There are many benefits to outsourcing your high-quality metal or plastics manufacturing to another country such as China or Vietnam but there are many potential pitfalls too.
There isn’t space here to go into all the details but here are three essential things you need to think about before considering outsourcing to a foreign nation.
1. Make sure you understand the country
Every country has its own ways of doing business and you really need to go into any commercial relationship with as great a familiarity as possible with specific beliefs, cultures and modus operandi of the people you will be working with. Understanding the country can also involve getting to grips with the financial side of things – do you understand China’s VAT system, for example, or its export tax and delivery terms? Do you even know the current exchange rate? Do you know whether the country is undergoing a period of economic growth or is it in stagnation… or even decline? And precisely what is happening on the ground?
2. What is the country’s relationship with the UK like?
Obviously, it doesn’t make business sense to be working closely with a country if there is a fractious relationship with the UK. Even though relations with China and Vietnam are perfectly cordial, you still need to be communicating with the UK Foreign Office and UK Trade & Investment as well as the British Chamber of Commerce. You also need to be able to speak the local language – or at least have someone representing you who can.
3. What kind of sourcing do you want or need?
Outsourcing is outsourcing, right? No. You can have non-contact sourcing, which is fairly self-explanatory, or semi-contact sourcing or you can deal with the country through a separate sourcing company such as ChinaSavvy or VietSavvy. You can also connect via a sub-contract manufacturer or set up your own representative office. Do you want to be involved in the final quality checks and inspections, who is going to carry out all quality audits, and who is going to draw up the contracts and manage purchase orders, invoices and payments?
Of course – just as there would be if you were selecting a sub-contractor in the UK – there are plenty more key issues that you must take into consideration, not least the quality and skills of the engineers who will be working on your customers’ products. Is it possible to make the parts in places where costs are even lower than in China – such as Vietnam – without compromising on quality and while still taking advantage of China’s incredible engineering supply chain? Are you in a position to make an informed decision?
Lots of things to ponder, then, before you take the plunge!
This post was written by Christopher Devereux, managing director of ChinaSavvy HK and vice chairman of the British Chamber of Commerce, Guangdong, China. Find out more at www.chinasavvy.com
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