Debunking the Myths in China Sourcing

Date: February 16, 2015

Debunking the Myths in China Sourcing

Top 4 China Sourcing Myths

There’s information overload nowadays on the Internet about China sourcing. While search engines can provide millions of results, some of them just generate myths and misconceptions about the industry. Sadly, we stumble upon confused and regurgitated ideas, which make it hard for overseas companies to streamline their supply chain.

In this post, we’re going to debunk these myths in order to help enhance a strategic and effective China sourcing strategy.

Myth #1: The cost of sourcing in China is low

This has been one of the most popular myths propagated among overseas companies and entrepreneurs—an assumption that everything ‘Made in China’ is relatively cheaper—and perhaps everything is cheap there, too.

Indeed, you can source cheap products in China; however, this is rare in the case of branded products, even with Chinese branded products. In fact, such goods are more expensive than the products sold in the United States (e.g., consumer electronics).

“In line with the country’s growing economy, first-tier cities like Shanghai and Guangzhou are becoming just as expensive as Hong Kong and Singapore,” says CEI Asia.

And in the context of sourcing products that are made of cotton, steel or gold, the cost of materials as well as the increasing worker wages and hidden fees in the supply chain (audits and shipping) are major considerations.

In short, selected items can be cheap, but this by no means includes hidden costs, especially when you are talking about the kinds of cost incurred within tier-1 cities.

Gordon Orr of McKinsey in Shanghai says, “Manufacturing wages are up fourfold in dollar terms over the past decade.” However, this should NOT intimidate you with regard to sourcing products in China; that’s because, in our second myth buster, you’ll find out why such costs have risen. Indeed, such a topic is particularly relevant if you’re after high-quality goods.

Labor costs in China are rising, BUT…..

Myth #2: Chinese companies always copy and can’t innovate.

As China races to become a global producer, Chinese companies work hard to deliver greater value, inevitably causing prices to rise. But this is done in conjunction with the rising quality of the products we receive.

Orr tells us that Chinese companies will no longer focus simply on exclusively ensuring low prices. Rather, they seek to deliver high added value, to listen to what customers want, and to develop their products in response to the perceived customer need.

China is in pursuit of quality products. This goal, alongside the need for competitive prices and innovation, will undoubtedly become one of China’s core business strategies in the years to come.

Myth #3: All companies participating in China sourcing websites are legit manufacturers

Just because they’re listed and verified in popular China sourcing websites, they must be legitimate manufacturers, you may think. Frankly, they’re not. That’s why, if you’ve located a potential supplier, you should double-check them in the supplier directory provided by Tradegood, as this directory represents the sum of prolonged experience in checking company profiles and information in order to verify the legitimacy and status of a business.

Myth #4: Western companies prefer other low-cost sourcing countries rather than China

Emerging economies, such as Bangladesh, India, and Vietnam, are indeed competing with China when it comes to production.

You may be interested to read “India Sourcing vs China Sourcing: the Elephant vs the Dragon

While these countries produce quality goods too, overseas buyers can’t just dump China immediately, let alone move all their production activities to another country simply because the costs are getting higher. Innovation, labor, equipment, expertise, tariffs and logistics are all valid and ongoing considerations.

The above-mentioned myth busters prove that China still dominates the world’s manufacturing market, but companies are also behaving strategically in dispersing their supply chain by practicing the ‘China-plus-one’ strategy. 

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