China: Still The Factory of The World?
In the past few years, people can’t seem to stop talking about the development of the Chinese market, China’s growing middle class and their eagerness to buy foreign products. Just five to ten years ago this was completely different. At that time you couldn’t read any article about China without reading the words: ‘China, the factory of the world’.
Does this mean that companies aren’t sourcing products from China any longer? On the contrary, despite rising costs and salaries, a lot of raw materials, components, semi-finished and finished products and equipment are still coming from China today. Almost any product you can think of will probably still be made in China. Obviously, for certain products (e.g. apparel) China had already become too expensive many years ago, which caused an increasing number of foreign buyers to start sourcing products from other South-East Asian countries, such as Vietnam, Bangladesh, Thailand, etc. Nevertheless, China still has a huge production base, only the types of products being sourced have changed in the past 10-15 years.
China has moved up the value chain at breakneck speed, stimulated by the government’s policies and tax regulations. Product quality and efficiency, driven by innovation and automation, are now key drivers to the sustainable growth targets of the Chinese government. A lot is still to be done, but nowadays you can already buy products from Chinese manufacturers which have the same or even better quality than products made in Europe. In fact, certain products aren’t even made in Europe any longer, take for example LED Lights or solar panels, which have never really been produced in Europe in the first place (or not in big volume).
That doesn’t automatically mean that all products from China are of good quality though! When you buy products from Chinese suppliers, the same challenges apply as several years ago: finding the right supplier(s) and screening of your supplier(s), negotiation of the prices and payment conditions, difficulties in communication and cultural differences, intellectual property issues, quality assurance and quality control, logistics, etc. Before you engage in sourcing from China you need to take a lot of things into account, such as your feasibility study.You need to look into the manufacturing cost of your product, including the production lead times, transportation means and costs, import duties, etc. When you have a clear understanding of every single detail, then you can decide whether to work with a sourcing agency or do the sourcing yourself.
But in the end it’s always the same: a lot of potential problems can be avoided if you take your time to visit your Chinese suppliers, build a good relationship with them, communicate clearly what you want and check your products during and after production. And not to be forgotten: don’t forget your common sense when you buy products from China and don’t do anything you wouldn’t do in any other country.
By the way, did you know that nowadays you can pay your Chinese suppliers in RMB? On 16 October 2018 Horsten International will organize a seminar about "Sourcing from China & Payment to Chinese Suppliers in RMB" in Brussels, together with Ebury and the Belgian-Chinese Chamber (BCECC). More information can be found at the following link: CLICK.
Horsten has a lot of experience in the sourcing of products manufactured in China for export to Europe. Moreover, on behalf of foreign companies, Horsten’s Chinese representatives regularly execute quality controls and on-site inspections of raw materials, components or finished products from Chinese suppliers.
Horsten’s scope of services are comprised off:
- Identification and screening of qualified potential Chinese partners
- Contract negotiations and legal assistance
- Assistance in technology transfers from European to Chinese enterprises
- Collection of technical and commercial offers
- Negotiation of terms and conditions
- Quality assurance and quality control
- Trouble-free and integrated supply chain management (coordination of the issuance of purchase orders, follow-up, acceptance, logistics, etc.)
- Liaison services and problem solving
- Permanent monitoring of the market in view of efficiency optimizations and strategic restructuring.
If you need more information about this, please check our website or contact us for more details.