FAQ: Should I Manufacture My Product in China?

For the majority of products, the simple answer is yes, at least eventually. But there are a lot of pros and cons to manufacturing in China which you need to fully understand in order to make the right decision.

The biggest advantage of manufacturing in China is of course lower costs. One of the main reasons that costs are lower in China is the low cost of labor.

China leads the world in manufacturing output, so they have the capabilities – all the equipment, tools, and infrastructure – to manufacture just about anything. They also have a lot of manufacturers and suppliers to choose from. This, combined with the low cost of labor, equals low manufacturing costs.

Another recent advantage of manufacturing in China for U.S. based companies is the new U.S. tariffs of 25% on electronic components coming from China. For reasons I don’t claim to understand, these tariffs only apply to discrete electronic components, but not to an assembled printed circuit board (PCB).

Just to be clear: The term PCB assembly refers to the process of soldering all of the electronic components (microchips, resistors, etc.) onto the PCB. Final product assembly refers to the process of putting all of the pieces together to form your final product. The assembled PCB is just one of these pieces.

This means if you have your PCBs assembled in China, you won’t pay this tariff. But the tariffs will apply if you order components from China, and then assemble the PCB in the U.S.

So to quickly recap, there are two main reasons to manufacture in China: cost and capabilities.

There are of course some disadvantages to production in China, and some can be especially impactful in the early days when production volumes are low. These include:

Quality control

You can have quality control problems regardless of where you manufacture your product, but manufacturing in a distant location makes it more difficult for you to monitor the quality.

It also makes it more difficult to resolve any quality control issues that do pop up, and trust me they will happen.

You also should personally visit the factory that’s going to be making your product. Because, you may think you found a great manufacturer in China, but in reality they may be a 3rd-party sourcing agent and not the actual manufacturer.

That being said, going through a sourcing agent who is based in China has some real advantages, so this isn’t necessarily a negative. But you obviously need to know that you are working through a 3rd-party who will be taking a small piece of the profit.

Long shipping times

Manufacturing in China means your product inventory will often be on the other side of the planet when you need it. For those in the U.S. you have two options for shipping your product from China: air or sea.

Shipping your product by air is the quickest method but also the most expensive. Shipping by air may significantly cut into your profit margins. This becomes worse the heavier and cheaper your product. I recommend only shipping small quantities by air when absolutely essential.

For example, for my own product that I brought to market years ago, I had gotten a very nice size order from Home Depot. The only problem was they wanted it fast and I didn’t have enough inventory in my U.S. warehouse to fill their order.

This was a case when shipping by air made financial sense (although in this case I still couldn’t meet their deadline so I had to cancel the order – bummer!).

Shipping by sea cargo ship is the way you will be shipping most of your inventory. It is much cheaper than shipping by air. The downside is it is very slow. For example, on average it takes about 3-4 weeks to ship product from China to Los Angeles.

Inefficient communication.

Anyone you deal with in China will speak English, but it’s not their native language. Most everyone in China that I have dealt with can speak and write in English to a workable level but it is far from ideal. There are a lot of scenarios where miscommunication can cause serious mishaps and delays.

The time difference between your location and China can also be really significant, especially if you’re in the Western hemisphere.

Any email communication is going to take about a day for each reply. One way around this is to work in the evening. This is what I do sometimes, because I deal with so many Chinese manufacturers. That way I’m able to quickly email back and forth on matters without losing a day between each email.

Between the language barrier and the time difference, live phone calls become very problematic. Most of your communication will be limited to emails, especially when discussing technical details.

Everything takes longer

In general, everything is going to take much longer to do in China. That’s mainly because of the time difference, language barriers, and distance. This is especially true when trying to debug any technical or manufacturing issues.

This is why it’s typically best to do your first manufacturing runs close to home so you can quickly work out most of the bugs in the manufacturing process. Once you get things running smoothly, then you can transfer over to doing everything in China as needed.

Ultimately, the best location to manufacture your product is really going to depend on your manufacturing volume.

Early units (less than 100)

I recommend that you do the final product assembly, packaging, and shipping yourself for the first 100 units or so.

Ideally, you need to be the one to assemble the product at first. Doing this yourself initially enables you to figure out ways to make it easier and quicker to assemble the product. This is important because assembly is ultimately going to affect the product quality and the product cost.

