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Trends: Here is a look at some of the recent trends that are adding to the growing popularity of Outsourcing to China:
Cost Effectiveness This results from a
combination of a large cadre of skilled, disciplined work force; low labor
rates; and continued incentives to both foreign and domestic firms to
invest in key industries. In addition, ample nature resources, cheaper
land and transportation, and continued improvement on production
efficiency all help cut the cost down in final products and
services.
Advanced Infrastructure Key to this
sustained economic growth is China's ever-improving economic
infrastructure. While countries such as Thailand and Mexico may be able to
compete on labor rate, they cannot guarantee on-time shipments. Their
infrastructure is old and in much decay. However, throughout China,
transportation networks are being upgraded to facilitate the large volumes
of exports being produced in its factories:
- Rail tracks have been doubled
- Expressways are being built
- Sealed roads lead to factories throughout the country
- Ports are being modernized
- All major ports are connected with railways and highways
IP Conditions As China is the leading manufacturing
country of the world; its legislation has adopted new commercial and
intellectual property laws in recent years to favor those foreign
companies conducting business in China.
Accession to the
WTO China's formal accession to the WTO was agreed upon on
December 11, 2001. With this accession it is predicted that China will
become one of the largest Economies in 50 years.
Chinese
Domestic Market The number of businesses operating in China is
rapidly increasing. Over 200,000 foreign companies are already
manufacturing in China.
Agent or Direct
source: There are benefits and disadvantages to both approaches.
A company must acquire a set of basic capabilities for outsourcing, such
as the expertise to evaluate a suppliers' ability to meet requirements;
test preproduction prototypes; create samples; and fulfill logistic
activities such as setting up a bonded warehouse. It is very common for a
company to work initially with U.S. - or China-based agents until the
internal staff are trained to deal directly with the Chinese suppliers.
Nevertheless, if your company sources more than $100 million a year in
products from China, it makes economic sense to have a unit that can go
directly to the suppliers. However, certain agents are skilled at handling
complex product categories, and a healthy flow of agents can provide
useful information about changes in the marketplace.
Savings: What can happen if I do not proactively
investigate the benefits of outsourcing manufacturing in China? If your
competitors successfully outsource manufacturing in China and can offer
prices to your customers that are 30% to 50% less than they are currently
paying you, you're going to lose customers in a hurry. Most large
companies, including Wal-Mart and GE, are already asking their suppliers
to set up manufacturing operations in China, and many of your customers
are likely to follow suit in the near future.
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