How to Find a Contract Manufacturing in China?
Find a Contract manufacturing in China is becoming increasingly popular. This option is suitable for large organizations that do not want to own a factory or invest in fixed equipment and smaller companies that cannot build production facilities. In addition to cost savings, using Chinese contract manufacturers allows companies to focus their efforts on product innovation, sales, and marketing.
Outsourcing to Chinese contract manufacturers may be a smart move for large companies with a large number of products, good leverage, and relatively mature products. But smaller companies, early in the product development cycle, run the risk of limiting their options too early. Once you choose a contract manufacturer, you are limited by their plant and equipment and subject to their pricing and terms. You will have little leverage to negotiate smaller volumes compared to larger companies.
While China is the most popular manufacturer of products, accounting for 28.7% of global manufacturing in 2019, contract manufacturing in China isn’t for everyone. You can still source from China or other overseas manufacturing centers, even if you don’t go directly to a contract manufacturer.
In this article, we’ll learn about the steps to take before finding a contract manufacturing in China partner, and some suggestions for finding a Chinese manufacturer. We will look further into the process and examine what to do in manufacturing. We will then consider how to use the hosted market model as an alternative to finding the right partner for your company and product.
What is the Difference between Contract Manufacturing and Outsourcing?
The main difference is that contract manufacturing is a form of outsourcing when you do not have access to the resources needed to produce your product. Outsourcing is often a strategy that reallocates resources and contributes to cost savings and other economies of scale.
How Much Does a Contract Manufacturer Charge?
This will of course vary depending on the product being manufactured.
In the pharmaceutical industry, they might charge 3 cents per bottle to fill a pill or liquid, another 1 cent per cap, and 4 cents for shrink-wrapping and boxing – that’s hundreds of thousands of dollars in volume.
Food manufacturers’ automated lines perform thousands of tasks per hour, but some things, such as hand-dipped chocolates, actually require dipping them by hand – it’s the difference between 10 pieces of 1c and 25c ea.
In most cases, CMOs (contract manufacturing organizations) represent only a small fraction of the final cost of goods for process manufacturing (food, pharmaceuticals, chemicals, consumer goods).
Types of Contract Manufacturing in China
To find the right supplier in China, you should be aware of the different types of factories there. Depending on your product, you may need one or more of the following factories.
- Raw material factory:
This factory produces the basic materials needed for your product. These parts are then sent to one of the other factory types.
- Component plant:
This plant will produce the discrete parts or components needed to manufacture the final product, usually in combination with what the raw material plant produces.
- Assembly Plant:
This plant will get all the materials and components from the other plants to assemble your final product ready for market.
Sometimes you will find that a contract manufacturing companies in China is a combination of all three types of plants, but typically, you need to develop a supply chain that includes all three types. That’s why it’s so important to understand your needs.
You can also categorize your Chinese suppliers based on the production processes they offer. Services such as plastic injection molding, CNC machining, electronics assembly and packaging must meet your specifications. The diversity of manufacturing services offered by a given supplier can make a big difference in finding cost-effective solutions with good product quality.
Where to Find Contract Manufacturing Companies in China?
If you decide to look for a Chinese contract manufacturer for your business, here are some tips for you to consider.
Use Internet Search Tools
The Internet is certainly the default tool for acquiring knowledge – it’s like walking into a library with bookshelves falling on you. A general search such as Google is unlikely to be useful, but a range of B2B platforms will be fruitful. Online sourcing platforms, such as finding quality manufacturers, suppliers, exporters, importers, buyers, wholesalers, products and trade leads from our award-winning international trade sites. Imports and exports on Alibaba and GlobalSources as well as Chinese manufacturers, suppliers and products designed to connect people like you to the supply chain. Make the most of these sites.
Learn about the Platforms and Their Features.
Send RFQs with meaningful details – suppliers who see this information will filter for relevance, so more than 80% of the people who contact you will be relevant to your needs
Be prepared for clunky user interfaces on the platform – they can work, but once a common interest is established, you’re better off moving to email.
Expect a potentially overwhelming response – you’ll need to have a quick discussion with a vendor who responds well It’s usually not worth dealing with people who respond in general or don’t evaluate the data you provide in your RFQ – but try not to throw the jewels out with the trash!
You can filter based on site ratings and reviews – it’s not a perfect system, but it may catch content you don’t want to use. Alibaba gives its highly rated suppliers a gold rating, which demonstrates their credibility and competence. Similarly, Global Sources has a verified supplier category, which may be less informative because the verification process is reportedly not detailed.
There are tens of thousands of suppliers in China – and there are likely thousands of capable suppliers in any given narrow area of expertise.
Use Industry Networks
Your own industry network is a very useful resource. Advice from industry and even government trade organizations, your own contacts (and their contacts) and even other companies can be helpful. This is a great way to find the most locally tested supply chains – but it can also give you direct access to costly, discreet spaces. That’s not a bad thing, but recognize that if price is your biggest driver, you’re better off going back to first principles and making your choices safe for you through groundwork and relationship building.
