- Diversitech Team
Manufacturing in China vs USA: Which is Better?
Updated: May 3
In today's business world, more and more companies are looking to outsource their manufacturing needs. But where should they go? China or the USA? There are pros and cons to both options, so it's important to weigh all the factors before making a decision. In this blog post, we'll take a look at some of the key considerations for each country. Hopefully, by the end, you'll have a better idea of which option is best for you brand.
Factors To Consider When Choosing A Manufacturer For Your Brand
The perfect match for your business is out there, but it's hard to find. You need someone reputable and dependable with experience in the industry that will be able to meet all of your needs - from production to product releases and launches through to servicing contract terms. What are some of the factors?
See our complete article on how to select the best private label manufacturers for your brand
Finding the perfect manufacturer is a difficult task. You need to find someone with specialized experience in producing your type of product, as well as their own track record and success at it. Look for quality in your private label manufacturers by researching them on forums and eCommerce websites. What are their purchasing and delivery terms, and what are the production volume discounts if you buy in bulk? And lastly are they even a legitimately registered company and are licensed with all correct business and manufacturing certification.
Benefits of Manufacturing in the US
1. Time to Market
The development process is much faster when you're not waiting for testing and certification. Less time on the ocean and in foreign lands provide more opportunities to do other things like R&D, production planning or marketing.
2. Productivity and Efficiency
The United States has long been known as a hotbed for hard-working people and utilising cutting edge technology eg. automation to improve efficiencies and work output.
3. Political Stability
The United States has one of the most stable governments in the world, with little change happening over time. This means that there are no currency fluctuations or other major issues which can affect an economy on such a large scale like what happens when countries experience coups for example.
4. Transportation and Supply Chains
The benefits of reducing supply chain complexity are many. Shipping costs decrease, product shipment time is reduced and you can better protect your goods in transit with a single region for manufacturing or distributing both domestically as well globally from home base operations - all of which help mitigate against complicated international trade routes.
5. No Cross-Cultural Barriers
If international cultural and language barriers are not overcome, it will may lead to perceived slights, gross misunderstandings, irreversible mistakes and costly catastrophes in production, manufacturing and negotiations.
Despite these benefits some US companies still manufacture in china due to the challenges below
Challenges That Come With Manufacturing in the US
1. Labor Costs Are High
The high cost of labor affects the bottom line for companies that manufacture goods domestically as it can be difficult to compete with foreign manufacturers who have much lower labor costs. The end result of this has been a steady decline in manufacturing jobs over the last fifty years as more American companies move their operations overseas.
2. Regulations And Red Tape Can Be A Burden
American businesses have to deal with an immense amount of regulations and red tape for health and safety, the environment, manufacturing standards etc. This can be a huge burden for them, and it often causes them to lag behind their foreign competitors.
3. Taxes And Litigation
American businesses also have to deal with a complex tax system. This can be very difficult to navigate, and in addition, the United States has some of the highest corporate tax rates in the world. The United States has a very litigious society. This means that businesses are often sued for things that may be out of their hands. This can be extremely costly, and it often forces businesses to shut down.
4. US Infrastructure Is Aging And In Need Of Repair
The American Society of Civil Engineers estimates that the country needs to invest $6 trillion to make all necessary improvements. This includes bridges, roadways, public transits, ports, rail, aviation, drinking water, energy, and inland waterways.
Are you looking to lower your cost by manufacturing your tool kits in China? Get in touch
Benefits of Manufacturing in China
1. Lower Production Costs
Manufacturing costs in China are just cheaper for labour, materials, energy, overheads etc than in many other countries and this translates to better margins for manufacturers as well as lower prices on the end-user side. The production of goods is often cheaper in China, even when you factor shipping costs into the equation.
2. Fast Product Turn Around and Scalability
The only thing more competitive than the Chinese factory floor is how fast you need something taken from the drawing board straight to the assembly line. With so many factories and workers ready to prototype new products on-demand, there's no other place in this world that can compete with them. The large corporations that control the manufacturing industry in China tend to be more open to small and unknown companies. And there are even many smaller manufacturers who will take on any project if it can meet their order minimums.
3. Transportation and Logistics
The Chinese government is not just investing in infrastructure, they are also building and expanding it continuously. The nation has an extensive railway and shipping ports network (it owns six of the world’s biggest) that allows them to have a domestic and international logistics competence and an imports/exports capability.
Take a look at some of the Top manufacturing and product sourcing centers in China
Challenges That Come With Manufacturing in China
1. Quality Control Issues
The "Made in China" label is not always associated with negative connotations. People are familiar with inferior copies that fall apart after just one use and represent no effort from the manufacturer, some high-quality manufacturers have been established for years and produce quality products, even if they're not as popular or well known as other countries' brands.
2. Intellectual Property Risks
While there have been improvements over time and many companies now see China as an opportunity rather than a threat for their business because they can innovate more freely here with less regulation. Some aspects still pose significant challenges like factories that you have business with stealing your company's proprietary ideas or even slightly modifying products and competing against you.
3. Social Compliance
In order to have the benefits of cheap labor, manufacturers must take into account long hours, unfair compensation and unsafe working conditions. Environmental and manufacturing standards, even though legislated, may also not be fully adhered to.
4. Overseas Logistics
The landed cost of an item made in China and shipped to the US can often be cheaper than a domestic product, but you have more complex logistics. Products may take a few months or longer for delivery to your own local warehouse. The return and exchange process of defective or unfit goods would be much more difficult as well.
5. Communication Barriers
When you’re looking to manufacture products in China, it is essential that the language gap does not cause any complications. English may be common among some partners but this isn't always enough when contracts get more complicated or detailed than what they were expecting. Even more so, cultural differences may lead to gross misunderstandings of the business expectations.
Which is better? Manufacturing in China or USA?
When companies decide whether or not to move manufacturing operations from the US, they must consider a variety of needs and priorities which are different for any business.
American companies can provide easier communication, faster shipping times as well as quality assurance for their products because they're protected by strict regulations that guarantee intellectual property rights among other things. The ‘Made in the USA’ label is a symbol of the quality and durability of American-made products.
Related Article: Global manufacturing risk index for 2021: China retains first position while India overtakes USA
China offers a cheaper and more efficient way to make products than many other countries. The country has an extensive workforce and an enormous manufacturing capacity for all sorts of products, which means they can provide you with all your needs when it comes down to production volume or cost per unit manufactured.
see this article on why India maybe the next manufacturing power house
The United States still offers an abundance of opportunities for companies who want their product made with quality materials and craftsmanship, all while maintaining strict regulatory standards which help protect businesses and employees, as well consumers from low-quality products.
Manufacturing in China is often a cost-saving measure for many businesses. If you have strong values aligned with the bottom line, then it might be worth considering manufacturing your products there instead of elsewhere around the world. However, this does not necessarily mean compromising on quality if due diligence is done to find the right manufacturing and business partners.
I you enjoyed this article, check these example case studies of industries taking advantage of ODM manufacturing
Are you looking to lower your cost by manufacturing your tool kits in China? Get in touch