I noticed that inexperienced importers tend to look at obvious signals (prices, response times, quality of English…) when communicating with potential suppliers. But they often overlook the location of the factory.
The export manufacturing industry really emerged in China in the early 1980s in Shenzhen. For example, most office buildings that are in the Huaqiangbei area used to house manufacturing operations. Then the exporting factories went to Dongguan city, to the rest of Guangdong, to Zhejiang and Fujian… and so on.
What is pushing new factories further and further away? Labor availability and cost, as well as other factors.
The dynamic goes like this: as costs rise, many importers need to go to less mature areas. note that this strategy is more difficult in industries:
- With final processing/assembly concentrated in one cluster
- With raw material / components concentrated in one cluster
- Dependent on particular engineering and production skills
Let’s look at the lingerie industry for example: production shifted from Foshan and Dongguan to Shantou, and from Shantou to Quanzhou. Shantou and Quanzhou are cheaper than the Ho Chi Minh area!
This industry has several clusters because the equipment is cheap and the skills necessary for simple productions can be learned fast.
If I am allowed a broad sweeping generalization, here is how I see things:
| Area | Pearl River Delta | Zhejiang, Jiangsu, Fujian | Other areas, mostly inland |
| Maturity | ++ | +- | — |
| Understanding of export customer requirements | ++ | +- | — |
| Number of engineers | + | – | — |
| Price level | + | +- | – |
| Quality level | + | +- | – |
I often need to explain to my clients that, for many products, the Pearl River Delta is the best area for production thanks to the following attributes:
- Wide range of component suppliers within 2 hours around the factory
- Ability to source small batches (flexibility and speed)
- Abundant skilled workforce
- Access to excellent logistical infrastructure
- Proximity to many potential customers (other manufacturers that buy parts)
- Ease of attracting and retaining expats
Do you agree?
Very good article. However, I think the price difference is smaller than the quality difference. Too be honest I would never select a supplier in Henan or Liaoning, if the primary supplier area is in Guangdong or Zhejiang.
Yes, I am sure a lot of importers do this too.
I agree entirely, Renaud. It’s all about finding the right cluster.
In a way, there are not so many viable choices since a lot of industries are so concentrated. Inexperienced importers are not aware of how regional China is, and they don’t appreciate the cluster effect.
Thanks Callum. Yes, sometimes I ask “in which part of China is the factory located?” and the buyer can’t even respond. They check the pro forma invoice and say “I purchased FOB Shanghai”…
Have you noticed that most new factories are now being set up in the inland provinces or are factories still being opened in the usual cities? Have your past clients found any success when sourcing from these newer inland factories?
If we look at the numbers, I guess most new factories are still being set up in the coastal provinces.
When it comes to very specific products (e.g. glass in Shaanxi province), it makes sense to source inland. But very few manufacturers in inland provinces are up to foreign buyers’ expectations when it comes to quality or shipping deadlines…