Any business owner or employee can agree with the idea that increasing profit margins and reducing operating costs are critical to sustaining business success. This concept becomes especially important when you are a company that specializes in manufacturing and selling your own product.

Compared to a service company, manufacturing companies are not only faced with fixed overhead expenses, but other variable costs as well. For example: changes in raw materials pricing, production down time due to faulty manufacturing equipment, expensive second- shift labor, and worst of all, product waste resulting from the production of a defective product. Whether you are a small factory or a large conglomerate, the goal for your production business should be centered on streamlining your manufacturing and minimizing those variable costs. So, a couple of questions to ask are: “how does one begin to outsource manufacturing and/or product sourcing” and “which country will provide the best service, raw materials and price for mass production?”

To answer these questions (and more) listed here, are points to consider when choosing foreign vendors:

Quality: Be sure that your outsourced vendors will maintain the same quality and safety standards you are producing in house. Try to obtain physical proof (certificates) that the factories are certified and recognize such quality production processes as CCC (China compulsory certification mark), PPAP (Production Part Approval Process) and ISO-9000 series certifications. Also, be sure factories are open to allowing third party inspection companies into their facilities to conduct quality control investigations. Location: When you begin the offshore manufacturing process, stick with one country of origin for your manufacturing. Preferably select a country that has ample supply to your required raw materials and favorable labor rates. Customer References: Work with suppliers that are willing to provide customer references. Export Experience: Insist on working with foreign suppliers that have prior experience exporting product into the United States. Working with a vendor that has knowledge of USA export documentation and procedures is invaluable. Letters of Credit: Work with vendors that accept payment by foreign letters of credit. You want to be sure that your foreign manufactured products appear (as promised) at the USA port. Foreign Credit Check: Work with foreign credit companies to obtain real time credit reports on your chosen manufacturing vendors. Manufacturing Capacity: Know that every manufacturing company is different. Make sure that your foreign supplier is capable of producing the demand/quantity your company will need for long term sales. Also, be aware of lead time (30, 60, 90 days) to produce your desired products. Manufacturing Design: Ask if the facility can offer manufacturing design services. This will help perfect your initial product design. This step will help to prevent further rework after manufacturing begins. This is also a good time to ask about their costs for sample production. Culture: Can the factories speak English and are they knowledgeable of Western business practices? Site Visits: Work with suppliers that will allow you to visit and communicate with them on a regular basis.Choosing the right vendor/supplier for your outsourced manufacturing is truly an exercise in locating a long-term partner that will help lower your manufacturing costs. Take the time early in the process to perform the necessary due diligence and educate yourself about every facet of the factories processes, certifications, credit worthiness, and experiences with foreign customers. Your company will gain critical knowledge and respect from the potential suppliers. Any reputable supplier will be willing to share appropriate business information as well as ask for information from you. So, be prepared to share your business information in return.

A popular topic to talk about is the globalization of business. The terms international companies, multinational companies and exportation seem to be in every edition of the Wall Street Journal.

A popular complaint among many Americans is that outsourcing to China has a negative affect on the United States. Unfortunately most of us living in what used to be the most “powerful and respected country on the planet” are often easily convinced by politicians looking for a vote that China is bad for American economics.

This is easy to say, but hard to justify when you consider the facts.

The economic expansion of China and their increasing trade and investments in the United States have resulted in a Chinese and US economy that are largely interdependent. My father used to say figures lie and liars figure. While that may be true, based on my research, I say thank god for Chinese trade with us…and for the wonton soup.

The point of this article is to identify the significant areas where this interdependence has been beneficial to the US economy and where China’s growth has had a positive impact on every citizen of the United States.

Fact #1 – Cost Savings resulting from Outsourcing of Manufacturing and Services

The phenomenon of outsourcing manufacturing and services sector activities to markets such as China used to be a consideration for American companies that were faced with the challenge of reducing costs. Now outsourcing is a necessity. And I can promise you, companies who are not outsourcing are jeopardizing American jobs.

China’s vast pool of low cost labor ensures that almost any industry can achieve greater rates of return even after transportation and export fees are considered. China’s cost advantage translates into as much as a 70% savings over US salaries.

