Outsourcing to China is a strategy that has allowed many companies to succeed.

However, it can also lead to financial losses if done with insufficient information and poor planning.

But do not worry !

We will guide you through this.

In this article, we will discuss the top 9 benefits and top 4 challenges of outsourcing to China and pitfalls accounting china. We'll also cover some steps you can take to outsource to China. China has succeeded.

9 Key Benefits of Outsourcing to China

According to Grand View Research, a business consulting firm, China's outsourcing industry closed deals worth around $223.7 billion in 2019.

In fact, American companies like Amazon, Apple, Pfizer and many others have outsourced their operations to China.

The country is a global outsourcing hub. Because it has these advantages:

1. Labor costs are cheaper.

China's low wages are a big selling point for labor-intensive industries.

As of July 2021, the average salary in China was 29,300 Chinese yuan (CNY) per month (approximately US$4,530, based on the July 2021 exchange rate), meaning their average salary was almost half of that of the United States (approximately 7,900 US dollars). month)

Businesses can benefit from lower labor costs by outsourcing operations to developing cities like Wuxi, Jiangsu, Chengdu and Sichuan, rather than major cities like Beijing.

Additionally, low labor costs can help businesses with high turnover rates. (Percentage of employees who leave the company)

how ?

By outsourcing to China These companies can use less capital to hire and train their employees. This way, they lose less when employees leave.

2. Cheap products

China is home to the world's largest manufacturing sector and produced 28.7% of global manufacturing output in 2019, meaning your business in China does not need to import these products. This helps you avoid import taxes.

Additionally, business ecosystems in cities in China also allow manufacturing companies to create products at lower costs.

These cities have developed systems that support China's manufacturing supply chain. Chinese factories have access to parts manufacturers. low cost workers technical staff assembly suppliers and customers easily

This agreement will reduce production costs. This allows manufacturers to sell products at lower prices.

3. Free up more time to focus on core skills.

China has the talent and resources to manage IT. customer service, manufacturing, accounting and more, meaning you can confidently outsource almost any part of your business to the country.

You will have more time to focus on growing your business or optimizing current business processes.

Your internal team can focus on core skills like team building and leadership. and product development Instead of doing paperwork or other general tasks Optimizing your core skills can help you increase your competitiveness and profits.

4. Increase flexibility

Most companies outsource production, manufacturing, accounting and other non-core business processes. to contractors to facilitate expansion or reduction in size

For example, Western companies that outsource their production to Chinese manufacturers can reduce or increase their orders without any legal problems.

how ?

Contract manufacturing suppliers often have more than one customer and produce their entire inventory. As a result, they can provide additional products whenever you need them.

In the same way They can manage excess production by producing less for the next order. It may be easier for a manufacturing contractor to accept an immediate reduction. This gives you the flexibility to quickly reduce production.

In addition, China has a large number of potential personnel. This allows Chinese entrepreneurs to increase their production at lower costs.

5. Access to the mass market

China is geographically located between the Asian and European markets. and actively participates in global trade. Therefore, the process of outsourcing to this Asian country gives you easy access to profitable markets.

Also, because China is a big market. Expatriation in the country can create huge opportunities for businesses. Low labor costs. Resource-intensive production and exports make exporting to China a profitable option.

6. Rapid innovation and research

This is revealed by the Global Innovation Index (GII) 2020, an annual ranking of countries based on their innovation. China is ranked 14th out of 113 countries, ahead of countries like Japan, the Philippines and India.

GII also said that Chinese companies are on par with the best in Switzerland, Sweden and the United States in terms of innovation.

Because China is home to many innovative companies. Including high-tech startups like Weltmeister, an electric car brand.

According to the list of 50 most innovative companies published by the Boston Consulting Group (BCG), Huawei (the most popular Chinese multinational smartphone company) ranks 8th in the world, along with Alibaba (14th), Lenovo (25th), Tencent ( No. 26) and Xiaomi (No. 31).

Outsourcing to countries with high research potential, such as China, gives you quick and easy access to technology. This will give you a competitive advantage over your competitors in other countries.

7. Government support policy

The Chinese government tends to welcome foreign companies interested in outsourcing.

China is also continually changing its outsourcing laws and working to improve its infrastructure to ensure smooth outsourcing. In fact, the country spent about 10 times more on infrastructure than the United States in 2018.

But Chinese infrastructure investments go well beyond bridges and railways. The country has also managed to develop its digital infrastructure. Especially broadband and digital payment systems.

8. Great startup culture

Startups offer business agility. access to new technologies Target market insights and customer-centric innovation

For this reason, outsourcing to the Chinese economy with many startups will give you access to resources that can help you get ahead of your competitors.

Additionally, your business can get services or products from a startup at a lower cost than from an established company.

Chinese cities like Hong Kong, Shanghai and Chengdu are helping high-tech startups thrive. They achieve this through initiatives that improve infrastructure and by providing access to the best talent.

Additionally, these cities are politically stable with an open culture due to globalization. An adaptable and friendly environment makes outsourcing convenient and enjoyable.

9. Access to a qualified workforce

China had 7.6 million students graduate from its universities in 2018, nearly double the total number of degrees awarded by U.S. universities.

In addition, China has also established the Thousand Talents Program, which aims to attract scientific talents to the country. The plan has recruited more than 7,000 scientists in the country. This helps to increase the quality of research and the talent pool.

The 4 main challenges of outsourcing to China

Let’s look at some of the issues you might encounter when outsourcing to China:

1. Poor quality of service or product

The quality of Chinese products may sometimes be lower than that of foreign products.

Chinese products often do not meet international standards and do not have much value, although they are cheap.

To avoid this problem, outsourcing companies must ensure that their products are of high quality. You can do this by carrying out regular quality checks. Or hire an agent in China to carry out the inspection for you. 

2. Different Intellectual Property Laws

IPR (Intellectual Property Rights) laws vary from country to country.

You will need to research the Chinese copyright and trademark system. Especially when service providers have access to your products, designs and more.

Even though the Chinese government and most outsourcing companies have strict IPR measures, manufacturers can make and sell new copies of your product at a lower price.

Are you concerned about protecting your intellectual property? You can draft a NNN (non-disclosure, non-use, non-circumvention) agreement in place of a traditional NDA (non-disclosure agreement).

For what

NDAs are only intended to prevent service providers from making your trade secrets public. In contrast, an NNN agreement prevents your employees from disclosing, using or selling your trade secrets.

3. Language barrier

Chinese companies may have difficulty hiring citizens with reasonable knowledge of English.

Outsourcing can make it difficult for your employees to communicate with the outside company. which prevents the work from being carried out.

Moreover, if you outsource the customer support process. Your customers may not be able to communicate with your Chinese representatives due to language barriers.

4. Tedious setup

Each Chinese city has different technical and outsourcing capabilities. A wrong outsourcing destination can result in a lengthy installation process and long supply chain.

In this case, you need to consider a city's strengths and weaknesses before outsourcing. For example, you need to know how far your supplier is from your target market. Availability of people with the required capabilities cost of resources, etc.

For example, it is better to set up your business in Dalian (a port city) if you want to export your products abroad. Setting up business in a city like Beijing will cost you a lot of money for transportation.