What is the Advantage and Disadvantage of Metal China

In the past few decades, China has grown to become a significant economic power. Much has changed for the country since the government decided to allow international trade and embrace the global market. China’s economic wheel began to turn very fast. These days, China is a giant, not only in terms of manufacturing but also in purchasing power. The country’s GDP is expected to reach $17.2 trillion in 2023. China’s large population plays a crucial role in both aspects. The large workforce means relatively inexpensive wages and a huge market to sell products.

It is not surprising, then, that even the most significant most reputable brands in the world have been shifting manufacturing to Chinese factories for a long time. They get the benefits of low production costs and, in many cases direct market access to Asian consumers.

China’s outsourcing market is $23.3 billion with growth as fast as 30% in 2014. Many companies from other countries have moved their own headquarters to China to establish a business. Compared to many of its neighboring countries, China retains its place in the low-end industry segment better. The government has hugely supported this, introducing subsidies, incentives, and good infrastructure to keep local companies in a highly competitive global market.

However, this does not mean that China excels only in manufacturing low-end products. There has been an ongoing effort to make higher-value products. HSBC reported that China’s transport equipment and machinery industries grew 46% in 2015 (a significant increase from 21% in 1995) even when its lower-value exports declined.

The main reason to consider manufacturing in China is the lower manufacturing cost. Low production cost, especially for mass-market products, means you have enough supply to maintain competitiveness in the market. Some companies also choose to outsource to manufacturing facilities in China to ease the distribution process to other countries. When the manufacturing process is properly handled elsewhere, your company can focus its resources on research and development for future products.

Here’s a more detailed explanation of some of the biggest advantages of manufacturing in China.

Advantages

1. Lower Production Cost

Working with a manufacturing facility in China means reducing the production cost without reducing volume output. This is by far the primary reason why U.S. firms and entrepreneurs put up with the disadvantages of manufacturing on the other side of the world.

2. High Output in Less Time

Some domestic factories in the U.S. are limited in capacity and time, but this is never the case with their Chinese counterparts. Once again, cheap labor costs play a crucial role in this aspect. You can hire more people to complete volume-demanding production while requiring less money than domestic facilities. There are certainly ethical considerations regarding the low labor cost in China, but not all facilities are exploitative. Do your due diligence.

3. Easy Market Expansion Opportunities

When you have products made in China, you can also market the goods to the local market. Companies that outsource production do more than oversee the manufacturing process. They follow up by establishing a supply chain and local marketing efforts. They hire local employees and acquire equipment to support their ventures.

There is no need to ship the goods overseas because the factories are already in China. With over 1.3 billion potential consumers, you get the promise of good returns. This is a big advantage if you plan to sell your product abroad.

The biggest caveat is that manufacturing overseas typically only makes sense if you deal with large production runs. Manufacturing in China also comes with many drawbacks, which can only be offset when you take advantage of bulk ordering. Depending on the type of products you plan to make, overseas outsourcing may not be a viable option at all. Weigh the benefits of cheaper labor against the following significant disadvantages:

Disadvantages

1. Finding a Factory

The first challenge is the difficulty finding the right factory that’s willing to manufacture your products. It takes extra effort to develop relationships with facilities on the other side of the planet.

It’s critical that you do your due diligence here, not only so you know you’ll receive good service but also to make sure that the facility you’re considering is reliable and above board. You should make at least one trip over to visit them for yourself if you can.

You can look for companies online or visit tradeshows. This involves added costs, stress, and time. It can also be challenging to find factories in China interested in dealing with you unless you’re looking to manufacture hundreds of thousands of units.

Here’s a worst-case scenario that’s more common than you’d believe. A factory will agree to take you on as a client, but because they are typically dealing with multi-million-unit orders, you barely register on their radar at all, and your product order is delayed and neglected.

