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Q: [Serious] Outsourcing your manufacturing to China.
Let's pretend I create stuff in the United States. We aren't able to keep up with the demand, but we want everyone to have our product, so we need Chinese labor.
We're going to have a 9-5 no-bs system, offering better wages than are available in the city of our choice. We want to be sure not to screw up the environment too much, if at all. We basically want to use EPA standards in our factory if at all possible. No cost-cutting. We'll treat our employees really well, but we won't tolerate stupidity/laziness. They won't have to work as much as most Chinese, and they'll be making a lot more money than most businesses can pay.
What's the best way to begin? What do we need to know, and what do we need to be aware of?
10 years 17 weeks ago in Business & Jobs - China
I am involved in a company that has done everything you stated above. Things have been going great until recently when some of our investors decided they wanted to be greedy. This combined with the Chinese mentalitiy that contracts don't really mean anything, has led us to reconsider our current position. Now we will most likely take the technology back to the U.S. rather than hand it over to the unscrupulous investors here.
Wish you luck!
Hulk:
So how did you get there to begin with? Anything you could share with us? What about Vietnam or other neighboring countries, or even Taiwan?
wuweizea:
I accepted a job working with a Chinese PhD who is an American citizen and holds the patent to some new technology. She is originally from Hangzhou so decided to try and open a company here in China. She managed to aquire lots of capital from some Chinese investors so we created an investment company in Hong Kong that invested in the manufacturing company here in China. . We started the company in April of this year and are on schedule to start production of the product early next year. But as I mentioned before, the investors are rather unsavory types and now we are thinking that we will simply take the technology back to the U.S. and license it to some other companys as well as produce the product there.
Another danger is that unless your local management team is 100% reliable, you leave yourself open to the product being ripped off / copied / sold at reduced price locally / inferior quality/poisonous materials being used in manufacturing.
if you can, read "Poorly Made in China: An Insider's Account of the China Production Game"
just go into it with your eyes open
wuweizea:
Yes, we took extrodinary measures to guard against this. Even so we projected that at best we had 5 years before the technology was stolen.
For a lot of commodities, China is no longer a place to invest for manufacturing.
One thing to be extremely aware of are the logistic costs to serve your markets. Most people tend to ignore them, but nowadays they really make the difference, when you have to deal with a 10-15% cost saving that China still allows.
P.s.The 9/5 approach is BS
wuweizea:
Actually we work 8:30 to 5 with a half hour lunch break of catered food provided by the company.
. No problems in that area at all.
andy74rc:
Guess you're a small operation making a product non labor intensive
wuweizea:
We have around 150 people with 4 separate departments producing ultracapacitors and engineering modules to put them in. When the production line goes into full scale we will have three shifts working 8 hours each. Of course that probably won't happen now anyway.There is a lot of work to do from all aspects, but that doesn't mean you can't work a normal 8 hour shift. No different than a production facility in America.
I am currently doing the same thing now. In our 3rd year of production and things are going well. To do it, you would need literally millions of dollars of investment. And investors that are patient enough to know that they have no chance of getting their money back in any amount of time. Most of the start up would be spent within the first 6 months and not a single dollar would come back. If that sounds like a problem to any one, then just stop dreaming right now.
Next you would need to find someone to not only run the facility in China but also have companies and factory in their name, which means taking on alot of risk. If your thinking of doing it yourself Hulk, just stop it. I am in no way saying that you wouldnt be valuble or have a place, but there are factors and headaches involved that you couldnt possibly even guess untill you were in the middle of it. You want to produce anything but being environmentally friendly? Its gonna cost, theres government checks, With the new 2.5PM craze, a dust collection system is a must, hundreds of thousands, waste collection, HR staff, insurances, Taxes, shipping, customs. Its all a headache and its all shit.
Basically, there is a reason most people come with A: millions of dollars to throw money at any problem, and a product that will still make money threw all of the crap or B: find other business ideas away from manufacturing.
Think clearly and plan well!
Hulk:
The product our company is selling is actually pretty popular, and it's making a lot of money. We only need a small factory, and it's actually mainly just an assembly line. Everything can be assembled from manufactured parts.
We're just wondering if it would be viable to produce the materials in China. The assembly part is something we can do without actually costing too much money. Millions is doable.
May I ask what you're manufacturing?
mike695ca:
In my opinion it would be better to not have an office here and source the parts or materials from china and keep assembling where you are. With the way things have been increasing, its no longer a viable option long term. We manufacture a variety of wood and plastic products that are shipped to big box retailers in the US. With the nature of our products and how costs and headaches are rising daily, looking into other manufacturing markets is a good idea for everyone. I suggest you do some research into long term market forcasts for china before proceeding
Hulk:
Why? It's far more cost-effective to use Chinese labor.
