Eight Simple Rules for Outsourcing to China.docx
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Eight Simple Rules for Outsourcing to China.docx
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EightSimpleRulesforOutsourcingtoChina
EightSimpleRulesforOutsourcingtoChina
CompanieslookingtotakeadvantageofChina’sincreasedcapacityforoutsourcingshouldalsotakeheedofpossiblepitfallsinplanning.
OutsourcingmedicaldevicemanufacturingtoChinahasbecomeincreasinglyattractiveinthelastseveralyears.Chinawasonceseenasanoptionforproducingonlyrelativelysimplemedicalproducts.Yet,significantimprovementsinChinesemanufacturers’sophistication,technology,and—mostimportantly—productqualityhavemadeChinamuchmorepopularformedicaldeviceOEMs.Butpopularitydoesnotalwaysguaranteeaneasyprocess.Findingtherightfactorycanbechallenging.ThereareeightstepsthatshouldbepartofanymedicaldeviceoutsourcingprojectforChina.Thesesteps,aswellassomecautionaryadvice,areoutlinedbelow.
IdentifyProductManufacturers
TheInternetisbeingusedmorereadilybyChinesemanufacturersasrestrictionsonimportandexport!
rightsarerelaxed.Inthepast,Chinesemanufacturersusedgovernment-approvedtradingcompaniestoexport,somanufacturersoftendidnothavetheirownWebsites.Asrestrictionshaveeased,ChinesecompanieshaveembracedtheInternetasatool,andthereisnowawealthofinformationforOEMslookingtobuildrelationshipswithcontractmanufacturersinChina.
UnlikemanufacturersinsomeAsiancountries,thoseinChinatendtobetechnologicallysavvyandhaveuser-friendlyWebsites.Thus,thefirstandeasiestplacetolookforpotentialmanufacturersisontheInternet.Chinesemanufacturersareincreasinglycomfortablewithinternationalcompanies.TheyoftenuseEnglishastheirsecondarybusinesslanguage,andmanymanufacturershavefairlywell-designedEnglish-languageWebsites.
StandardsearchenginesareagoodplaceforanOEMtostartbecausetheycanprovideaninitiallistofChinesemanufacturers.ManyWebsites,especiallybusiness-to-businesshostingsites,compilelistsofChinesemanufacturersandprovideinformationoncompanies’backgrounds,products,andcontacts.Thesehostedsitescanbeuseful,buttheytypicallylistonlymembercompanies,andmanyhigh-qualityChinesemanufacturersmaynotbelisted.Websearchescanbeusedasastartingpoint;theyrarelyprovideenoughinformationtocompleteaninvestigation.
AfteridentifyingmanufacturersthroughInternetsearches,thenextstepistoexaminethosecompanies’Websitesformoreinformation.Bewary,however,ofaChinesecompany’sEnglish-translationsite.Asimpleglanceatthecompany’scorrespondingChineseWebsite,evenifitcan’tberead,oftenrevealsobviousdifferencesbetweenthetwo.Chinese-languageWebsitesoftencontainmoreinformation—andsometimessignificantlydifferentinformation—thantheEnglish-languagesites.Ideally,bothversionsofthecompanysiteshouldbeexaminedbysomeonefluentinbothlanguagestogainacomprehensiveviewofthemanufacturer’scapabilities.
UsingtheInternettoresearchpotentialmanufacturersisabasicfirststep.ButitisimportanttobearinmindthatallinformationontheWebshouldbetakenwithagrain—orsometimesanentireshaker—ofsalt.Someofthemostrelevantquestionsarenotaddressedonhomesitesorbusiness-to-businesslistings.OEMsneedtotakefurtherstepstoconfirminformationthatmaybemisleadingormisrepresentedonaWebsite.
Companiesneedtoensurethatthefactorytheyareconsideringforoutsourcingcanactuallymanufacturetheproductsitclaimsitcan.Theyalsoneedtoconfirmessentialcompanydetails.Somecompaniesclaimthey’vebeeninbusinessfor15years,whentheanniversaryisactuallycloserto2years.OthersmayclaimthataninformalcontactinSouthKoreaisactuallyafull-fledgedjointventure,inordertoappearmorelegitimate.AfactuallyaccurateWebsiteisthefirstcluethatacompanyishonestandlikelytofulfillitscontracts.Sobyallmeans,conducton-lineresearch.Butbeawarethatsomeoftheinformationmaybeinaccurateorincomplete.
InitialPlanningandCommunication
Aftercompilingalistofpotentialmanufacturers,contactthecompanies.English-languageinstructionhasbecomewidespreadinChina,andmanycompanieswillhavesomeoneintheirinternationalsalesofficewhocancommunicateinEnglish.However,notallcompanieshavestaffwhocanspeakfluentEnglish,soitisidealtohavesomeoneonyourstaffwhocanspeakChineseinanappropriatedialect.
E-mailsandphonecallsarenecessarytoestablishtrustandcredibility,andtheirimportanceshouldnotbeoverlooked.However,itcantakeasmanyas10e-mailsandcallsjusttomakecontact,anditmaytakemanymoretoestablishtrust.
