There are many examples out there of companies that got in big trouble because of their suppliers in China. In many cases, a supplier got very tempted to start selling the same product on their customer’s market.
As a result, people who are designing and developing a new product are often reluctant to plan for manufacturing in China, even when the difference in cost will obviously be massive.
Are importers who’re designing & developing a new product right to want to avoid China?
Sometimes yes, sometimes not. It is not that simple.
There are other good reasons to set production in another country, but IP protection is usually not one of them.
Since that’s such a common concern in our clients’ minds and we talk about this at least once a week with them, I wrote IP Protection in China when Developing Your New Product [Importer’s Guide], a long page that dives deep into that topic.
Fortunately, there are usually ways to keep the very confidential information in the hands of China-based, non-Chinese companies. Some people still believe one needs a local partner to set up a factory in China, but these days that’s only the case in some protected sectors such as automotive plants. A number of fully foreign-owned manufacturing facilities are active in China, such as Agilian Technology in Dongguan (note: I am closely related to this contract manufacturer and I mention it, but there are many others, too).
Another little-understood fact is that, unfortunately, your product WILL be copied if it is successful, especially if you sell consumer goods.
Yes, copycat products will probably be made in China, but that’s true whether your supply chain is in Guangdong, Kansas, or Bavaria. Once your success is visible on Kickstarter, Amazon, or in influencers’ Youtube reviews, it will be noticed and will be at risk of being copied.
So the real question is, what are actually good reasons to avoid China altogether?
Here are 5 suggestions that come to my mind:
1. No need to buy China-made components at all, while reaching the same (or a lower) overall landed cost — that’s a good opportunity to avoid all the political risks associated with buying in China, especially if you sell in the USA, Australia, and/or the UK. There is no denying the fact that political tensions are on the rise and that might be worse and worse over time. That’s also a way to escape from the risks of quality fade, very high shipping rates, and so forth.
This approach sometimes requires quite a bit of re-engineering. With fewer parts and a simpler assembly process, the cost advantage of China may dissipate entirely. Or maybe the process is entirely automated in a non-China-based factory and that leads to competitive pricing.
2. You can sell your products at a premium on your market — this is related to the above point. These days, I noticed a lot of positive buzz about Malongo’s decision to switch all their production from China to France, for example. Similarly, products made in Portugal, for instance, are touted as “Made in the EU” and come with the perception of better quality in consumers’ eyes.
3. Made-in-China products are notoriously noncompliant — many Chinese suppliers keep looking for loopholes that allow them to put their products on the market without any extra work and at no risk.
That’s the case in medical devices, for example. A premier hospital group probably thinks twice before buying class III devices from the Middle Kingdom… And a locally made product seems much safer, for the simple fact that the executives are likely to go to jail in case of serious issues.
4. There are strategic considerations that make it impossible to rely on a Chinese supply chain — for instance, if you intend to sell to your country’s military. Or if sensitive data are involved and the manufacturer may have a way to access those data (remember all the reservations, and outright bans, around using Huawei’s 5G equipment).
5. You need production to be very close to your market — that can lead to substantial benefits that set you apart from your competition. Here are a couple of examples:
- Engineers problem-solve with your customers and need to be close to manufacturing to implement the necessary solutions
- Customers are ready to pay a premium for an option to change their minds just a few days before delivery
Any other suggestions of very strong reasons to avoid China? Please let me know by commenting, I’d like to hear your suggestions!
IP Protection in China when Developing Your New Product [Importer’s Guide]
This guide to IP protection over on Sofeast.com includes many of the key risks you’ll face and some proven strategies to mitigate or avoid them and be able to launch your product without being copied, including legal tools, tips for sourcing the right supplier, and how to compartmentalize your supply chain to avoid IP leakage and infringement. Plus, no downloads are necessary!