- While China’s low-cost infrastructure leads to foreign direct investment (FDI) in China, the mass products and services produced are primarily intended to be exported back into other markets. China’s artificial exchange rate controls ensure that while its vast labor pool offers cost-efficiencies, its exchange rate creates cost-advantages to ship these product and services back into the US at prices that US-based manufacturers simply cannot meet.

American consumers benefit greatly from the inexpensive goods coming from China. The many US firms that have outsourced production and manufacturing to China have remained competitive and profitable and thus are able to repatriate earnings back into the US as well as pay corporate taxes on those earnings. Hey Mr. and Mrs. Main Street…what would you do without your 4 TV’s, 3 DVD players, fancy stainless steel refrigerator and scooter in your garage?

It is economics 101 – A company that makes more profits-largely due to lower expenses as a result of outsourcing some operations to China-pays more taxes due to a larger amount of taxable income. This certainly helps the US economy, right?

Fact #2 – Consumer Spending and its Effect on the Economy

US consumers have benefited from a glut of cheap, Chinese manufactured goods and services for many years. These goods provide the basis for much of the US economy’s consumer activity. This has kept consumer sentiment positive and mitigated the effects which the recession could have had on consumer spending in the US. Yes George W, we are in a recession.

Consider the following:

- “Cheap goods and easy access to them is critical for consumer sentiment which can assist the US economy to weather economic contractions related to job growth declines and gross domestic product (GDP) contractions”
Stephen S. Roach -Chief Economist, Morgan Stanley

- According to Catherine Mann at the Institute for International Economics, globalized production of I.T. hardware — that is, the off-shoring of computer-related manufacturing — has accounted for up to 30 percent of the drop in hardware prices. The resulting increase in productivity encouraged the rapid spread of computer use and thereby added some $230 billion in cumulative additional GDP between 1995 and 2002.

- Even when cheap Chinese goods are imported, there are benefits to the American economy. As most American consumers realize, most of the products they purchase at Wal-Mart are made in southern China by low-skilled laborers working long hours. In fact, of Wal-Mart’s 6,000 suppliers, 5,000 are Chinese. When they buy these cheap imports, American consumers save billions of dollars each year. A Morgan Stanley report claims American consumers have saved $600 billion in the past decade via Chinese imports.

- New opportunities are not only being created for American workers, but for shareholders as well. Starbucks CEO Howard Shultz announced that by 2008 the company hopes to have more cafes in China than in the United States. Similar stories can be told for McDonalds, KFC, Coca Cola, or Motorola. There are now 94 KFCs in the city of Shanghai alone, and the number is increasing every month. On a sunny Sunday afternoon, they are often jam-packed with people, young and old, enjoying sandwiches and sundaes

Fact #3 – Effect of Chinese Investments in US

China’s overall investments in U.S. firms increased to $9.8 billion in 2007, up from $36 million in 2006, according to Thomson Financial. By comparison, U.S. investment in China was $2.6 billion in 2007, down from $3 billion in 2006, said China’s Ministry of Commerce.

Chinese manufacturers, particularly those that import parts or raw materials from the US, are also investigating the establishment of assembly operations in the US. They would save on shipping costs, said Karen Shen, Washington State’s trade development representative in Shanghai since 2000. US States are now trying to capitalize on the growth in China:

- More than 30 states in the U.S. have staff members or representatives in China, according to the Council of American States in China. With the U.S. economy slumping and unemployment rising, even some tough critics of China and outsourcing are courting Chinese money. In March, a Missouri delegation included the governor, two U.S. senators, the mayor of St. Louis and two dozen other officials and businesspeople, with an aim to get Air China and Chinese officials to back Missouri’s bid to create an air-freight hub in St. Louis.

- Few states have been as aggressive in reaching out to China as South Carolina. In recent years, 10 Chinese businesses, including appliance maker Haier, have expanded into SC and created about 2,000 jobs, said John Ling, managing director of South Carolina’s China office.

Fact #4 – Impact on US Interest Rates

China realizes that to maintain its own economic growth and stability it needs to continue to support US economic policy through the continued purchase of US securities allowing it to artificially control its currency’s value vis-à-vis the US dollar. China’s currency policy seems to be indicative of a pervasive foreign policy that is increasingly more aligned with the US market’s own demands.

China’s use of the partial peg of the Yuan to the dollar may act to support its export market. However, in order to secure this artificial valuation, it purchased a great amount of US securities, helping to keep interest rates low, again, benefiting the US consumer greatly, especially so in its recently-ended real estate boom.