2. Language Difficulty

China has opened itself up to international trade, but that doesn’t mean everyone is proficient in English, and you probably don’t know much Mandarin or Cantonese. Hiring a translator can make the business run smoother, starting from the initial negotiation to the production process. There are a lot of things you’ll want to discuss with your Chinese partners, making a translator necessary. But, again, this is a cost that you need to weigh against the savings in labor costs.

3. Shipping

Shipping can be a real pain. Shipping from China means having your products packed up and put on cargo ships that sail around the globe. This leads to long lead times and significant shipping costs. Depending on your distribution network, these costs can vary. How you deal with the items once they arrive state-side is also an important consideration.

It is usually much easier in this regard to deal with local manufacturers. Inventory management becomes very important when you’re dealing with international lead times. If your items are out of stock, your customers will go elsewhere. The added time spent in transit means you always need to think two or three steps ahead when dealing with overseas manufacturers.

4. “Made in China” Versus “Made in the U.S”

There is a certain stigma attached to the ‘Made in China’ label and a certain prestige attached to products ‘Made in the U.S.’ Whatever you might think about the validity of these notions, the reality is that many consumers value domestically manufactured products and are often willing to pay a premium for them.

This is something to consider if the margins you would make by manufacturing in China are marginal. Once all the shipping, travel, and translation costs are taken into account, consider that you might be able to sell your product at a higher price point with that coveted “Made in the U.S.” label.

5. Quality of Work

We’ve all seen those knock-off purses and sneakers that are made in China out of shoddy materials and are quick to fall apart. However, manufacturing in China isn’t necessarily a death sentence for your product. In fact, Chinese manufacturers produce good products more than they do bad ones.

There is one caveat to that, which is that you shouldn’t manufacture complex, sophisticated items in China like electronics or clothing with intricate designs. If your product is a simple textile or gadget with just a few parts, you shouldn’t come across any problems as long as you vet your manufacturer. Make sure to routinely check the factory for quality. If you do go with the Chinese manufacturer, connect with an agent who can ensure the factory is always following best practices and that the goods are being produced accurately and on time.

6. High Minimum Order Quantities

Because Chinese workers typically work for less (meaning lower profit margins), the factories require very high minimum orders. If you’re looking for small-batch manufacturing or one-offs, you’ll have trouble getting your needs met in China.

7. Intellectual Property (IP) Risks

One of the concerns associated with manufacturing in China is the risk posed to intellectual property (IP). The enforcement of IP protection is an issue consistently raised by the US-China Business Council (USCBC), and fortunately, the Chinese government has recognized this concern and IP protection is improving. For example, the Chinese government has begun to increase the number of IP courts to help manage IP issues.

However, there are still challenges. With long-standing issues in terms of uneven enforcement, trade secrets, and procedural barriers, it’s important for companies to be aware of the level of IP protection that they’ll need and to then develop corporate protection strategies to combat these risks.

Ways to Counteract Intellectual Property Risks: Patenting is a simple way to reduce the risk to your IP. Before manufacturing, you should register your IP with a trademark, brand name, copyright, or domain. This prevents copycat manufacturers from stealing IP without consequence and preventing someone else from patenting your IP. You don’t want to be in a position where you have to buy the rights for your own IP to continue manufacturing.

Changing the value chain of a product’s development can also help protect IP. One way to do this is by splitting research and development tasks between departments in the US and China. Compartmentalization can help keep critical components of the manufacturing process out of China, reducing the risk of copycat manufacturers employing reverse engineering tactics. Without the full picture, there is less risk to IP.

Alternatively, a company can establish a Chinese research and development department to strengthen its relationship with Chinese partners. Creating a level of trust with your manufacturing partners creates a greater incentive to avoid leakage. In addition, developing a good relationship between your company and the Chinese workforce is essential. If employees feel secure and wish to build a long-lasting career with your company, they will be more loyal, reducing risks to IP.

Whether you compartmentalize your company or expand research and development, the most straightforward tactic to protect your IP is to be proactive. Browse Cad Crowd’s patent services for more information on how to begin the patenting process so you can start protecting your IP.

