The allure of cheaper costs leads many organizations to consider manufacturing their products in China, where labor costs can be significantly less expensive than here in the US. While the savings can be substantial, there are potential obstacles to consider.
Here are some of them:
The time difference between the United States and China can cause delays and frustration. Be prepared to send an email to China on Monday and to likely not receive a reply until Tuesday. Expect this form of communication to continue throughout your relationship as the Chinese are typically sleeping when Americans are working and vice versa.
When communicating with your vendor it is absolutely necessary to have them confirm what they heard you ask for. If you don’t do this consistently throughout the sales process your order will be very likely be incorrect when it arrives—which will cost you time and money. Make sure your Chinese vendor knows exactly what you expect.
The exchange rate between China’s renminbi and the United States dollar is significant, but don’t expect to pay for your order in renminbi. Chinese manufacturers routinely ask for payment in dollars so they can reap the benefits of the exchange rate.
Wiring funds to China can be a frustrating task. One wrong keystroke of a letter or number will result in days of correspondence with a Chinese bank representative. Make sure you know exactly what bank information you need and request that only someone in their finance department gives it to you.
Expect to pay 50% of the total purchase price before manufacturing of your product even starts. Once manufacturing is complete, expect to pay the final 50% before your vendor will ship your product. The manufacturer will also expect you to pay for overseas freight costs before they put it on a boat or plane. At this point, you have most likely paid for the entire order and still have to wait for another 20 to 30 days for your goods to hit US soil.
Don’t let any supplier convince you they can’t ship single samples. Make sure to get samples from two -five suppliers. Seriously go over these samples when you get them. Also take note of shipping times, costs, damage, etc. Put the items through some stress; check every last nook and cranny. Think about how your customers will be using your products and push the item harder. You need something that is going to stand up if you are going to put your name behind it.
It’s probably 30% cheaper to manufacture in China, but factor in shipping costs and time constraints and it may not be financially worth it. With larger and heavier shipments, it is often much cheaper to ship by sea. As a shipment gets smaller, the margin between the prices gets smaller and sometimes air will even end up less expensive. If you decide to ship by sea, plan on waiting for 20 days for your product to arrive in Los Angeles and 30 days for it to arrive in New York.
Congress has mandated that US Customs increase the number of physical examinations from less than two percent before 9/11 to at least eight percent. The double-digit growth in imports combined with the quadrupling of exams has caused frequent backlogs of examinations.
The cost of transporting your product within the United States varies depending on how far away from the port of entry it needs to go, how many different locations it needs to end up in, and fuel costs.
Cash Out of Hand
Be prepared to be without your cash for a long period of time. Chinese vendors will expect you to pay for your merchandise and overseas shipping in full before they are willing to put it on a boat or plane. Shipping, customs processing, and US distribution takes more time. When you can finally invoice your client for the merchandise, you need to wait another 30 days to receive payment. Be prepared to potentially be without your cash for months.