Therefore, it can be said that after American consumers pay for Chinese imports, much of the capital gets recycled back in the form of investments into government Treasury bonds. This foreign capital in turn helps keep interest rates low, so American consumers can continue to enjoy cheap financing for cars, homes, and college educations. As long as the Chinese have confidence in their American investments, this positive cycle will continue into the foreseeable future.

I wonder how many people who daily criticize outsourcing to China even consider this point…a point of great magnitude for all Americans.

If the US economy sinks and Americans stop buying Chinese goods, then it will compound the US slump as China first stops buying US bonds that have inflated the American bubble and then moves on to selling them. This would be an “uh oh” moment.

Fact #5 – Benefits from Rising Standards of Living in Developing Countries

Population in developing countries like China and India, now doing jobs outsourced from America, are seeing a rapid rise in their wages and standard of living. In the process, they are becoming more Americanized, which is translating into demand for American goods and lifestyles. Thus, according to the McKinsey Global Institute, for every $1 outsourced, the economic gain to the United States as a whole is $1.12 to $1.14; whereas the country to which a job is outsourced gains just 33 cents.

I am not a mathematician but it seems like this is a 3.45X advantage.

Okay you speakers of supposed truth, without research of the basic facts…to me a 345% advantage over China and other developing countries seems like a good thing and not something to fear.

You want something to fear? Fear the fact that American students are not just falling behind, but have fallen so far behind than other countries in Math and Science. Maybe Mr. and Mrs. Main Street should stop watching their 56 inch imported television for a few hours a week so that they can help their kids with their homework.

We will most likely never (notice I did not say never…can’t come back to me in 2025 and point out my error) be internationally competitive in manufacturing. Therefore, we must continue to lead the world in innovation. We also need to realize that a key commodity in 2008 is information. Imagine life today without Google.

Please American citizens, realize this big planet is actually a small trading village. We are interdependent and rely on each-other. Many people who claim that China and specifically outsourcing to China is a bad thing would be offended if they were called racists.

I think we can all agree that a base ingredient of racism is naivety and false assumptions. As we welcome people as one, let’s welcome economies as one, based only after research of facts. My fear? Those false assumptions by unformed politicians (that is not a stretch huh?) will negatively affect out positive relationship with China. Talk about a real China syndrome.

This article is the first of a two part series. The next article will address the responsibility of US companies outsourcing labor to produce quality products as well as ensuring the ethical treatment of the workers.

Before doing any type of business in China one must get familiar with the Chinese business culture. According to Hofstede’s analysis, China ranks very high in long term orientation, very low in individualism, high in power distance, and average in masculinity and uncertainty avoidance. In my opinion I still believe these behaviors or cultural dimensions are very accurate.

The culture here believes in overcoming obstacles over time which is part of Hofstede’s long term orientation dimension. This factor shows the Chinese society’s view towards time and their attitude towards perseverance. This analysis provides a great deal of importance when making business deals. In China slow and steady wins the race for business deals. Building strong, reliable, lasting relationships is key for the Chinese. A certain amount of trust must be gained before any decision is met. It may take three to four times the length of time to finish the business deal compared to your cultural standards. So if you do not come to a fast agreement, don’t be discouraged, make the client feel comfortable and show your patience. The Chinese never like to rush into things.

Low individualism is also important for learning the Chinese way of thinking. This trait shows their close loyalty to stay close with groups such as family, work, team, etc. This links back to their high long term orientation above. They also have a collectivist attitude referring back to the Communist rule compared with individualism. Chinese business habits tend to stay with the same partners or suppliers to keep loyalty and not deteriorate relationships. So when doing business with others it is a good idea to select a good strong partnership that has potential to last a long time. It is looked down upon if you frequently change business partners.

The power distance remains high in China, whether it is within the company or in society. When doing business in China one must be aware of this large hierarchy gap. It is often hard to move up on their corporate ladder compared to other cultures.

The last two dimensions are masculinity and uncertainty avoidance. Both are average so most likely these factors are similar to your customs and you need not worry about them.

Knowing about these dimensions can tell you a lot about the country of China, society of China, and especially how to do business with China. This isn’t everything. This is just a quick business analysis using Hofstede’s dimensions. Hope it helps.

