China is the world’s largest manufacturer of goods, including consumer and commercial products. However, this huge market often results in the production of products that have short lifespans, or are difficult to use, resulting in loss of investment and loss of profit. To avoid these difficulties, large international firms can outsource manufacturing to Chinese companies. This allows them to keep control over their intellectual property, which in turn ensures that they are able to protect their reputation in the international market. One of the challenges facing the contract manufacturer is in developing a competitive strategy to penetrate the markets in China and Asia and remain competitive in the long term.
Contract manufacturing involves producing small to medium sized products at a lower cost than that of the full sized products. Contract manufacturers usually work through a series of stages, from idea generation to manufacturing, packaging and delivery. Contract manufacturers often work with one or a handful of clients, to take on a specific project. However, it has become common for Chinese manufacturers to source and produce products from a number of providers to leverage economies of scale and reduce development and implementation costs.
A Chinese contract manufacturer can either produce in-house components or produce parts and then sub-contract out other processes like testing and quality control. Either way they integrate all aspects of product creation from concept to first production. Contract manufacturers usually have an in-house team of engineers and designers, along with designers with technical expertise on tooling, fabrication, testing, and production capabilities. With a full line of products and services to complement their array of available designs, and with a keen understanding of Chinese manufacturing, they can quickly build a strong presence in a region.
Most companies have a small but reliable network of Contract Manufacturer China with whom they share production and supply responsibilities. They provide a critical lifeline for offshore activities such as prototype production, component production and assembly, and test and quality control activities. MNCs usually maintain an inventory of necessary raw materials and equipment, as well as skilled labor. In the event of a contract interruption due to supplier or equipment problems, they can quickly and easily resume normal operation. MNCs are an important part of the supply chain for a wide range of electronics and electrical products used in the global supply chain and end-to-end consumer packaged goods market.
The relationship between a Chinese manufacturer and a domestic customer is a two-way communication process. Contract manufacturing requires clear project detail from the outset – from sourcing and assembly capabilities to final tooling and material management. While the relationship is based on trust and shared responsibility, both parties must commit to ongoing dialogue to ensure that the relationship evolves naturally without overly burdening either party. This facilitates effective monitoring of each other’s progress and minimizes costly rework that could affect the bottom line during peak demand periods.
Outsourcing contract manufacturing offers a number of benefits to businesses looking to reduce expenses, improve quality, and increase competitiveness in the global economy. Although the relationship between Chinese contract manufacturers and their clients differs greatly, most find that the combination of lower costs, efficient production activities and increased flexibility offers significant advantages over traditional industrial R&D. Additionally, Chinese producers enjoy access to a massive amount of low-cost raw materials and equipment, which enable them to take advantage of economies of scale by producing goods at a more economical rate. Many contract manufacturers are highly specialized and produce only a limited range of products, so access to specialty parts or machining expertise allows them to customize their products to meet specific project requirements. Ultimately, a successful contract manufacturer needs to build a strong strategic business relationship with its domestic customer and be able to deliver on expectations.