China and the United States have recently formed an agreement to eliminate tariffs on tech products, which will likely result in closer economic ties between the two countries. Upon reflecting how US/China trade relations have improved over the past few years, it is surprising how much misinformation there is on importing products from China. When companies seek to import products through firms like ITI Manufacturing, they should consider the truths behind the following misconceptions.
We’ve Found the Best Supplier
Many times, importers form such a close relationship with a Chinese supplier that they become dependent and lose competitive advantage. An importer should be confident in adding to its supply chain, but there are usually better options available. According to data from the Bureau of Labor Statistics, in 2009, China had over 99 million manufacturing workers, compared to just over 14 million in the US. With a constantly evolving marketplace and substantial over-capacity in many sectors, companies should regularly re-evaluate supplier performance and find alternate suppliers when necessary.
Increases in Labor Rates Make China Less Competitive
China’s wages have grown tremendously over the past ten years. However, the current hourly wage for a Chinese manufacturing employee is under $2 per hour, which is less than 9% of the US’ average hourly wage. Suppliers often use news headlines as motivation to raise prices beyond the increased labor cost, but importers who know how much of a product’s cost is composed of labor expenses can ensure that price increases are legitimate. While Chinese wages are rising, it is still highly competitive with US factories.
Chinese Suppliers Don’t Outsource
Long-time importers are likely to believe this misconception. However, Chinese suppliers frequently outsource parts of the manufacturing process such as machining and finishing due to capacity limitations. Here, outsourcing isn’t the main concern; rather, it’s not knowing how or when a process has been outsourced.
In deciding which misinformation about importing products from China would make the list, it became clear that there’s a grain of truth to each of the included statements. However, with help from ITI Manufacturing, industry leaders can rise above the rhetoric. In the next few years, it will be very interesting to see if similar misconceptions will prevail in emerging markets.