Over the past several years, a lot of small and medium-sized firms, as well as some of the top brands, have realised how crucial it is to source goods from China. For instance, China produced around 28% of the world’s automobile output in 2019.
China has been a popular destination for many other industries looking for trustworthy OEMs (Original Equipment Manufacturers).
If done right, sourcing goods from Chinese producers can help you boost your profit margin, cut labour costs, and guarantee a steady supply all year long.
Unfortunately, there are still a lot of myths and falsehood spreading. Some claim that China does not produce anything of excellent quality. However, the truth is that sourcing from China can be your best option.
Let us, first of all, try to understand what the concept of OEM is.
An OEM is a business that produces goods or parts that are sold by another business. The term “OEM” might be deceptive because although an Original Equipment Manufacturer produces a product, they did not create the design or specification.
The majority of the time, businesses that use OEM services are ones that lack the manufacturing infrastructure required to produce customised goods. OEMs are also used by businesses that cannot handle huge volumes of orders or find that outsourcing production is significantly less expensive.
An OEM production is therefore a form of contracted or outsourced manufacturing. OEM manufacturers are those who are willing and able to produce goods in accordance with your design and specifications.
Before hiring an OEM to produce your goods, you must conduct in-depth R&D, including design, engineering, and market analysis. The products are then produced by the OEM in accordance with the design parameters you have specified.
OEM production is economical, particularly for businesses with sizable orders. However, smaller businesses also favour OEM production due to the many advantages it provides.
Benefits and challenges
For the following reasons, outsourcing your manufacturing to a China OEM manufacturer can be profitable:
A Chinese OEM company will focus on a select few product categories rather than producing a wide range of goods. It can mass produce these products, and therefore it is aware of the most effective and economical manner to generate them.
Its understanding of the engineering and development procedures of such goods is the greatest in the industry because it may produce similar products for other clients.
A product or item is produced at a considerably lower cost by a China OEM manufacturer than it would be by the reseller. Particularly in a region with low manufacturing costs like China, low cost is a major advantage of mass production.
The cost of setting up and running a manufacturing facility can also be avoided by the reseller by outsourcing production to China.
A Chinese OEM can quickly complete large orders since they are specialists. This guarantees that your finished product will reach the market considerably more quickly.
You can concentrate on other aspects of your business, including research and development, by outsourcing the manufacturing to China.
Remember that an OEM is simply the manufacturer. It only creates products that you have designed and researched the market for.
5. The growing Chinese economy
The fact that China has the second-largest economy in the world is notable. The economy of this nation is expanding quickly, therefore sourcing the goods may be a wise move for a business owner.
6. Expansive supplier base
Many of today’s successful enterprises import commodities like electronics, textiles, toys, and more because Western companies can benefit from a vast network of suppliers in China.
Finding good value at a fair price continues to be a top objective in sourcing. The effects of China’s rising labour, property, and compliance expenses are now somewhat countered by the country’s rising productivity and quality advances.
8. Better scaling capabilities
China has a strong, well-established infrastructure. The majority of Chinese manufacturers also have an extensive understanding of and years of experience in global supply chain management.
9. Freedom to select desirable factory
You have the option to personally visit the factories and examine the working conditions while sourcing Chinese goods. Additionally, you get to discuss your needs with various factories and choose one.
Nevertheless, if you are not diligent, purchasing a Chinese OEM product can have problems. Here are some potential pitfalls:
1. Risk to your intellectual property
One of the hazards you run when working with a China OEM manufacturer is jeopardising your intellectual property (IP), which includes trademarks, design patents, and copyrights.
In China, IP rights are granted to those who register them first under the first-to-file system. Thus, your OEM product can feature a trademark that you have registered in your home country or in the nation from which you plan to export it. However, a local business may have done so and filed a trademark infringement claim, which might result in Chinese customs holding your items.
It is also urged that you take precautions to prevent a similar circumstance because the Chinese courts have interpreted the country’s laws arbitrarily in such circumstances.
2. Lack of visibility
Even though you may be familiar with your OEM, you might not be familiar with their supply chain providers. Manufacturers from China are not known for easily disclosing any kind of information, including specifics on their suppliers.
If the China OEM manufacturer switches suppliers later on without informing you, the resulting change (for instance, in the raw materials utilised) could have a significant influence on the quality of your products.
3. Collaborator to competitor
A driven Chinese OEM might be tempted to go up against you. It might utilise this information to create its own brand and establish direct relationships with customers, including yours since it has been manufacturing your products for years and has access to your designs and IP rights.
An OEM has the benefit of being aware of the most profitable way to make a product without investing in R&D.
Outsourcing to a China OEM manufacturer has many advantages, however, you need to take all the necessary precautions to protect your interest while dealing with Chinese companies.