In the current political climate, U.S. companies are outsourcing manufacturing. Why are they doing this?
There are a number of benefits American and other western companies gain by outsourcing to China.
1. Labor Costs
The first and most common reason for outsourcing to China are the financial savings. The work is moved from a more expensive labor market to a cheaper one. American companies outsource to China because they have their goods assembled or constructed at an incredibly low cost. Chinese factories are set up for larger scale manufacturing. However, they are sometimes open to starting with smaller orders and scaling with their clients. Furthermore, outsourcing a large number of work helps companies ensure greater flexibility. Using Rad Sourcing or another trusted sourcing agent, allows them to start and stop contracts rather than bringing on more employees. More employees means more expense.
It is clear that outsourcing work saves companies a great deal of money. This answers why Western companies often outsource to cheaper labor markets like Asia but why is China such a hub? Why not go somewhere else in Asia? One of the primary answers is skilled labor and sunk costs.
2. Skilled Labor and Sunk Costs
A big reason that there are so many U.S. based companies manufacturing in China in our current political climate is because they are unable to move their full supply chain to another country. Many people or companies specializing in manufacturing also strongly believe that China and the United States’ trade relations are temporarily strained. In their eyes, manufacturing is a long term play, and will not be influenced by short term issues.
China accounts for roughly one-fifth of all global manufacturing, which makes it the single largest manufacturing nation in the world. They have a high degree of skilled labor relative to many other affordable labor hubs. For example, Shanghai is at the center of consumer electronic manufacturing and remains there because they developed skilled labor in that area. They possess all of the necessary tools to complete those types of jobs faster, cheaper, and more efficiently.
3. Quality, Service, and Flexibility
There is a false notion that goods made in China are low quality. The reality is, it is difficult to find a good, trustworthy manufacturer. Experienced sourcing agents, like Rad Sourcing, are incredibly helpful in these scenarios. When U.S. based companies have the right manufacturing partner, they enjoy relatively low costs, good quality, and prompt service and flexibility.
There is a high amount of competition in China for manufacturing contracts. The quality manufacturers want to keep their clients as their business scales. They treat them as a partner rather than a paycheck. When a sourcing agent or a team on the ground is used, you can have much more peace of mind that your intellectual property is protected.
Conclusion
The current political climate makes manufacturing in China a daunting task. However, when considering all of these factors like price, quality, flexibility, and skill it becomes clear why so many U.S. companies are outsourcing manufacturing to China.
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