Contract manufacturing, or OEM (original equipment manufacturer) services, gives Western businesses a way to contract with factories in China to produce their goods. This practice can be very beneficial from both a financial and business perspective. Here are the top four financial benefits of contract manufacturing in China that are discussed in this article.
1) Cut Costs
The number one reason for outsourcing manufacturing in China is cost. Labor costs in China are rising, but after you factor in the quality they can provide, it is still the most cost-efficient option. Still, it’s hard to find better prices anywhere else. Your company won’t have to pay extra for expensive amenities such as insurance and transportation because you can negotiate them into your contract with your manufacturer. That leaves more cash in your pocket—always a good thing when dealing with volatile business budgets. If you don’t already have some operations set up in China, start small by choosing contract manufacturing. You can learn about different production processes before investing heavily in physical plants or employees. Even if you do end up setting up your own facilities later on, starting with contract manufacturing gives you valuable insight into what works and what doesn’t before spending money on something permanent. In other words, it lets you test drive a few options without making any major commitments until you know exactly what’s right for your company. After all, isn’t knowing how to save money always better than just having money? By putting your new knowledge to work sooner rather than later, hopefully yes!
2) Increase Profits
Contract manufacturing, if done correctly, is also a very profitable business model. This is especially true if you contract manufacture products for your own company and then sell them at a higher price than you paid to produce them. But don’t worry—this isn’t some form of manipulation that takes advantage of foreign workers or allows companies to save by cutting corners on product quality. If anything, it’s the opposite: Contract manufacturing actually requires more diligence from all parties involved because suppliers are typically held to higher standards in terms of both cost and quality control. That can mean increased profits across every party involved (including overseas manufacturers), as well as increased safety standards and superior quality control methods thanks to tougher requirements.
3) Work Smarter, Not Harder
Many entrepreneurs feel they have to do everything themselves, including manufacturing. But contract manufacturing—the process by which you outsource your production—can be a game-changer for many small businesses. In fact, contract manufacturing is one of few ways for some startups to actually bring their product to market affordably and efficiently. And by getting their products made elsewhere, entrepreneurs don’t have to worry about issues like sourcing raw materials, proper facility/equipment maintenance, etc., meaning they can focus on building their business back home.
4) Test New Product Lines
Consumers are always demanding more variety and new products, and a contract manufacturer provides significant flexibility to test new ideas. For example, if you manufacture plastic products in China but want to get into metal or glass, there’s no need to build a new factory. Instead, you can test metal or glass products on your existing equipment by outsourcing these items to another company that specializes in metal or glass fabrication. This allows you to try new product lines with limited risk. If it doesn’t work out, you simply go back to manufacturing plastic parts. And since outsourced production is often less expensive than doing everything in-house, there’s a good chance it will be cheaper for you as well. If it does work out though, then having an extra revenue stream might allow you to hire additional employees or expand your marketing efforts—all while enjoying low overhead costs!
If you are interested in more about contract manufacturing in China, we are always here to answer your questions. C2W is a one-stop manufacturing solution provider founded and managed by British and based in China, with our own production facility and in-house bilingual engineers. If you are interested in getting to know more about how we can be of help with your product manufacturing while protecting your IP, please feel free to contact us.