The same rules apply to any supplier you approach through the web – trust but verify
Attend Trade Shows
If you can, visiting a trade show in your preferred area of exploration is a great way to find a higher-rated (and higher-cost) manufacturer or supplier. Those who invest in trade shows – both buyers and sellers – accept the cost and expect a return. Spending this level of resources is only practical if your business is large, and you need to be careful to target your displays to the types of products and services you want to outsource and to your budget.
Visiting trade shows will help you get a better understanding of the world’s factories and give you a clearer picture of what the market looks like.
For example, the largest trade fair in China is the Canton Fair, held in Guangzhou every April and October. This houses about 26,000 exhibitors and 180,000 buyers from around the world (in non-pandemic years), and is an important first step for those looking for new products and services to add to their inventory. Because of the high cost of participation, the “all-inclusive trade show” is not the place to accomplish small tasks.
There are many smaller, industry-specific shows, such as the annual China Die Casting Show in Shanghai. It attracts equipment manufacturers, contract manufacturers die casting foundries and material suppliers, and includes up to 450 industry exhibitors and 19,000 visitors.
U.S. and European trade shows attract overseas manufacturers, such as the annual National Hardware Show in Las Vegas – with an entire section focused on international sourcing. Or the International Manufacturing Technology Show (IMTS), held every other year in Chicago, which typically connects buyers and sellers from 117 countries/regions.
These shows allow you to connect with outsourced exhibitors of products and services. But this will be a limited group of overseas suppliers – and while pre-filtered to ensure competence, seriousness and usefulness, they will not be the lowest cost option.
Hire Sourcing Agents
A safe way to outsource contract manufacturing services is to use a sourcing agent whose entire service is to support you in your supplier search and guide you step-by-step through the process.
Supplyia is a prime example of such an agent, serving clients in the US and Western Europe, manufacturing and sourcing goods from China, India and Eastern Europe. They have a proven track record and can be a reliable helper – but paying for outplacement services in overseas markets is not the best way to control costs!
How to Find a Contract Manufacturer in China?
Finding a contract manufacturing in China is as easy as searching the Internet and sending a few emails. Or you can use a sourcing agent to provide you with options. Neither, however, guarantees that you will ultimately find the best manufacturing partner.
Many companies, e-commerce businesses and entrepreneurs who use the Internet or sourcing agents quickly realize they have made the wrong choice. It’s common to find sourcing agents colluding with factories. And, whatever you do, don’t respond to people on social media who want to be your manufacturing partner.
Unless someone on your staff has experience and local contacts in manufacturing in China, make sure you work with someone who does. They may be in the US or in China. But either way, they will need to understand the culture and build relationships with companies upstream and downstream in the supply chain.
Before you start creating any product, research is critical. Product development, regardless of the method you use, is an investment of time and money. Ensuring that you are pursuing the right product opportunity is critical, especially for small companies with limited budgets and who cannot afford to make the wrong bets.
By investing time in the research phase, you will know if you are developing the right product at the right time. You will identify your customers, what they want, and any opportunities to fill niches that your competitors are ignoring or underperforming. You will discover the possibilities for building market share, improving existing products, or creating new products from scratch that meet or create demand. You will also capture and document the desired features and functionality of the product.
Research includes market research, competitive analysis, trend tracking, keyword searches, margin and profitability calculations, and finding the right partner to bring your product to life.
Finish Product Design
Product design is where the rubber hits the road – your product idea goes from concept to actual design. Whether you design in-house or work with a team of experts, you’ll need to work with industrial designers and a variety of engineers who know how to translate what you’ve learned in your research into a viable product design.
The exact design deliverables will vary depending on the type of product you create, but typically include sketches, CAD models, detail drawings, 2D renderings, prototypes, and bills of materials. At this point you will also identify and document your intellectual property.
The more complete your product design is, the easier your manufacturing process will be and the better your chances of having your developed product produced by a Chinese manufacturer.
Prepare Product Definition and Specifications
Whichever manufacturer you choose, they will need your final design documents with clearly defined exact dimensions and tolerances. Just as building blueprints help builders, this information will help your manufacturer understand exactly what you need so they can accurately price, source and manufacture products that meet your specifications.
These documents are also what you will check after you manufacture your product. And, if the product does not meet the definition and specifications, you have the evidence to demand that the contract manufacturer fix it.
Find Potential Suppliers and Ask for Questions.
- Have a complete and accurate product definition.
- Ask detailed questions about their capabilities and experience, and ask to see examples of how they use those capabilities on actual products.
- Ask about their supply chain, how much they do in-house and how much they outsource.
- Get multiple quotes.
- Perform due diligence on the factory to evaluate the quality system, the manufacturing processes available, and their supply chain.
- Ask for specific examples of complete products they have made in the past that are similar to your product.
- Request references and contact them.
- Investigate how they handle intellectual property.
- Ask for a copy of their business license and any proof they have.
Take your time and be persuasive in asking questions and demanding answers. Visit the facility or have your local representative visit and contact you. Once you have chosen someone as a manufacturing partner, negotiate with them on cost, schedule and quality. And don’t get too greedy. Work towards a mutually beneficial relationship, not one where you try to take advantage of them.
