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In This post, I will talk about the advantages and disadvantages of working with a China manufacturing agent.
For many organizations, this is the best way to gain control over production in China.
For other organizations, setting up their own subsidiary or working with trading or engineering companies makes more sense.
In a previous post, I talked about under what circumstances it makes sense for an organization to open a Chinese subsidiary and the advantages and disadvantages related to that.
If you missed this post, here is the link:
Reasons why you should (or should not) open a company in China.
CHINA MANUFACTURING AGENT – IS IT RIGHT FOR YOU?
For some organizations opening a company in China doesn’t make any financial sense.
But they still need people in China that will give them real-time agenda-free information and will represent their interests.
There is enormous value in having someone you trust with the proper skills and expertise, arriving in a factory on a short notice and at the right time.
If you trust that someone to send you clear and error free information you can act on, you can afford to cancel that urgent unplanned trip to China.
You don’t have to stop any project or task you are working on in your head office, and more importantly, you can see your family at the end of the day. Every day.
The right people in China can contribute a lot to your company’s success, and leave you with more time, money and people, to deal with what you should be dealing with – grow your business.
If you are based outside of China, the main disadvantages of opening a company in China are the fixed-cost, the long term commitment and the amount of time you need to dedicate to managing your subsidiary.
If your flow of projects is not very stable or if the amount of projects you have does not justify sustaining a dedicated team in China, you want to consider working with an agent that will support you when you need them, for as long as you need them.
Some companies have a subsidiary in China, but it is dedicated to functions like QC and logistics. It is not supposed to deal with tasks like sourcing or crisis management. In this case, hiring a China manufacturing agent for projects that you need to run on a non-regular basis, is a very effective and cost saving option.
In the context I am talking about right now, this agent is a vendor to whom you can outsource the job you would otherwise assign to your Chinese company.
You may think of it as your extension in China.
The main advantages of working with such an agent are,
- There are no setup fees,
- The management and staff have extensive market knowledge and access to many resources
- There is no long term commitment and you do not have to manage the day to day activity.
- You don’t need to deal with admin and other supporting functions,
- No long term contracts,
- No employer-employee relationship to take care of and termination is a matter of a phone call or an email.
But the biggest advantage is the long-term contribution to your margin.
- They might not be available if you give them a too short notice
- It is possible that from time to time the people assigned to your projects will change.
- There is a service fee involved. So you want to compare the cost of the service fee, to the cost of any other option you have.
- Choosing the wrong agent could have some bad results. Make sure you know how to choose your agent.
YOUR ROLE IN THE PROCESS
While you don’t have to take care of the supporting functions in China, you still have to follow up your project and be a part of the major decisions making process.
It is much easier than managing your own team in China by yourself because the management of most China manufacturing agents is made of people who manage a business and bring a lot of project management experience.
But you still have to follow up and at least at the beginning, don’t assume that they know how you want things done.
I mean, let them do their job, and let them bring the value you need, but don’t go to the other extreme and stop all follow-up.
With time, when you learn how to work with, and what to expect from your service provider in China, you can let go even more. But that’s with time. Not at the beginning.
In the next post, I will talk about how to choose the right manufacturing agent.
If you have any questions or would like to talk to us about your experiences, please contact us. We’d love to talk to you about your projects in China.