Contract manufacturing in China is a popular option for companies looking to save costs and focus on product innovation, sales, and marketing. Large organizations that do not want to invest in fixed equipment and smaller companies that cannot build production facilities can benefit from this option. While China is the largest manufacturer of products, accounting for 28.7% of global manufacturing in 2019, outsourcing to Chinese contract manufacturers is not suitable for everyone.
In this article, readers will learn about the difference between contract manufacturing and outsourcing, types of contract manufacturing in China, where to find contract manufacturing companies in China, how to find a contract manufacturer in China, how to protect intellectual property, and more. The article will also explore the steps companies need to take before finding a contract manufacturing partner in China and provide some suggestions for finding a Chinese manufacturer.
Key Takeaways
- Contract manufacturing in China is a popular option for companies looking to save costs and focus on product innovation, sales, and marketing.
- Outsourcing to Chinese contract manufacturers may not be suitable for smaller companies early in the product development cycle.
- Companies need to take steps to protect their intellectual property when working with contract manufacturers in China.
What is the Difference between Contract Manufacturing and Outsourcing?
How Much Does a Contract Manufacturer Charge?
Contract manufacturing is a type of outsourcing where a company hires another company to manufacture their product. The main difference between contract manufacturing and outsourcing is that outsourcing is a strategy that reallocates resources and contributes to cost savings and other economies of scale. Contract manufacturing, on the other hand, is a form of outsourcing when a company does not have the resources to produce their product.
When it comes to the cost of contract manufacturing, it can vary depending on several factors. Some of the factors that can affect the cost of contract manufacturing include the complexity of the product, the quantity of products being manufactured, and the location of the manufacturer. In addition, the cost of contract manufacturing may also include fees for tooling, engineering, and other services.
Overall, it is important to consider the cost of contract manufacturing when deciding whether to outsource production. By working with a contract manufacturer, a company can benefit from their expertise and experience in manufacturing, while also potentially saving costs.
Types of Contract Manufacturing in China
When searching for a supplier in China, it is important to understand the different types of factories available. Depending on the product, one may require one or more of the following factories:
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Raw Material Factory: This factory produces the basic materials required for the product, which are then sent to other factory types.
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Component Plant: This factory produces the discrete parts or components needed to manufacture the final product, usually in combination with what the raw material plant produces.
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Assembly Plant: This factory receives all the materials and components from the other plants to assemble the final product ready for market.
While some contract manufacturing companies in China may offer all three types of plants, typically, a supply chain needs to be developed that includes all three types. Therefore, it is crucial to understand the specific needs of the product.
In addition, Chinese suppliers can also be categorized based on the production processes they offer, such as plastic injection molding, CNC machining, electronics assembly, and packaging. It is important to ensure that the services provided meet the required specifications. The range of manufacturing services offered by a supplier can make a significant difference in finding cost-effective solutions with good product quality.
Where to Find Contract Manufacturing Companies in China?
If you are looking for a Chinese contract manufacturer for your business, there are several ways to find them. Here are some tips to consider:
Use Internet Search Tools
The internet is a great tool to find Chinese contract manufacturers. However, a general search may not be useful. Instead, use B2B platforms such as Alibaba and GlobalSources to find quality manufacturers, suppliers, exporters, importers, buyers, wholesalers, products, and trade leads.
When using these sites, it is important to learn about their features and send RFQs (Request for Quotation) with meaningful details. This will help suppliers filter for relevance, ensuring that the majority of people who contact you will be relevant to your needs.
Be prepared for clunky user interfaces on the platform, but once a common interest is established, it is better to move to email. Expect a potentially overwhelming response, and have a quick discussion with a vendor who responds well. It is usually not worth dealing with people who respond in general or don’t evaluate the data you provide in your RFQ.
You can filter based on site ratings and reviews. Alibaba gives its highly rated suppliers a gold rating, which demonstrates their credibility and competence. Similarly, Global Sources has a verified supplier category, which may be less informative because the verification process is reportedly not detailed.
Use Industry Networks
Your own industry network is a very useful resource. Advice from industry and even government trade organizations, your own contacts (and their contacts), and even other companies can be helpful. This is a great way to find the most locally tested supply chains. However, if price is your biggest driver, you’re better off going back to first principles and making your choices safe for you through groundwork and relationship building.
The same rules apply to any supplier you approach through the web – trust but verify.
Attend Trade Shows
Visiting a trade show in your preferred area of exploration is a great way to find a higher-rated (and higher-cost) manufacturer or supplier. Those who invest in trade shows – both buyers and sellers – accept the cost and expect a return. Spending this level of resources is only practical if your business is large, and you need to be careful to target your displays to the types of products and services you want to outsource and to your budget.
Visiting trade shows will help you get a better understanding of the world’s factories and give you a clearer picture of what the market looks like. There are many smaller, industry-specific shows, such as the annual China Die Casting Show in Shanghai. It attracts equipment manufacturers, contract manufacturers, die casting foundries, and material suppliers.
U.S. and European trade shows attract overseas manufacturers, such as the annual National Hardware Show in Las Vegas – with an entire section focused on international sourcing. These shows allow you to connect with outsourced exhibitors of products and services. However, this will be a limited group of overseas suppliers – and while pre-filtered to ensure competence, seriousness, and usefulness, they will not be the lowest cost option.
Hire Sourcing Agents
A safe way to outsource contract manufacturing services is to use a sourcing agent whose entire service is to support you in your supplier search and guide you step-by-step through the process. Supplyia is a prime example of such an agent, serving clients in the US and Western Europe, manufacturing and sourcing goods from China, India, and Eastern Europe. They have a proven track record and can be a reliable helper – but paying for outplacement services in overseas markets is not the best way to control costs!
