How to start your own production in China

Organizing one’s own production in China attracts the attention of many international companies. It is one of the largest markets in the world, with a well-developed infrastructure and the lowest production costs. But in order to relocate or create facilities from scratch, you need to know the peculiarities of this country and take them into account in your work.

Specifics of organizing the production in China

Industrial production in China is one of the most developed. This is largely due to the fact that the country's government controls and regulates many economic processes, and also develops specific programs to stimulate entrepreneurs. For example, the territory of China is conventionally divided into several sectors, where certain types of industry (metallurgy, mechanical engineering, electronics, etc.) are developed. As in Russia, there are special economic zones with favourable conditions for doing business.

In order to develop technology and production in China, it is necessary to take into account not only the laws of this country, but also cultural peculiarities, the importance of personal ties and acquaintances. All this affects business communications and staff management.

Advantages and disadvantages of locating facilities

Before launching large-scale production facilities in China, it is necessary to analyze the pros and cons of such a decision.

Benefits:

·        Access to one of the largest consumer markets in the world.

·        Developed manufacturing ecosystem with many suppliers of raw materials, components, equipment.

·        Relatively low labour costs compared to many developed countries (although they are constantly rising).

·        Ability to rapidly scale production volumes.

·        Availability of special economic zones with tax and customs preferences.

Disadvantages:

·        Geographical remoteness, complicating logistics and control.

·        Language barriers and cultural differences.

·        Complex and constantly changing legal framework.

·        Risks associated with intellectual property protection.

·        Growing competition from both local and foreign companies.

·        The need for strict quality control at all stages.

Interaction models for product manufacturing

There are several main formats for organizing product manufacturing in China:

·        A company with 100% foreign capital. This allows a foreign investor to have full control over the company's operations, including management, finances and strategy.

·        Joint venture. It is established jointly with a Chinese partner. It allows to use the expertise, resources and connections of the local participant, but one should properly distribute control functions and profits.

·        Contract manufacturing (OEM/ODM). Placing orders for the manufacture of goods at existing Chinese factories. This option is convenient because there is no need to invest large funds, but at the same time the control over the production process and product quality is limited. 

The choice of a particular scheme should be based on the objectives set, the resources available and the degree of readiness to share control and responsibility with Chinese partners.

Recommendations for entrepreneurs

Those who plan to locate production facilities for the manufacture of goods in China should consider a few things:

·        Thoroughly check potential partners, suppliers and employees.

·        Engage qualified lawyers and consultants with working experience in the PRC to support the registration process and resolve legal issues.

·        Do not neglect to learn about cultural peculiarities and business etiquette.

·        Pay particular attention to the development and implementation of a system of product quality control at all stages.

·        Be prepared for the start-up and set-up processes to take longer and require more resources than originally planned.

·        Let yourself be guided by the experience of successful projects, but adapt strategies to your own business realities.

Starting and developing production in China is a complex, multi-stage process that requires significant financial investment, time and management effort. Despite the existing difficulties and risks caused by cultural peculiarities, specific legislation and the general business climate, the PRC remains an attractive place to locate production facilities and do business.