Outsourcing in China

You cannot ignore China; it will not go away! It is therefore essential that a company analyses what impact China might have on its business and plan accordingly. Many companies will want to investigate outsourcing in China as a solution to competitive pressures. Outsourcing from China is attractive because of the country's low labour costs; the average unskilled industrial wage is around US$120 per month.

Because a company buys products from China does not mean that it is being unpatriotic! Competitors have been buying from China for many years and many have kept it quiet because they do not wish to betray a source of competitive advantage. And these advantages can be huge. McKinsey's Global Institute estimates that by reorganising its production intelligently through outsourcing, a multi-national firm can hope to lower its costs by as much as 50-70%.

Sourcing from China brings many benefits:

• Cheaper labour reduces production costs
• This keeps the company competitive, raises profits and reduces prices as lower costs are passed, at least in part, to customers
• Higher profits and lower prices lift demand for products

The key success factors for an outsourcing project are:

• Market research
• Finding the right partner
• Building a relationship with suppliers
• Adopting a structural approach within an overall company strategy
• Protecting intellectual property rights Business Development International can advise on and assist in developing strategies to enable companies to obtain the real benefits of outsourcing from China.