How to Find a Contract Manufacturer in China?
Finding the right contract manufacturer in China can be a daunting task, but it is a crucial step in bringing your product to life. To help you navigate this process, here are some key steps to follow:
Do Research
Before you start creating any product, research is critical. This includes market research, competitive analysis, trend tracking, keyword searches, margin and profitability calculations, and finding the right partner to bring your product to life. By investing time in the research phase, you will know if you are pursuing the right product opportunity.
Finish Product Design
Product design is where your product idea goes from concept to actual design. The more complete your product design is, the easier your manufacturing process will be and the better your chances of having your developed product produced by a Chinese manufacturer.
Prepare Product Definition and Specifications
Whichever manufacturer you choose, they will need your final design documents with clearly defined exact dimensions and tolerances. This information will help your manufacturer understand exactly what you need so they can accurately price, source and manufacture products that meet your specifications.
Find Potential Suppliers and Ask for Questions
When looking for potential suppliers, make sure you have a complete and accurate product definition. Ask detailed questions about their capabilities and experience, and ask to see examples of how they use those capabilities on actual products. Get multiple quotes and perform due diligence on the factory to evaluate the quality system, the manufacturing processes available, and their supply chain. Ask for specific examples of complete products they have made in the past that are similar to your product.
Understand the Chinese Culture
Remember that doing business in China is different from doing business in the United States. There will be language barriers and cultural differences, so it is important to have a local representative who understands both. This person will be your local eyes and ears and help you build a good relationship with your plant partners.
Get a Sample First
Before giving the green light for mass production, you need to see production samples of your product. Having a consistent local presence to oversee production and perform quality control is very beneficial. This includes monitoring Acceptable Quality Limits (AQL), which are internationally agreed standards for the number of defective products allowed in each product run.
Follow Compliance, Import, and Logistics
In terms of compliance, you must adhere to product standards, substance regulations, labeling, testing, tariffs, and documentation requirements. Next, you will work with an international shipping company to deliver your products to your distribution point. It is important to have an expert on your side to ensure that your products arrive at your warehouse safely and on time, avoiding any delays in shipping or customs.
By following these steps, you can increase your chances of finding the right contract manufacturer in China and successfully bringing your product to market.
Protect Your Intellectual Property (IP)
Protecting intellectual property (IP) is a crucial aspect of outsourcing, especially when it comes to contract manufacturing in China. Copyrights, trademarks, and patents are some of the tools that can help protect IP. When discussing potential partnerships with suppliers, it is important to make it clear that IP protection is a priority. The supplier’s response to these concerns can be a key factor in determining whether to issue a contract.
It is important to assess the supplier’s ability to handle IP before engaging in a contract. While their response to concerns and questions can provide some assurance, there is no guarantee of their compliance.
One common concern is the fear of creative theft. However, it is important to assess whether the product is deeply original. Most newly manufactured products do not involve protected technology steps, so the concern is not about protected IP but about product copying. If there is no easy way to bring a copy of the product to market, the risk of doing so is limited because no one is interested in stealing hard-to-sell ideas.
While the contract manufacturer may not produce an identical product or borrow extra product from the inventory, competitors may be more interested. Once the product is in the market, competitors can acquire most or all of the intellectual property, which poses a real risk.
To mitigate these risks, there are several steps that can be taken to provide greater security. The willingness of the contract manufacturer to take these steps is a litmus test for their commitment to IP protection and can help differentiate between potential suppliers.
One step is to use designators for contract manufacturer items to ensure that they reference the product only by that designator. Assigning well-thought-out document numbers to track and trace key confidential documents shared with the contract manufacturer team can also provide greater visibility into the vendor’s document operations. Roll call at the beginning of a meeting or call to ensure only pre-approved individuals attend can also be helpful. Assigning unique IDs or serial numbers to track engineering prototypes and monitoring their whereabouts can also be effective. Consider signing individual confidentiality agreements with specific contract manufacturer team members. Breaking the final product design into sub-assemblies and outsourcing them to other contract manufacturers can also help ensure that no supplier has all the design details.
It is important to note that any competent contract manufacturer will understand that protecting the customer’s intellectual property is crucial to winning new customers. They should be willing to accommodate concerns and provide assurances. Reluctance to do so is a red flag.
Contract Manufacturing in China
Hosted Marketplace
For companies that lack expertise in product development or supply chain management, the hosted marketplace model offers an advantageous alternative to traditional contract manufacturing in China methods. This model provides a complete solution that allows companies to maintain control and flexibility while outsourcing critical steps with trust and confidence. Supplyia is a company that offers various services, such as product development, research, contract manufacturing, and logistics in China, to help companies with this model.
The hosted marketplace model allows companies to find ideal designers and engineers for their specific products, rather than being limited to designers who work for contract manufacturers. This model provides designers with experience in designing products in the company’s category, bringing fresh insights and saving time with modifications so that production can start faster.
In terms of the supply chain, the hosted marketplace model offers the flexibility to source the best factories worldwide and the ability to change factories when needed. Sourcing factories is a crucial aspect of the production process, and negotiating a good deal and overseeing production to ensure that contract manufacturing in China is done exactly as promised requires skill. Few small companies have the expertise or local staff to build personal relationships with manufacturers and manage production, making the hosted marketplace model an attractive option.
Start Your Journey with an Expert.
Product development is a complex and lengthy process, especially when dealing with contract manufacturing in China. To minimize risk and maximize profits, Supplyia’s experts can manage the entire process, making it the right choice for companies. The best way to find out if this model is suitable for a company is to contact Supplyia and discuss the company’s goals in the product development process.
