Why manufacturing in China still helps keep costs down, helping businesses stay profitable

In 2011, just 10 years after China joined the World Trade Organisation, opening itself up to the global economy, it overtook the US to become the world’s top manufacturing country by output.

Since then, despite the rising cost of labour and raw materials, manufacturing in China continues to remain competitive, attracting global businesses that continue to buy goods and products manufactured on its shores.

Despite escalating trade tensions with the US since 2018, which have the potential to drive up costs of goods manufactured in China, analysts at the Boston Consulting Group have said that they are confident that “China will remain manufacturing’s center of gravity for the foreseeable future”.

Indeed, several multinationals continue to manufacture in China, which also remains an attractive destination for smaller businesses that import components and entire products from its many factories.

Here are five reasons why manufacturing your products or components in China still helps keep costs down, helping increase your sales and improving the competitiveness of your business.

1 – Cheap manufacturing costs

Yes, wages in China have gone up from the rock-bottom figures they were a few years ago, as the country’s rapid economic growth has lifted more and more people out of poverty, who have in turn helped boost domestic consumption. However, it is still cheaper to hire labour in China than it is to do in the West. Moreover, the country’s increased investment in automation ensures that China will continue to have a significant labour cost advantage.

China manufacturing overheads also continue to be lower than those in western countries.

The savings are greater if you are a business owner who runs a factory in the US or Europe and have decided to outsource manufacturing to China. You save money because you will not have to pay factory or workshop rent or wages, or overheads such as maintenance of machinery and air-conditioning. Neither will you have to spend money and time applying for licences and certifications. All you need to do is to identify factories in China that can manufacture your product or component and pick the one that offers you the best price, quality and lead time.

2 – A business ecosystem that’s geared towards exports

Investopedia defines a “business ecosystem” as: “…The network of organizations – including suppliers, distributors, customers, competitors, government agencies, and so on – involved in the delivery of a specific product or service through both competition and cooperation.”

A well-integrated business ecosystem allows businesses to thrive because each component of that ecosystem functions effectively – think of it as an efficient assembly line on a much larger scale. China’s entire business ecosystem is geared towards facilitating smooth business. From easily procuring raw materials, to transporting them efficiently to factories, to acquiring manufacturing licences, to transporting finished products to ports and shipping – everything is designed to facilitate the conduct of business.

Take China’s transport infrastructure for instance. Its highways, railways, ports and airports are all geared towards facilitating exports. This is why even though some businesses have moved their manufacturing from China to cheaper countries like Vietnam and India in recent years because of rising labour costs, several others have stayed put in China simply because the country has a business ecosystem that is way more advanced than that in other low-cost regions.

3 – Chinese factories are great at duplicating products

The ability of Chinese factories to quickly duplicate a sample you sent them is legendary. Sometimes they do it without asking, of course. This horrifying Quartz report details how an entrepreneur who had started a Kickstarter campaign in 2015 to fund his idea found his product being sold online within a week of his crowdfunding campaign being launched. Some of these manufacturers even stole the proposed name of the product!

This is not to endorse the violation of intellectual property rights, but the ability of Chinese factories to copy products is not necessarily a bad thing.

Perhaps there is a generic product that you really like – say, a really nice woven cross-body bag that you have had for years and people keep complimenting you for it – but no one manufactures it anymore.

Maybe you believe there is an online market for your bag only if it could be mass produced. If you show the sample to a factory in China, they will be able to duplicate it more cheaply and more accurately than any other factory in the world.

Several products made via manufacturing processes like injection molding and die casting are easily replicated too.

Injection molding is the process through which items made of plastic are made by injecting molten plastic into a mold. This process is particularly good for mass production as the price drops as production volume increases. Products and components made via this process include automotive parts such as dashboard knobs and bumpers, high precision appliance housings, parts for the medical furniture industry and even circuit boards.

Die casting is a metal casting process during which molten metal is forced under high pressure into a mold. Components made via this process include parts for motorcycles and vehicles such as crankcases, clutch housings, engine parts. Die casting is also used to make escalator steps, camera housings, clasps for watches and other wearables and so on.

Several factories in China can make components that require injection molding and die casting with just a sample.

4 – Huge production capacity

Any good business owner will know that the higher the order volume of the product or component, the lower the cost. If you need to place a large order consistently, Chinese factories – with their greater production capacity – are more likely to be able to fulfill your order than factories in the US or Europe. This also allows them to deliver your order in less time than if you place the same large order with a factory in the West.

Another thing about Chinese factories is that they have no hang-ups about who they work for, unlike manufacturers in the West. Are you a start-up? No problem. You want to place a small sample order? No problem. You want a massive order in six weeks? No problem. Try getting a western manufacturer to be so accommodative.

5 – Logistics that are the envy of several developed countries

A sourcing agent based in China, who belongs to the United Kingdom, said that the transport infrastructure he had seen in China made everything back home look like it belonged to the previous century. The sourcing agent is right in a way. Over the past two decades, China has set up an impressive transport infrastructure that is the envy of several developed countries, including the US and UK. Unlike several countries, it continues to spend money on building and upgrading such infrastructure. In 2018, citing government data, Reuters reported that China had spent $328 billion on transport infrastructure from January to September alone.