Thetimedifferenceisoftenanunaccounted-forhurdle.ItisdifficulttocontactaChinesebusinesswhenitshoursofoperationfallbetween9p.m.and5a.m.EST.Besuretofactorinthetimedifferenceandallowbothcompaniesseveralmonthstobuildtrust.Itisunrealistictoexpectfinalizedresultsaftertheinitialcallsande-mails.
WhencontactingChinesecompanies,oneofthefirstandmostobviousquestionstoaskiswhethertheycanmanufacturetheproducttoyourexactspecifications.SomeChinesecompaniesrealizethattheirproductswillnotmeetU.S.standards,andtheyoftensaysodirectlytoavoidwastingtime.However,itiscriticaltounderstandthatsomemayclaimtobemanufacturingtheproductwhilemakingplanstopurchaseitfromsomeoneelse,markupthevalue,andthensellit.ItcanbeextremelydifficulttodetermineaChinesecompany’sintentionsfromphoneande-mailcommunication,soacertainamountofskepticismishealthy.Althoughopendistrustwillnotleadtoaproductiverelationship,keepinmindthatfurtherinvestigationisnecessaryforeverybusinesstoprotectitsreputationandthebottomline.
Onceyouhavedevelopedarelationshipwiththemanufacturerselected,thenextcourseofactionisgettingapricequote.Themanufacturerneedsdetailedproductspecificationsandquantitiesofeachitemtoprepareanaccuratepricequote.Beawarethatacommonproblemwithpricequotesisthattheyoftencompareappleswithoranges;thatis,theyoftenprovidepricesforproductsotherthantheonesyouneed.Iftheproductisstandard,thismaynotbeanissue.Butifithasmanypossiblevariations,askforanitemizedpricequote.Investingtimeearlytoensurethatthemanufacturerunderstandswhatisexpectedhelpscompaniesavoidbasingfinancialprojectionsonerroneousinformation.
Chinesemanufacturersaremostfamiliarwithmetricunits.Theymaybeconfusedbyspecificationspresentedininches,pounds,oryards.Attentiontosmallbutimportantdetails,suchasunitsofmeasure,savestimeandenergyingettinganaccuratepricequote.
Askthemanufacturerthepricequote’sexpirationdate.Afterseveralyearsofdeflationorverylowinflation,Chinahasrecentlyseenrisinginflationandrisingoilprices.Becauseofthis,Chinesemanufacturersareoftenunwillingtoguaranteepricequotesforverylong.
Thepricequoteisnottheonlycostconsiderationneededtoarriveatafullypricedestimate.Whilethemanufacturer’sunitpricemayseemverylowatfirst,thiscostcanballoononceinternationalfreightforwarding,customsduties,anddomesticshippingissuesarefactoredin.Additionalcostscanalsoarisefromunexpectedsources,suchasexpensesrelatedtotravel,culturaldifferences,languagebarriers,andtimedifferences.Thesecostsaredifficulttooutline,butageneralestimateshouldbecalculatedintotheprice.
KnowtheDifference:
FactoriesversusTradingCompanies
Relaxationsonimportandexport!
regulationshaveledtoanincreaseindirectexportingfromChinesemanufacturers.Tradingcompanies,however,arestillcommoninChina.Tradingcompaniesthatactasgo-betweensformanufacturersandbuyersusuallyhaveexperiencewithChineseexporting.Therearecertainadvantagestousingtradingcompaniesratherthangoingdirectlytothefactories.
Tradingcompaniesofferawiderrangeofproducts.Ifacompanyneedsmultipleproductlines,itmaynotbepossibletopurchasethemallfromthesamefactory.Andsourcingproductsfromdifferentfactoriesrequiresmucheffort!
tolocateandevaluateeachfactoryandcancreatelogisticaldifficulties.Theuseofatradingcompanymaysimplifythisprocess.
Tradingcompaniesalsohavethecapitaltopurchaseinlargevolume.Throughestablishedrelationshipswiththefactories,tradingcompaniescangetmore-competitivepricesthanforeigncompaniesthatgodirectlytofactoriesforrelativelysmallorders.Evenaftertradingcompaniesaddamarkup,thepricestheyoffermaybelowerthanthepricesofferedbythefactoriesthemselves.
Amajoradvantageoftradingcompaniesistheirexperienceindealingwithforeigncompanies.TradingcompaniesaregenerallyeasiertocommunicatewithbecausetheytendtohiremoreEnglishspeakers.Becausetheyhavebetter-trainedstaffintheirinternationalsalesdepartments,tradingcompaniescanhelpavoidcommonpitfallsofdoingbusinessinChina.
Still,tradingcompaniesarenotforeveryone.Findingtherightoutsourceralsodependsonyourlong-termobjectives.Ifyouareinterestedinmaximizingshort-termprofitsandhavingarelativelyeasyintroductiontoworkingwithChinesebusinesses,tradingcompaniesmaybethebestsolution.Butifyouprefertoestablishlong-termrelationshipswithChinesemanufacturers,youmayoptforfactoriesthatexport!
directly.BuildingrelationshipswithChinesefactoriesoffersmoreopportunitiestodevelopcompanybrands.Italsoallowscompaniestobedirectlyinvolvedinthequalitycontrolprocess.
Companieswithanin-housesourcinggroupmaydecidetowork
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