So you finally decided to outsource, and you immediately encounter your next headache: India vs China, which country should I outsource my valuable product to? This guide below is the only material you need to solve this question.
But first, let's double-check your business is ready to outsource or not:
Pros & Cons of Outsourcing to India
It’s no secret that most companies prefer offshore outsourcing to save costs.
India has a low cost of living compared to other developed countries like the United States. This translates to lower salaries for your outsourced staff. You’d only have to pay a fraction of what you’d have to pay for a UK employee!
While that’s a given for any developing country, it isn’t the only reason why companies prefer offshoring to India.
2. Access to Raw Materials:
Indian foundries are strict about testing, retesting, and certifying, where they get raw materials. Working with manufacturers in India will also provide cost savings in raw materials because many metals are native to the region.
3. English Proficiency
Issues with outsourcing work mostly arise when there is a lack of understanding due to a language barrier.
However, many Indians speak fluent or native-level English since the medium of instruction for most higher education institutions is English. According to a recent study, India ranked 5th among the Asian countries proficient in English.
This way, you’ll have no trouble communicating work requirements with Indian workforces. As they’ll have no trouble talking to your customers and addressing their needs, they’re perfect for your customer support services.
4. High-Quality Machines:
Most people are surprised to learn that many Indian factories house Japanese machines. They also heavily rely on world-class measurement tools that are also manufactured in Japan..
Manufacturers in this region take great pride in their processes and outputs. One of the most important displays of transparency is how owners are open and welcome to invite you to their facility.
1. Time Zone Differences
Most Indians are proficient in English; however, you might still face some communication difficulties.
While virtual communication tools can help you cross the distance, time zone differences can create a delay in getting the message across.
2. Weak Infrastructure:
India does not have an efficient system for transporting manufactured goods. They spend a meagre 9% of GDP on infrastructure projects. A majority of their roads are in poor condition and their traffic system is chaotic. Additionally, even though it has a whopping 3,400 miles of coast, India only has three main ports. These factors make India a logistical nightmare for outsourcing.
3. Poor Power Supply: In 2018, India was ranked 80th out of 137 economies in overall electrical supply reliability by The Global Competitiveness Report. Demand is predicted to triple by 2024 and the country still heavily relies on coal. Limited electricity makes it difficult for foundries to meet production requirements.
Pros & Cons of Outsourcing to China
1. Cheap Manual Labour:
Labour is usually one of the highest costs and also the most important resource in manufacturing. Companies can reduce costs between 30% and 80% by outsourcing manufacturing to China. Their minimum wage runs from 115 Pounds to 255 Pounds per month compared to 47 Pounds to 144 Pounds per month in India.
2. Efficient Legal Processes:
From start to finish, the process of bringing legal action against a manufacturer takes around nine months. Additionally, The World Bank also rated the quality of Shanghai’s judicial process a 16.5 out of 18.
3. Strong Infrastructure:
China invests 20% of its GDP in infrastructure. They are focused on investing in their economy, a large part of which is manufacturing. The World Bank ranked China 26th out of 160 countries in its Logistical Performance Index, placing it above both Vietnam and India.
4. International Expansion Opportunities:
Moving production to China can bring logistical advantages by strategically positioning your product within reach of other Asian and European markets.
Companies have been outsourcing manufacturing in China for years, so foundries here can produce products that meet nearly any specification requirements.
The price risk can be split into supplier price increases, material prices and currency fluctuations. The risk of the supplier increasing prices can be mitigated by spending time with the supplier at the outset, so they fully understand your long-term objectives and you understand theirs. Personal relationships are critical in Chinese business culture so spending time with the supplier to gain their respect is imperative. During this initial period, the supplier will be judging you to see if you are an ‘honorable company’ with good long-term intentions and you need to do the same. You need to choose a supplier that is the right size for you. Most suppliers have a small number of key customers who provide the majority of their order cover – you want to be one of these customers. If your business is a tiny percentage of their turnover you will struggle to get great service. At China Outsourcing we aim to provide between 10% and 30% of the supplier’s turnover and we would recommend that you aim to do the same.
Material prices are global so any increases in China will be reflected everywhere. We recommend placing order cover for as long a period as is viable so the supplier can order materials at the outset for the duration of the contract, mitigating any material price rises for that period.
The other major price risk is currency fluctuations. The best way to mitigate this risk is to negotiate contracts in your home currency. Where this is not possible buying currency forward mitigates the risk of adverse currency movements. We are not gamblers - we tend to buy currency forward to cover the duration of the contract so that prices are fixed in our own currency from day one.
Quality is a major concern for any company looking to outsource manufacturing to China. When manufacturing in China, rather than locally, it is more important that the parts are to drawing. The implications of rejected parts are far greater when the supplier is thousands of miles away.
The key to good quality is selecting the right supplier for you. Take the time to visit any potential supplier, carry out audits and develop strong relationships.
Make sure they fully understand your requirement – treat this is an engineering or new product development project. Make sure you provide a full data pack including all drawings, specifications and standards and check all your documents are up to date accurately reflecting your requirement. If you can provide the supplier with samples, this will give them a benchmark to be measured against. It is also critical that any samples manufactured by the supplier are made using the materials and processes that will be employed during production. It is also important to prove the inspection processes are fit for purpose and produce results that can be repeated on your own site.
Once your parts are in production, we would highly recommend having your own personnel on-site when your parts are being manufactured and that they have access to make checks at all stages of the production process. We have inspectors on-site at all our suppliers with access to our own inspection labs. Our inspectors carry out random inspections at all stages of the production process, including a final inspection after the supplier releases the parts for shipping. These checks will include independent material testing.
Controlling delivery timescales falls into two areas – production timescales and shipping times.
Manufacturing lead times in China are similar to anywhere else, but you will need to factor in increased shipping times which are usually 5-6 weeks door to door from China to Europe and the US. You may need to adjust your buffer stock to account for this and allow more time for material replenishment. Many Chinese suppliers are aware of this and if you have developed a good relationship with them they will often hold consignment stock on your behalf provided they have order cover. This way there is always a batch of parts in stock ready to be shipped thus mitigating the risk of spikes in demand.
Shipping times are very predictable so, in the main, receiving your deliveries on time will not be a problem. However, there will be occasions when shipments will arrive late due to circumstances completely beyond your control such as adverse weather or congestion at the ports. Establishing good relationships with your shipping agent and the port authorities in both China and your home port will be a big advantage when this occurs.
The best way to protect IPR is to keep the important clever parts in house.
If you do outsource these parts make sure you do not choose a supplier in a parallel industry to your own.
It is also worth considering using more than one supplier so that no one supplier has all your parts. It also helps if you are an important customer for your supplier, they will not want to do anything to risk losing your business.
China Outsourcing has never had any IPR issues with any of its customer's parts.
With over 19 years’ experience in the industry and an excellent reputation for outstanding performance and customer service, China Outsourcing Ltd is your number 1 choice for all your outsourcing needs. To learn more about our services and how your business can benefit, contact a member of our expert team today on +44 (0) 1202 606141.