If you are a merchant looking to source your product at much lower cost, have you considered importing from China in order to save money and still offer quality products? China Source and Supply have a solution that can be tailored to suit you.

Here’s how it’s done. Step by step.

A. Arranging quotes on your merchandise from qualified suppliers with a good history of both quality and deliverability. Making sure that everyone is ‘on the same page’ and understands your requirements. This is a crucial first step and qualified suppliers with a long history of importing will certainly speed up your process.

B. Creating a list of your packing and presentation details that will meet your requirements. Any drawing or graphics that are necessary to be included in this list when importing from China.

C. Knowing and being aware of all your branding requirements Spend a little time and money on artwork to make sure you get the branding and packaging right. It’s worth it in the long term and adds perceived value to your final offering.

D. Researching any safety standards required and making sure all certifications are in place if these are necessary. We will guide you on this.

E. Finding out what each supplier needs in the way of ‘minimum orders.’ Most suppliers have these. This is where the supplier makes their profit and where you save money, by buying in bulk

F. Making sure the supplier knows the date you require the product and that they can MEET this date. Too many times assumptions are made and this can lead to lost profit and heartache for you.

As with anything else, importing from China does involve an initial ‘learning curve’, but a good supplier will offer assistance and support and some really great suppliers offer consultancy services, which will speed up your process.

Once you’ve passed ‘the learning curve’, importing from China becomes routine and easier. Importing has one distinct advantage in the end, and that is cost savings to you.

Importing from wholesale tool distributors in China promises cheap buys and higher profit margin but is not without pitfalls. There are a few things sellers need to be aware when working with suppliers from China in order to establish lasting business relationship and trust.

Payment

The first thing sellers need to know is that most Chinese wholesale tool distributors only accept Western union and wired transfer as mode of payment. It is unsecured and hardly traceable. In the event of a dispute, most of the time, buyer will end up at the losing end.

So why do these suppliers use Western union and wired transfer? This is because for majority of retailers in China, these are the only mode of payment they can use as it is not easy and straight forward to obtain credit cards in the country. Hence, majority of suppliers only accept these modes of payment.

What can retailers from other countries do? Well, you can minimize the risk by ordering small amount at first and gradually increasing the quantity as time goes by and as trust slowly gets established.

Communication

With culture and language barrier, communication becomes a major obstacle for many sellers to work with wholesale tool distributors in China. This is especially true when you need to negotiate on terms and pricing.

Many overseas retailers overcome this by communication with these suppliers using online chat programs so as MSN, ICQ, Yahoo Messenger and so on. Most of the time, they are more than willing to communicate through this channel as it helps to improve their English as well. It is a win-win situation. You also get immediate or at least faster response.

Quality

I believe this will be one of the main concerns for any retailers wanting to work with Chinese wholesale tool distributors. Finding a supplier that gives you quality goods can take time. You can start off by ordering some samples from them. This not only helps you to know exactly what you will be getting but also tests the professionalism of the supplier. A good and reputable distributor will not hesitate to give you samples.

Locating The Suppliers

Finding wholesale tool distributors on your own may not take long but finding a good one will. Go for online distributor directories that feature reviews on suppliers and preferably a forum where retailers comment on them. This way, you will save lots of time and get more reliable information on the distributors.

George Tho is a webmaster and reviewer of online services. Read his review on an online listing with a database of over 4000 suppliers of different products that has been reviewed by its staff and members together with a lively forum filled with retailers that will help you find reliable wholesale tool distributors here.

You’ve probably already noticed that many of the products we use today are manufactured in China. China manufacturers data base is one of the best places to source your wholesale products from, mainly because of its low costs in labor and manufacturing. When you do business directly with China, these low costs carry over to become extra savings and profits for you.

If you’re already selling products online or elsewhere, then you’re one step ahead of the game. The China Manufacturers Directory will put you in contact with the manufacturers you need to expand your product line. You’ll be able to use our directory to cut-out middlemen and wholesalers who charge high wholesale prices on products you spend the time to sell.

The China Manufacturers directory will give you all the pertinent details you need to make direct contact any of the manufacturers on our list. Just a couple of the industry our extensive database covers: Consumer electronics (cellphones, PDAs, computers..), Handbags and Fashion Accessories, Automotive Parts, Home Decor, Sports goods, and more. There’s no limit to the products that China manufactures, you can really find anything you’re looking for in China.

