Chinese manufacturers provide tremendous potential cost savings for American manufacturers, and I will explain the reason why in this article.
US manufacturers calculate their selling prices as labor cost material cost overhead cost profit. This succeeds well in an up market, but when a downturn arrives and individuals only purchase perceived needs and relatively few wants, a long term survival technique becomes necessary.
As a general rule, labor cost is the largest cost component of any manufactured item. Workers would like to have a great life along with some nice creature comforts, and their earnings have been rising. Once again, in an up market that's not a problem. People accept price increases as a fact of life in a booming economy, consequently shielding profits isn't that challenging.
In a recession, such as the pretty serious one we're presently going through, manufacturers are confronting a couple of demands. The first is the worker need for once-a-year salary increases and the second is the slowdown in sales. It's straightforward math. In order to protect your profits, you either have to increase your price, or reduce your cost.
It's time to think about outsourcing some or all of your manufactured products to China.
On the surface, it looks like you'll be trading labor, material and overhead for freight costs, but let's take a closer look. Chinese manufacturers pay their own labor force approximately 90% less than US labor costs. Material costs are low in China, and so are taxes. So, if cost = labor material overhead, then you have a low cost solution by utilizing a Chinese manufacturer.
Quality is high with products manufactured in China because they have a large economy that now supplies the world. Wal-Mart, for example, is a huge customer for products made in China. The lesson of low price and poor quality that once seriously affected Japan was learned well by the rest of Asia.
If you bring in your products in container loads, the cost per piece is ridiculously low.
If you outsource 100% of your manufacturing to Chinese manufacturers, you can turn your factory into a warehouse and recognize even greater savings.
US manufacturers calculate their selling prices as labor cost material cost overhead cost profit. This succeeds well in an up market, but when a downturn arrives and individuals only purchase perceived needs and relatively few wants, a long term survival technique becomes necessary.
As a general rule, labor cost is the largest cost component of any manufactured item. Workers would like to have a great life along with some nice creature comforts, and their earnings have been rising. Once again, in an up market that's not a problem. People accept price increases as a fact of life in a booming economy, consequently shielding profits isn't that challenging.
In a recession, such as the pretty serious one we're presently going through, manufacturers are confronting a couple of demands. The first is the worker need for once-a-year salary increases and the second is the slowdown in sales. It's straightforward math. In order to protect your profits, you either have to increase your price, or reduce your cost.
It's time to think about outsourcing some or all of your manufactured products to China.
On the surface, it looks like you'll be trading labor, material and overhead for freight costs, but let's take a closer look. Chinese manufacturers pay their own labor force approximately 90% less than US labor costs. Material costs are low in China, and so are taxes. So, if cost = labor material overhead, then you have a low cost solution by utilizing a Chinese manufacturer.
Quality is high with products manufactured in China because they have a large economy that now supplies the world. Wal-Mart, for example, is a huge customer for products made in China. The lesson of low price and poor quality that once seriously affected Japan was learned well by the rest of Asia.
If you bring in your products in container loads, the cost per piece is ridiculously low.
If you outsource 100% of your manufacturing to Chinese manufacturers, you can turn your factory into a warehouse and recognize even greater savings.
About the Author:
An excellent question is precisely how one finds these Chinese manufacturers. The best answer is to set up either a custom trade tour with Connect To Asia or with your attendance at a trade show, like World Expo 2010 in Shanghai. We find suitable contacts for you, introduce you, provide translation and assist you in the negotiation process. Full details are on our site.
