This article are provided for information purposes only, and are not intended as legal advice.

Should you go to China to save money, increase profits to get your business worth more when you sell?

April 29th, 2010

The current thought is that you will always save money by transferring your manufacturing to China, but is this always the case and for how long?  If you have a product which is labour intensive, there may be a considerable benefit for moving the manufacturing facility to China or some of the other countries in the Far East.  How long will this last?


There are many companies who are now wondering how much longer will there be an economic benefit by manufacturing in China. Some companies are predicting 5 to10 years. After that, the benefits may become minimal.  If you have a very automated manufacturing facility, how much labour costs are you spending?  If the labour costs are minimal, what are all the costs – cost of equipment, is it cheaper to install equipment in China vs United States or Canada?  Many companies do not factor in the cost of supervising.  If you are always sending over people to supervise, are you factoring this into your costs?  What is the quality control like?  Many companies have to put up large deposits with the governments, is this factored into the costs?  If you manufacturing products and it takes 4 weeks to ship the goods to the customer, how much money do you have tied up in inventory after it is manufactured?  If you have just in time manufacturing in United States, you could deliver the goods daily or weekly.  In China, you need to have enough product to fill a container otherwise the transportation costs becomes significantly higher if you have to fly the goods to the customer.


In summary, when looking to improve business profits, people always assume that manufacturing in the Far East is cheaper.  It is for now but as labour in the cities in China becomes fully utilized, land becomes scarcer therefore you have to move more to the interior of China, transportation costs could increase, time for shipping will increase, at what point does it become cheaper to produce in Canada or the United States?


For smaller businesses, is it cheaper to manufacturer in Canada or the United States because your business volume is not large enough to warrant the move to the Orient to achieve economies of scale.  It may be cheaper to produce here, work on keeping your costs low so when you decide to sell your business, you have generated as much profits as possible with the products which you are manufacturing here.

Filed under: Business strategies — Gary Landa @ 10:11 am

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