For example, in the electronics and computers category, we supply you with the details of more than 55,000 companies that will be able to meet your needs. All companies in China are more than willing to start profitable business relationships with anyone who’s willing to buy their products. When it comes to shipping, most companies will be more than happy to help you out with that as well. You don’t need any special certification or credentials, either. As long as you can pay for it, the products are all yours!

So what are you waiting for? Doing business with China is a smart and profitable opportunity, don’t let it pass you by!

Introduction

Most of us know that almost everything these days is made in China, and we know that if we want to get our own products made, then China is probably the place.

However, we also hear about how some people have some unfavourable experiences with Chinese suppliers. We (the authors) can assure you that, some Chinese suppliers have has similar experiences with western customers too.

If we know that China is the best place to get something made and we are worried about the quality of the supplier, then the question that is raised is:

How do I find a good supplier in China?

We have seen a number of people do this and we have sourced a number of suppliers for ourselves and for others. Based on this experience we have developed a simple 4 step process that requires the smallest effort and the lowest cost, and offers the lowest risk.

Before you get started – What type of product do you have?

There are three basic types of products and it is important that you know which type yours is.

1 – Established product. These are products that already exist. They might require some customisation in style, but there is really nothing technically new about them. If you have such a product, then all you need do is find an established supplier of such a product.

2 – Derivations. These are products that are similar to an existing product, but due to significant changes they will require customisation of the manufacturing process. Also, while they are new they already have an established market. If your product falls into this category, then you need to find someone who can make these products, but also has the ability to implement new processes to produce your product. In such cases, you might also want to find a supplier with a good distribution network. This will mean that they can introduce you to people who might want to buy your product once potions starts.

3 – Inventions. These products are both new and they as yet have no market. These products require a complete description (all parts, assembly operations and packaging). If you have such a product, then you will need to find someone who can do all of various processes. This might actually need to use a number of suppliers (moulders, machinists and assemblers for example).

The process

Once you know what type of product your product is, you can apply the process.

Step 1 Find some suppliers online

The best place top find suppliers is directory websites. Some of the best are:

alibaba.com

tradekey.com

made-in-china.com

globalsources.com

Search these sites based on the appropriate keywords. If you have a type 1 or type 2 product, then use a description of the product as your keywords. If you have a type 3 product then you will need to use the manufacturing operations as your keywords.

Step 2 Contact the best suppliers

Review the profiles and websites of the suppliers that you find. Shortlist those that look best: those that can demonstrate that they are able to make what you want.

Contact the shortlisted suppliers. Email is often best because it is easier for many Chinese to write in English than speak English.

If you have a type 1 product, then you can simply ask for prices of some of their products and their minimum order quantity.

If you have a type 2 product, then you might want to ask about their distribution networks and if they would be prepared to help out with a variation on their current products. Be careful what you say about your product. These suppliers are not yet your partners and they possibly supply people who might be competitors. These are some things that you will need to find out.

If you have a type 3 product, then you will probably need to send them proper engineering drawings and ask for a quote. The advantage here is that you might not need to reveal your product idea. If you have a product with a number of parts then you can send only some of the part drawings to gain an indication of cost and capability. However, if your new product only consists of a small number of parts, then you should consider IP protection before you contact one of these shortlisted suppliers.

Step 3 Review the best suppliers with a third party

There is no substitute for a factory visit. However, this might be difficult or costly for you to do depending upon where you are and how much time you have.

An excellent alternative is a third party. There are a number of local companies that can visit and review a factory for you.

They are obviously lot cheaper than travelling to China yourself. However, they have another advantage, they are expert in this area, and they know exactly what to look for to verify the suitability of a supplier.

To ensure independence try to find one with a foreign connection. You can search the websites mentioned earlier or just use a standard search engine. Use phrases such as ‘agent’, ‘proxy’ and ‘inspection’ your search.

Step 4 Visit the best factories

It is possible that the review from the third party review will give you enough information and confidence to choose your supplier.

If not, then you will need to visit the factory to confirm that they are supplier that you want to use.

When you visit the factory consider the following:

Reengaging the third party to provide you with advice and translation Taking a prototype or samples to help explain what you want Reviewing Chinese culture and negotiating in China

Afterward

Once you have finished the above negotiations you have found your supplier and you are ready to start production.