Balance Everything Out

The advantages and disadvantages of manufacturing in China need to be balanced out. You can’t have only one without having the other. The key to a stable manufacturing process is to consider your options carefully and take precautions.

Regarding rapid manufacturing and prototyping, you want to work with U.S. companies. U.S. manufacturing has seen a bit of an upswing in recent years as manufacturing becomes increasingly automated and labor costs gradually become less important. Starting with Trump’s presidency, the US government’s promise to penalize American companies manufacturing overseas is also something to consider. However, many of these promises have yet to come to fruition.

Cad Crown Has Freelance Manufacturing Professionals

If you’re looking for U.S.-based manufacturers, Cad Crowd can help. Take advantage of our contract manufacturing services to connect with 3D printing, molding, or CNC providers in the United States. In you need help with design and engineering, you can launch a design contest or get a free quote today.

China has approximately 10 times the steelmaking capacity of the United States. It has been accused of dumping cheap steel on the global market to beat out competitors, and the Trump administration has encouraged Chinese leaders to cut production in order to improve the profitability of U.S. steelmakers. In 2017, China cut overcapacity in the steel sector by shutting down about 50 million tons for domestic environmental and economic reasons. 

The country was the largest exporter of steel in the world in 2015, and its steel exports represented approximately 24 percent of all steel exported globally in 2015.

In 2015, the Chinese economy was slowing down, and the demand for steel, iron ore and other ferrous metals declined significantly. The policies, subsidies and dumping margins imposed by the Chinese government impacted stock prices of many global steel companies, with major metal companies like Anglo American and Rio Tinto taking a hit. Here's a look at the state of the global steel industry more recently and the impact of the Chinese economy.

Anatomy of the Global Steel Industry

Steel is one of the most innovative and flexible alloys, which can be customized for many requirements. Variants of steel are used in housing, transportation, industrial, automobile, infrastructure and utilities sectors, making it one of the world's most versatile materials, one that's easily reused and recycled. (For more, read: Strength in Steel.)

China, Japan, India, the United States and Russia were the top five steel-producing nations in 2016, in that order, with China the leader by far. In 2017, China produced 831 million metric tons of crude steel, Japan produced 104.7 tons, the United States produced 116 tons, India produced 101.4 tons and Russia produced 71.3 tons, all far below the leader. While China and Japan are the top exporters of steel, the United States and Germany are the leaders for imports because of their economies' high consumption rates.

China is the world's largest producer of steel, and it is also the world's largest consumer of the material. Given such a dominant market share, along with the large amounts of steel used across different sectors of its economy, any slowdown in the Chinese economy will have a major impact on the global steel industry. The graph below shows what happened to the VanEck Vectors Steel ETF (SLX) in 2015 when the Chinese economy slowed down.

Image by Sabrina Jiang © Investopedia 2020 

Recent Developments

More recently, global steel output has been increasing, investors fear a slow down in the Chinese economy and the prospect of trade wars initiated by the Trump administration. However, steel prices are on the increase.

The World Steel Association reported that in July 2018, global steel output rose by 5.8% in a month, an increase that follows growth of almost 13% in the same quarter one year ago.

Although China has attempted to cut steel production to mitigate pollution, some plants are ramping up capacity, and China’s steel output is on the rise. This increase in output has also maintained the demand for high-grade iron ore, a raw material for steel and a determinant of the cost of steel, and has propped up prices. 

In the United States, encouraged by robust domestic demand, domestic steel producers are increasing their steel prices because of increasing input costs and a depreciation in the rupee. Thus, because steel output is growing and prices are increasing, steel companies should see increased earnings and higher share prices.

However, if the demand for steel drops, China will export surplus steel and lower international prices. If output falls, the demand for raw materials will slow down and further affect prices. Thus, China is the biggest influencer on global steel.