Doing this all yourself for these first units also allows you to most closely monitor the product quality. These early units will be like gold and will be used as demo units to get larger orders. Even one defective unit could potentially cost you a major order in the future.

Mid-stage production (less than 10,000 units)

Once you get up into the hundreds or thousands of units, you won’t want to continue your own assembly, packaging, and shipping. At this point you should find a domestic manufacturer to do these steps for you.

What I recommend at these mid-stage production volumes is a hybrid manufacturing strategy, where you do some things in China and some in the US.

For example, I would recommend you have the PCB assembly and enclosure manufactured in China, then do everything else domestically.

The advantage of this strategy is it allows you to keep your prices competitive, yet it still gives you the flexibility to closely monitor the production quality and work on optimizing the assembly process and packaging process.

High volume production (more than 10,000 units)

Once you get up to 10,000 units or more of production volume, that is when it usually makes sense to consider moving everything to China.

At this point you should have most all of the technical issues worked out for both your product and your manufacturing process. You will also have some significant sales, thus proving your product is truly worthy of further investment.

Now, it is time to take your product to next level and set up a high-volume production process. There is simply no better place for doing this currently than China.

As a final note, if you feel that it is important to always manufacture your product domestically as perhaps part of your brand, then that is a different situation. Just be aware that you will end up with a much higher retail sales price or a much lower profit margin.

Are you ready to discover the smart way to develop a new electronic hardware product? If so then check out the Predictable Hardware Report.


Leave a Reply 4 comments

Greg Reply

John,
Great article, as usual.

I have a few comments based on my experiences in China.

To avoid huge delays, you really need to go to China, and probably more than once. The first time to visit manufacturers. Get a first hand look at the operation, and talk directly with them about their capabilities. If you discover they subcontracting out part of the work, you need to visit that site too. You should go back to China before your first run of parts starts, and stay through until the run is complete. If they know you are coming, they should be more motivated to give you a realistic timeframe for when they will be starting production (Sadly, not always). While there, you can answer questions and resolve issues in real time, and greatly reduces the miscommunications. This will save you huge amounts of time measured in days and weeks, which in the long run will save you more than the cost of the travel. Being on site as the first part is built also helps to avoid getting product you can’t use by doing real-time checking of their process and results and making adjustments as needed on the spot.

Another point, which is hard to really grasp until you have been there, is that there is no IP protection in China. Think about how you will feel if you find they are selling your product in China without compensating you. Could you shrug it off? If you discover a knockoff of your product is being sold in the US or other markets where you have protected your IP, do you have the financial resources to go through the legal processes to halt the imports?

The carrying costs of your finished goods being on a ship for weeks should not be overlooked. It may take 3-4 weeks for the ship to cross the ocean, but loading, unloading, and customs can easily stretch this to 6 weeks or more.

Labor costs are continuing to increase in China, narrowing the gap with domestic manufacturing. Carefully consider all the costs before you decide to manufacture in China, don’t just assume it is cheaper.

    John Teel Reply

    Hey Greg,

    Absolutely spectacular comment with a lot of great advice that I agree with entirely! Thank you so much for sharing your experiences!

    Let me know if you ever have a desire to write a guest blog and I’d be happy to publish it. Something where you share your personal experiences working with China would be a fantastic resource. I would also of course give you a link back to your own site, if you are interested.

    Thanks again Greg, I really appreciate your feedback!

    John

Luke Reply

John,

Interesting article. The idea of manufacturing in China sounds truly daunting. How does one find the right Sourcing Agent when working over seas (good reputation, dependable and honest)? Sounds like if you find the wrong one, you can easily lose everything before you get started? Is it preferable to work with one agent (both domestically and in China)?

    John Teel Reply

    Yes, it definitely can be daunting! Referrals are your best shot at hooking up with a good sourcing agent. You could just find them on Google but in that case I would make a list of 10 or so and work toward a trip to China to meet with them all. You can also use a company like Dragon Innovation. They are U.S. based and focus on helping startups setup manufacturing in China.

    Typically one sourcing agent will likely be sufficient, but having two may also be beneficial. For my own product I started off doing all of the sourcing myself and then those parts would ship to my manufacturer. Eventually they ended up handling all of the sourcing.

    Thanks for the comment!

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