China  – Contentious or Profitable?

Doing business in China can be contentious and challenging for companies in many countries. Yet even with challenges on doing business, China continues to attract foreign investment. So why do businesses still want to invest in China when there are so many other “business-friendly” countries and financial markets that support foreign investment?

Despite these negative business conditions, according to the 2020 World Investment Report, in 2018 and 2019 China attracted a staggering $138 billion and $141 billion in foreign investment, respectively.

Companies are looking even more at their costs right now as a way to respond to financial pressures but China still offers huge benefits in the supply chain. However companies need to be even more wised up than ever when deciding to go this supply route on their own.

1. Wrong partner
Using the internet to select your partner is a strategy that will inevitably go wrong at some point. Are you sure you are dealing with a manufacturer or an agent, and if its an agent, do you have control of any tooling or fixtures that you pay for, and do you know whether your next order is coming from the same factory as before? There are fantastic suppliers in China, but whether they are right for you depends on a huge number of factors. There is no need to compromise in your search, and there will be the right partner there for you, but get it wrong and don’t expect things to get any better.

Whilst all companies want to minimise cost, focusing on cost alone from the comfort of your home office chair can have serious long term implications. A product is only cheap if it conforms to the quality standards that are set – and any company buying on price alone is always going to be at risk of the supplier using ‘value engineering’ techniques to find some profit. It is essential to know which company is making your goods, and that the price offered does not come at the cost of unexpected surprises in the future.

2. Lack of planning
Moving business to China should be part of a considered as part of a long term business strategy and include the appropriate planning. China is a vast country that can offer the savvy business a huge ‘helping hand’ in their strategic growth – but without a plan it is highly unlikely to be realised. ‘See how it goes’ strategies will generally fail – be specific about what you want and how the support of outsourcing partners can help you achieve your goals. The support of such partners can allow smaller UK companies to compete effectively with the larger market leaders – plan and receive the rewards.

3. Cultural understanding
Chinese business is based on creating friendship and trust first, and doing business later. It is essential to put in the time to develop this relationship in advance and spend time eating and drinking with your prospective partner. This is a key problem in the current business climate, and not one that we think will change until 2021. Even if you can get to China, many factories are reluctant to let in visitors.

4. Communication & Management
Buying from China will often mean investing some money in advance to develop your specific product, so a key question is whether you have the knowledge and skill set to manage the relationship with that supplier over the long term? Any form of payment can form a tie to a specific factory that can be hard to break if you are unsure how to deal with the day to day issue. It is crucial to understand that communication has to be constructive and that the supplier must feel confident to discuss their concerns – if they are unable to communicate effectively with you – expect problems.

5. Excessive Price Focus
Using the internet to select your partner is a strategy that will inevitably go wrong at some point. Are you sure you are dealing with a manufacturer or an agent, and if its an agent, do you have control of any tooling or fixtures that you pay for, and do you know whether your next order is coming from the same factory as before? There are fantastic suppliers in China, but whether they are right for you depends on a huge number of factors. There is no need to compromise in your search, and there will be the right partner there for you, but get it wrong and don’t expect things to get any better.

For more info on product manufacturing –  call us on: 01225 460 388  or find out more by emailing mail@onepointtwo.com