellectual Property (IP) theft – If your products are not properly patented, you might find your ideas being reproduced as cheaper, nastier versions by Chinese factories. This has been a huge problem for manufacturers over the years. Even with patents in place, standards in China are different and adherence to legal patents can be overlooked. The new trade tariffs introduced by the US are designed to freeze some of these cheap Chinese knock-offs out of the market creating space for US-manufactured goods to come in. This is especially true in the realm of electronic products.
Is it really cheaper in China?
Each manufacturer must weigh out the benefits and disadvantages of manufacturing in China for themselves. The considerations vary significantly depending on what you want to produce and other factors discussed here.
It’s also very important to note that things are changing all the time. Over the years, the Chinese government did a lot to attract and retain foreign manufacturers, however, the winds of change are here. While it used to be the case that moving manufacturing operations to China conferred significant cost cuts to the Western consumer, this is no longer always true. As the US administration becomes increasingly concerned about the trade deficit between the US and China, several tariffs have been imposed on Chinese products entering the States. This makes these products much more costly than in the past and is dampening the allure of China as a manufacturing location. In response to tariffs, many US companies are searching for alternative countries in which to manufacture their goods.
If these are issues that affect your manufacturing business, keep an eye on what’s going on before making major decisions.