You might be surprised to learn that around 20% of small businesses fail in the US within their first year. This can stem from various causes, such as poor market need or insufficient financial management.
However, one of the most prominent is improper manufacturing. Not only can this cause major performance complications, but it can also damage your company’s reputation. The good news is that there are steps you can take to streamline this process.
Pursuing manufacturing in China is a great way to do so, but not everybody understands how to begin. Let’s explore the different types of manufacturers in China and how to find the best one for your needs.
1. Original Equipment Manufacturing (OEM)
As the name implies, this involves working with a manufacturer to produce original equipment. After completion, the brand that works with the Chinese manufacturer will then sell the products.
This model is renowned for being cost-effective and offering substantial control over product design. However, some business owners encounter communication difficulties.
Original equipment manufacturing contracts must adhere to Chinese law and must be drafted in Chinese. It’s worth working with an attorney to ensure you don’t infringe upon local regulations. Otherwise, you could experience substantial legal consequences.
2. Original Design Manufacturing (ODM)
These contracts entail working with the Chinese manufacturer to develop an original design. They then manufacture the product and sell it under a foreign brand. For instance, let’s assume you owned a men’s streetwear apparel company but didn’t have inventory or product designs.
You could work with a Chinese manufacturer to create designs for your clothing, manufacture the clothes, and then sell them. This is an amazing way to get your business up and running since you don’t have to purchase manufacturing equipment or understand how to conduct the process on your own.
While there are many opportunities with ODM, there are numerous inherent challenges. One of the most prominent is branding.
Some manufacturers will have a difficult time understanding your company’s vision, leading to them producing inaccurate results. As you might assume, your designs must also comply with Chinese standards.
3. Contract Manufacturing (CM)
This type of manufacturing combines elements of ODM and OEM. The Chinese manufacturer you work with will produce parts or components for your company. However, your business will be responsible for assembly.
There’s plenty of flexibility and control with contract manufacturing, but the logistics can be complicated. It’s imperative to ensure that your business is capable of assembling the components.
Otherwise, you’ll experience extensive downtime and missed revenue. You may also have to spend more than anticipated on hiring employees for this endeavor.
4. Joint Venture Manufacturing
When a foreign company and a Chinese entity enter into a partnership, it’s known as a joint venture manufacturing agreement. A new operational entity is created in this circumstance. Your manufacturer will offer insights and resources into the local market.
Without their knowledge, it would be difficult to expand as you anticipated. Since multiple parties are involved, your company will need to establish a robust legal framework. This will aid with compliance and dispute resolution.
It should also include NNN agreements (non-disclosure, non-use, non-circumvention) to prevent IP misuse. Only enter into a joint venture manufacturing partnership with a business you trust.
You should comprehensively interview different candidates to get a better understanding of their capabilities. If possible, you should also visit their facilities.
Licensing Agreements
You can use licensing agreements to grant sales and production rights to a Chinese manufacturer. This eases market entry and helps you gain momentum during the early stages of your expansion.
You will experience reduced operational costs, as well. The primary challenge with licensing agreements is the licensee’s capabilities.
If the licensee doesn’t have the right infrastructure or resources, there’s a chance they won’t meet your needs. You should clearly define the licensee’s privileges in your agreement.
If they have too much freedom, they could inadvertently mishandle your IP. This could cause damage to your company’s reputation and make it difficult to achieve your performance goals.
Finding Manufacturers in China
Not all manufacturers in China are created equal, and it’s essential to understand how to find the best one for your situation. To get started, explore their online reputation to see what other people say about their services. This provides valuable insight into what you can expect.
However, it’s also essential to keep an eye out for fake reviews. This feedback is often posted in batches and contains many of the same keywords.
It can be positive or negative, and you should ignore it when making your assessment. What is their pricing structure like?
You often get what you pay for, and it’s never recommended to choose the cheapest options. This isn’t to say you need to spend as much money as possible, though. Somewhere in the middle of the price range can meet your needs without stretching your budget.
Are they easy to get in touch with? Dealing with issues on your own can be frustrating and even impossible.
It’s worth noting that there is likely a significant time zone difference between you and the manufacturer you choose. They should have a support team that’s ready to assess your needs outside their conventional business hours.
Their level of experience also matters. Ideally, you’ll work with someone who’s been in the industry for at least a decade.
They should have also handled many clients like you in the past. With enough due diligence, you shouldn’t have a problem finding the best choice for your situation.
Make Your Decision Carefully
There’s no shortage of manufacturers in China to choose from. When looking for a solution, it’s essential to consider the information in this guide so you can make the best choice for your situation. From here, you can avoid common obstacles you may have otherwise encountered.
China 2 West offers premier manufacturing services to companies in Asia. We’ve also helped thousands of Western businesses expand their manufacturing to China and take their performance to new heights. You’ll learn more about how we can help when you schedule a consultation with us today.