Understand the Chinese Culture
Remember that doing business in China is different from doing business in the United States. There will be language barriers and cultural differences, so it is important to have a local representative who understands both. This person will be your local eyes and ears and help you build a good relationship with your plant partners.
Your contact person will know your expectations and should ensure that they are met. Because challenges for international travel, it is especially important to get out on the street and ensure proper production wherever you manufacture your products.
Get a Sample First
Before giving the green light for mass production, you need to see production samples of your product. Suppose you can’t make it to the factory. In that case, your local representative will inspect the product on your behalf and send you the photos and documentation you need to understand better the construction, design and quality of the product. Or the factory can ship samples to the USA
When you are satisfied with the sample, it is ready for mass production and quality control. Again, having a consistent local presence to oversee production and perform quality control is very beneficial. This includes monitoring Acceptable Quality Limits (AQL), which are internationally agreed standards for the number of defective products allowed in each product run.
Maintained contact with factories and requested regular updates on throughput, supply chain, scrap, and warehousing.
Follow Compliance, Import, and Logistics
Finally, once your products are manufactured and packaged, you are ready to bring them to your country. Here, you will also need an expert on your side to ensure that your products arrive at your warehouse safely and on time, avoiding any delays in shipping or customs.
In terms of compliance, you must adhere to product standards, substance regulations, labeling, testing, tariffs, and documentation requirements. Next, you will work with an international shipping company to deliver your products to your distribution point.
Protect Your Intellectual Property (IP)
Protecting your intellectual property (IP) can be critical in your outsourcing process. Copyrights, trademarks and patents are some of the tools you can use. If IP is a concern to you, make it clear in your discussions with potential suppliers – their response may be a key determinant in issuing a contract for the work you need done.
Before you engage a contract manufacturing in China, you must assess your own concerns about their ability to handle your intellectual property to protect your interests. Their response to the concerns and questions you raise should provide tangible assurances – but nothing can guarantee their compliance.
Are your concerns realistic? There is a common assumption that outsourcing will lead to creative theft.
Answer this question by assessing whether your product is deeply original. The fact is that most newly manufactured products do not involve protected (patented) technology steps, so your concern is not about protected IP, but about copying the product. Ask yourself, is there an easy way to bring a copy of your product to market? If not, your risk of doing so is very limited because no one is interested in stealing hard-to-sell ideas!
One factor that is often overlooked when analyzing IP risks in outsourced contract manufacturer manufacturing is that you are making a product to sell. Your contract manufacturer supplier is unlikely to produce an identical product or borrow “extra” product from your inventory unless it is really easy to sell and has a high profit margin – a risk that makes anything less worthwhile. .
However, your competitors may be more interested. Once your product is in the market, your competitors can acquire most or all of your intellectual property, and they are your real risk.
A few simple steps can provide you with greater security – the willingness to take these steps is a litmus test for contract manufacturers and can help you differentiate between them.
- As you take your contract manufacturer product from design to manufacture, you can use designators for contract manufacturer items to ensure that contract manufacturer references the product only by that designator.
- Assign well-thought-out document numbers to track and trace key confidential documents shared with the contract manufacturer team. Using a centralized repository gives you visibility into your vendor’s document operations.
- Roll call at the beginning of a meeting or call to ensure only those pre-approved by the contract manufacturer attend
- Assign unique IDs or serial numbers to track engineering prototypes and monitor their whereabouts
- Consider signing individual confidentiality agreements with specific contract manufacturer team members.
- Consider breaking the final product design into sub-assemblies and outsourcing them to other contract manufacturers so that no supplier has all the design details.
Any competent contract manufacturer will understand that to win new customers, they must ensure that their customers’ intellectual property is protected. To do so, they must accommodate your concerns and provide assurances – and reluctance to do so is a very bad sign!
Contract Manufacturing in China
A new model represents a powerful alternative to traditional contract manufacturing in China methods: the hosted marketplace model. This model brings a complete solution to companies that do not have deep product development or supply chain expertise. It allows companies to maintain flexibility and control, while still outsourcing critical steps with trust and confidence. Instead of learning as you go, which can be frustrating and costly, you can partner with a company like Supplyia to help you with product development, research, contract manufacturing, and logistics in China.
From a design perspective, a hosted market model can help you find the ideal designers and engineers for your specific product rather than being limited to designers who work for contract manufacturers. Your designers should have experience designing products in your category, bringing fresh insights and saving time with modifications so you can start production faster.
Regarding the supply chain, the hosted marketplace gives you the flexibility to source the best factories around the world and the ability to change factories when needed. Sourcing factories is a key aspect of the production process. Negotiating a good deal and overseeing production to ensure that contract manufacturing in China do exactly what they promise takes skill. Few small companies have the expertise or local staff to build personal relationships with manufacturers and manage production.
Start Your Journey with an Expert.
As you can see, the product development process is long and complex, especially when dealing with contract manufacturing in China. If you want to minimize risk and maximize profits, letting Supplyia’s experts manage the entire process may be the right choice for your company. The best way to find out is to contact us and discuss what you want to achieve in your product development process.