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Production in China Still Provides Great Benefits
A TFT LCD production line in China.

China has been an important manufacturing location for this company, with an office in China since 1989. It is an active part of the world and a location that has an important role for many businesses, but working with China can change almost every day. Keeping up with those changes is vital to achieving a successful manufacturing operation in that country. The word “crisis,” written in Chinese, it is composed of two characters: one of the characters represents danger and the other symbolizes opportunity! This representation of the one word is an appropriate summary for the complexity of working in China: just as production in China seems to fit some plan or strategy, the rules for running a manufacturing operation will change and become more complicated.

A great deal is changing within China in a relatively short timeframe. A middle class is growing quickly in China, especially along the coast from Beijing to Shenzhen, and high-rise housing continues to spread rapidly in that area. The large numbers of construction cranes are evidence of the rising middle class in that area. Housing prices continue to rise, although not as fast as during the past few years. This growth in housing is not unique to just Shenzhen, but is taking place in all major cities throughout China. A goal shared by many Chinese is to own their own flat or apartment. On top of this, China is now the largest car market in the world: a traffic jam in Shanghai can make traffic on the Los Angeles freeway light in comparison. China is a rapidly growing consumer market. In China, the demand for imported products continues to increase, especially for products like clothing, music, movies, cowboy boots, and steak restaurants from the United States, wine from France, cars from Germany, and handmade products from Italy. In addition, these consumers are willing to pay for quality.

Keeping Pace
Production facilities in China are improving and have expanded to keep pace with growing consumer demands. Quality control (QC) rooms are growing in sophistication, expanding and improving their levels of incoming and outgoing inspection. The use of robotics on Chinese production lines is also growing. In one metal-stamping plant, for example, an entire line of workers had been replaced by robots. The factory manager at that facility proudly pointed to improvements in quality and repeatability from these production-line robots.
An IC wire bonding line in China.

Across the country, Chinese component factories are improving the quality of their products, including such parts as electronic components, plastic parts, metal parts, and small custom assemblies. They face the challenges of convincing local Chinese manufacturers to use their components, following thorough customer testing and approval, rather than bringing in parts from around the world. The pricing is more competitive for these local components, and lead times for component parts are dramatically reduced by procuring those parts from local Chinese suppliers. There is also a great deal more flexibility available in customizing these parts when specifying them from a local Chinese supplier.

Danger and Opportunity
In terms of the “dangers” associated with the Chinese character for crisis, one might begin with labor rates. The minimum wage has increased dramatically in China this year, rising between 18 and 22 percent, depending upon the specific location in China. One US manufacturer with a plant that had opened in Tianjin over eight years ago estimated that the labor rate had risen a total of 200 percent over that time. Transportation costs also continue to rise, with special fees and surcharges, at times unannounced, being added to those transportation costs. The rules for shipping batteries and other hazardous materials can sometimes seem arbitrary, depending on where they are being shipped from and what port they are using to leave China. Another “danger” in doing business in China is that some factories may close — not because a firm was sold or had gone bankrupt, but simply because the plant was closed. Fortunately, adequate notice is usually given and even assistance in finding and developing another supplier for a particular component or part is usually provided.

An important element in developing production success in China is patience; it will not occur as an “overnight success.” In spite of the increases in labor costs, China still represents one of the world’s best bargains in terms of a skilled and educated workforce. Good managers in China are readily available and the work ethic is one of the world’s best. China should remain one of the world’s best places to buy components and to perform electronic manufacturing for at least the next five to ten years.

Paying for Quality
Communicating and establishing expectations with a production facility in China is also important to establishing a lasting, mutually beneficial relationship. During a trip to China with an aggressive purchasing manager for a top tier US company, the purchasing manager chose to renegotiate a price with a local Chinese tailor for shirts. The tailor had supplied high-quality shirts for some time at a certain price, but the purchasing manager wanted to lower that price, even after the tailor had explained that the cost of materials was going up and his labor rate had gone up 20 percent. The price increase the tailor sought would help maintain the quality levels established for those shirts. Still, the purchasing manager insisted on a price reduction and finally managed to get the tailor to agree to his lower price.

When the two sets of shirts arrived from the tailor, one for the higher price and the other for the lower price negotiated by the purchasing manager, they at first appeared identical. But over time, the differences in quality between the two sets of shirts became apparent. For the lower-cost shirts, buttons were coming off and stitching where the sleeves attached to the body of the shirt was coming unraveled. It was clear that the tailor had the shirts made in two different factories, and the quality of the factory used for the lower-cost shirts was far inferior to that of the other factory, where the long-term quality of the shirts had been maintained. The lesson was clear: that no one works for free, and it is vital to precisely communicate expectations and then hold a supplier accountable for those expectations.

As noted earlier, the Chinese symbols for crisis denote both danger and opportunity. Establishing production facilities or working with production facilities in China can have its pitfalls, but the opportunities for success in China far exceed the dangers. A key to success in China is to continuously move forward, communicating effectively and remaining agile to keep pace with any changes that might occur.

Contact: Peter Parts Electronics, 6285 Dean Parkway, Ontario, NY 14519 585-265-2000 fax: 585-265-2542 E-mail: Web:

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