In mid-May of 2019, President Donald Trump imposed 25 percent tariffs on $250bn worth of Chinese goods, and there are plans to impose an additional 25 percent tariff on $325bn more. While the trade climate certainly provides enough ground for seeking manufacturers outside of China, there are other reasons product developers are choosing to relocate. Here are just a few.
1. China is no longer the most inexpensive option
Multinational companies haven’t viewed China as the most economical choice for a few years now. The 2016 IHS Markit survey found that less than 50 percent of respondents agree that China is a low-cost sourcing destination. In 2012, that number was 20 percent higher.
According to the International Labor Organization (ILO), wages in China have more than doubled since the year 2006. In 2014, the average monthly salary in China was $685, while in Vietnam it was $212. The rising wages in China are already prompting global businesses to reconfigure their supply chains.
2. Domestic manufacturing offers ease of communication and common cultural understanding
Communication breakdowns are challenging and, at times, costly. Speaking the same language as one’s manufacturer can eliminate many communication issues, which translates into less wasted time and money. This alone is motivating some developers to manufacturer their products at home in the States.
3. Other countries offer lower Minimum Order Quantities
The Minimum Order Quantity (MOQ) requirement is the lowest number of units of a product a supplier is willing to sell. A Chinese factory usually requires 1000 pcs. Compare this to Vietnamese manufacturers, which will accept an MOQ of 250-300 pcs. Companies that need smaller production runs are opting for manufacturing options outside of China for this reason.
4. Quality control
Standards and regulations in China are not necessarily the same as American quality assurance and quality control. This divide can result in miscommunication and a lot of disorder.
Paul Midler, author of Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game, explains: “Chinese supplies want to save money by reducing specifications, and American companies are trying to fight for higher levels of quality at reasonable prices. The customer may always be right, but quality failures often are the result of a relationship imbalance and asymmetrical information. Manufacturing companies that produce a substandard product often know what the problem is with their product, but they don’t provide much of a hint to their customers. This means that importing companies have to guess at where corners may have been cut. It’s a dangerous situation for all of us to be in, actually.”
Manufacturing in China isn’t what it used to be. How will your company strategize?
At Pivot International, we’re helping U.S. companies successfully navigate the current trade climate. As a single-source designing, engineering, and manufacturing company with facilities in Taiwan, Manila, the UK, and the United States we bring nearly 50 years of experience with Asian manufacturing and expertise to optimize production for your business. If your company is currently confronting production liabilities and is seeking a viable alternative to your current supplier, contact us today.