As editor of A reader has suggested asking for feedback from blog readers about their experiences doing business in China. Done right, outsourcing manufacturing offshore creates some real potential for cost savings. But we've also heard anecdotally about how the "savings" sometimes can be erased by higher costs for telecommunications, travel, lead-time delays, quality issues, reworks and shipping expenses.
Have any companies moved business overseas and found that the decision cost them money? Do you have firsthand experience?
The reader who suggested this item knows second-hand about an OEM that "lost tens of thousands of dollars every time a team had to visit China to straighten out problems. It would take weeks to ship first runs, communicate errors and changes and then get more part samples. Ultimately there would be one or more visits per project. Vendors changing designs, substituting parts, and changing specs were common. Not to mention how these vendors would then mold parts for local sale."
The amazing part of the story is that the OEM was approving projects without taking any of these extra costs into account. This particular company, a well known plastics processor, did not have sophisticated MRP (material requirements planning) rules for new products, and never really audited the real costs of moving production offshore.
I look forward to reading about your own experiences in our "comments" section.
Comments (3)
Those of you interested in this topic may wish to check out the speaker slide presentations, audio clips and story links from our first Plastics News China Forum, held Nov. 14-15 in Chicago. Speakers Larry Hotaling of Global Diligence Ltd. and Jay Woerner of Milacron Inc. also did a nice job comparing the business landscape of China and India.
Posted by Robert Grace | March 6, 2007 10:43 AM
Posted on March 6, 2007 10:43
I am currently purchasing molding, assembly and tooling in China and I think that if you are doing business anywhere you have to do your homework, approve vendors and walk before you run.
I spent a total of 6 weeks in 4 trips in China in 06 and I communicate with my suppliers daily for any issues and perform design reviews and let them know exactly what our expectations are and require them to meet them. I also ask for references.
There are good suppliers that are reasonably priced, and there are some poor suppliers that are very reasonably priced.
We have also started to develop a customer base in Asia that we would not have done if we were not doing business there.
Posted by Bruce | March 8, 2007 2:09 PM
Posted on March 8, 2007 14:09
OEM costs in China will nearly always be more than anticipated, but at the same time, I am not aware of anyone who is paying more for product there than they were in the US. Certainly, in the short term, this happens, but typically, problems are solved and costs get brought into line. If they don't, the company moves on.
I am certainly aware of many companies, however, that have chosen NOT to pursue China OEMs after being told that saving 20% will not be enough to make up for increased legal and other fees inherent in doing business internationally, along with greatly increased risks of quality problems.
I am speaking here of all industries, not just plastics.
Posted by China Law Blog | March 12, 2007 3:06 AM
Posted on March 12, 2007 03:06