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Three Key Costs to Get Right in Your Overseas Manufacturing Partnership (Part 1)

January 7, 2022

2021 was a uniquely disruptive year, and the world’s workshop, China, has been no exception. As a business or brand based in Europe or North America, now is a good time to reflect on your strategy toward manufacturing partners located in China.

In this blog post, we’ll review some of the issues you should be concerned about in 2022. We’ll also outline the criteria your business needs to look for when partnering with an overseas manufacturing facility.

The labour market has experienced some significant shifts for Chinese manufacturers. There are no longer as many manufacturing facilities in larger cities. But there is a growing number of Chinese families who have moved from the countryside and now live in the metropolitan areas surrounding major urban centres. And in these larger cities, it’s become harder to recruit factory workers, and wage rates are on the rise. Younger workers are seeking opportunities in competing job sectors, such as the hospitality industry, where many say they prefer the working conditions.

Even so, we need to temper these labour concerns with the realization that cutting-edge automation has swept China’s manufacturing sector. Factories today are far less worker-dependent than they once were. Technological innovation are increasingly mitigating labour cost increases and enabling more stable production processes.

Companies seeking reliability and flexibility in their overseas manufacturing relationships should keep three essential criteria in mind: inventory, automation, and seasonality. We discuss each of these below.

Inventory

We’ve all been coping with supply chain challenges over the past year or more. A single missing part can prevent time-sensitive orders of finished products from reaching customers on time. Your company needs to be partnering with a firm that knows exactly how to procure every one of your parts reliably.

They should be sourcing all your required components from the most dependable suppliers anywhere around the globe. Your partner must be resourceful and agile enough to ensure their production lines have everything they need when and where they need it to complete your production run without costly delays.

Automation

Chinese factories have concentrated on advanced automation for decades. However, because of the socioeconomic and demographic changes noted above, business leaders are more focused than ever on deploying leading edge manufacturing technology.

The overseas firm your company selects as a partner needs to be among those with the vision to invest in state-of-the-art technology to mitigate labour market challenges. Chinese authorities have increased overtime wage rates significantly, making double time for Saturdays and triple time for Sundays the new normal. This is in addition to annual wage increases. Some facilities are responding by finding creative compensation systems such as paying piecework.

Beyond that, automated processes and advanced robotics have become indispensable in managing these rising labour costs. Worker productivity is also declining because of demographic factors such as an increasingly aging workforce in the manufacturing sector. Young workers with nimble fingers are becoming harder to come by in today’s industrial labour market.

To avoid becoming entangled in the cultural changes affecting the Chinese social order over the next few years and decades, your business needs a manufacturing facility whose processes keep pace with mechanization, computerization, and robotics to manage rising wages and continuously improve production methods.

Seasonality

Festive seasons differ between Asia and the West. In Europe and North America, consumer demand skyrockets leading up to the Christmas season. To accommodate the Christmas rush, Asian manufacturers need to have your finished goods aboard ship by the end of August – given these COVID times we live in now with logistical delays occurring everywhere. Pre-COVID, it would have been safe to ship finished goods by late September.

On the other hand, production in Asia grinds to a halt for family gatherings around the time of the Lunar New Year. Chinese manufacturers typically shut down for two weeks over this holiday season. Workers in urban centres often travel to their rural hometowns to be with extended families. Some plants experience significant staff turnover as part of this process. Read more about Lunar New Year delays in this blog.

There’s even a counterintuitive opportunity from all this. You might find that your company can take advantage of available Asian production capacity in November and December after all the Christmas-related consumer goods have shipped. Afterall, it is business as usual since Christmas is not a festive season in China.

Your business needs a partner with the planning and logistical skills to take all these factors and more into account. They need to grasp the urgency of having your finished goods in the shops for the Christmas shopping rush. They also need to have proven tactics in place to ensure that your orders are timed to avoid any disruption around the Lunar New Year period.

Identify and Connect with a Partner

It’s not easy to identify and connect with a partner that meets all these criteria when they’re an ocean away. At Kingstec, we have been supporting brands who need offshore manufacturing capacity for nearly 40 years. We’ve earned our clients’ trust by maintaining the strictest quality standards while helping to get their products into the marketplace quickly and reliably.

If you have a product concept and you need someone to ensure the entire offshore manufacturing process goes smoothly, why not give Kingstec a call? We’d be happy to review your requirements and suggest ways for your business to build a productive, mutually rewarding partnership in “the world’s workshop.”

Look for our next blog, where we’ll share more insights on the three cost factors to get right in your overseas manufacturing partnership.

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