Rough, dumb figures right off the bat:
100 U.S. folks @ $10 per hour = over $2m usd.
100 Chinese @ 1200 RMB per month = around $257k.
mike695ca:
Om my friend, you have alot of research to do. Especially cuz you just said that you wanted to pay workers more then they could normally make and treat them better. Number 1, your not finding any workers for 1200 a month, no chance not anymore, most places the minimum has gone up to 1600, but most factory workers wont accept that. Trust me i know, i deal with hundred of factory workers. Theyre looking for either a cushy job or more money with overtime and whatnot. lets say 2500 average, probably more, i know we pay alot more. Now add insurances and rooms and whatnot and you may need to double that. Add in the fact that you will need waaaaaay more than 100 workers for what 100 american workers could do. Dont expect top notch work for what your offering. These factpry workers know the game, they arent as dumb as you think. Now you need to add in the shipment and customs cost. It might be worth it if your getting 60 or 70 thousand dollars per container, but if your less, in the 30 thousand range, then profits drop alot more. You need to know how much product can go into a container and how much profits are in that container , and then minus shipping costs.
Nessquick:
Mike is right, really. If you did some research, instead of traveling and fighting mafia during your stay here, you may know the game rules. ;-)
Keep the work back in US, those people will love you. you will be happy, they will be happy, business will grow. go to china now a you may dig your grave ...
Hulk:
Mike, you're 100% correct that we have a lot of research to do. However, I don't know where you've been in China, but I've been to many, many cities where 1000 RMB is currently a "good" wage out of college. I've been to places where 500 RMB per month is considered a good living. My wife is from a sub-500 RMB area. Some people are even worse off, being paid 500 RMB every 3 months. Minimum wage is around 500 RMB per month in China.
In Changsha, a pretty big city, a lot of factory workers, my wife included, were offered 1400 RMB on the high end, per month, for a job assembling parts for an American company. If my wife wanted to work at a restaurant, supermarket, etc., they were only offering 1000 RMB to start out with. That's in Changsha.
Them being paid 1200, plus having decent medical coverage, means they'd be doing pretty damn good. A lot better than the sub-500 RMB average in that place. We wouldn't be manufacturing or assembling in a large city, we'd be doing it in a ruralish area, or a satellite city.
Yeah, we'd probably do up to 1500 RMB in that place. People will flock to us, they'll be desperate to earn more than 3 times as much as they are now, at least we're hoping. The work must be high quality, and if the workers can't produce high quality stuff, they'd be fired. They'll know it, too.
It's a really easy assembly. It's just time and labor intensive, and costs of paying U.S. citizens + OBAMACARE is just outrageous in comparison. We have several busses to take them to and from work, which won't be too far away.
In this case, since it would be an easy, stable job, we're thinking that, ideally, large groups of families (18+) would come to work for us. If there are 10 family members working at the plant, they'll be able to earn quite a lot together. Chinese families are usually tight-knit, and they all save up money together buy a house, et al. I've seen this done before, and I was amazed at how it happened.
Ideally, we'd also like to offer English classes for their children, for free. We can also make a pretty decent-sized school, staff it with mostly Chinese folks, and hire an English Teacher from the states. It's still very cost-effective, and it gives them a reason to work hard for us. Free English classes for your kids? Only rich people can afford that, for the most part.
Hulk:
Logistics is definitely something to consider as well, thank you mike. I'm not completely disagreeing with you, just a little on the labor cost.
You'd really think that by now people would have got it that manufacturing your stuff in China means instantly losing your concept, ideas, pattents and whatever.
That is means that you'll have to waste so, so, so much time checking and rechecking that everything from production to management to accounting goes by the book, which won't happen... that in the end it would hardly be worth it.
But no, they don't. Even idiotic EU governments still hope to sign contracts here.
Nessquick:
You may be right
but, on the other side, from the accounting side of view ...
If your company have 20 branches, and 1 of them is lossing money, you can shift it into profit. you simply put this lose in the tax accounting, and you end up paying less taxes.
Also, the investment is also accountable for tax shortcutting in home country... and so on and on ...
TMaster:
I'm no expert accountant, but I don't think companies that manufacture in China expected to lose money to pay less taxes in their business plan.
You have much more to lose than just money anyway.
My experience with one factory from Germany, that have plants in South Africa and China. He say invest / profit rate is still best in Germany, they regret opening plants in South Africa and China, because labor cost compared to efficiency in China is highest. They produce cardboard, so labor cost per one ton is lower in Germany than in China now.
But they must continue because investment to both countries was more than 200 million EUR per plant.
Also I am in Wuxi now, my Chinese friend pay workers 2500 RMB - 5000 RMB net salary for 200 working hours, he produce sofa fabrics. Accommodation in factory, lunch, taxes, etc. And 100 workers in Europe or America is same like 200 in China.
Think about other parts of Asia, or even east Europe, countries that are not in EU.
East Europe - non EU countries net salary is minimum 150 EUR - 300 EUR+taxes, which is lower than in China now. They offer also benefits for start ups, 5000 EUR-10000 EUR for one worker, non refundable, but you must keep for example 100 workers for two years. If reduce workers to 90, you must return benefit for 10 workers to government. Benetton for example shut down one factory in China and open 2000 workers factory in East Europe. And many more, if you need additional info you can PM me.
Only problem in East Europe can be if there is no production of original parts you need for assembly.
