Outsourcing to CHINA: A Comprehensive Guide for Small Business Owners
The Chinese economy is a thriving powerhouse. China is the second-largest economy, just slightly behind the United States. As of 2022, the International Monetary Fund estimated China’s GDP at USD 19.91 trillion. While there are other emerging economies, none is on par compared to China. With lower labor costs and a great network of businesses, China will further cement its place as “The World’s Factory”.
It is expected that successful businesses often choose to outsource in China. The country has the biggest e-commerce market in the world. They also boast a skilled workforce, a stable market, low corporate tax, and several world-class seaports. Outsourcing to China is a business decision that has led many businesses to greater heights.
Get to know more about the outsourcing scene in China. Below, we’ll discuss the outsourcing factors you must consider before doing business in the country.
Outsourcing Factors in China You Need to Consider
1. Inexpensive Products
China accounts for about 30% of the Global Manufacturing Output as the country with the largest manufacturing sector. Choosing to outsource your business to China means that you wouldn’t need to import many products thereby helping you avoid import taxes.
The country is also known for its efficient business ecosystem. With this, its cities can enable companies to build at a lower cost. Factories have fast access to workers, manufacturers, suppliers, and consumers.
2. Low-Cost Labor
One of the biggest factors when outsourcing to China is the undeniable lower labor costs. As of May 2023, the average monthly salary in Mainland China is CNY 29,300 (approximately USD 4,065). This is almost half the monthly average of the United States.
However, companies have the option to find lower labor costs. Outsourcing to developing Chinese cities such as Jiangsu, Wuxi, Sichuan, and others can prove to be cost-efficient compared to outsourcing to larger cities like Beijing or Shanghai.
3. Access to a Huge Market
As one of the most populated countries in the world, China immediately presents access to the largest consumer market. With a recorded 1.45 billion citizens, China has the most significant consumer class at 899 million people. This presents a larger demographic that many businesses would want to tap.
China’s strong domestic performance creates domestic demand and foreign investment. The country is even instituting more reforms to make it easier for businesses to tap internally. More importantly, companies outsourcing to the country can also become active participants in the global market due to China’s geographical position between the Asian and European markets.
4. Fast-Paced Innovation
China ranked 11th among the 132 economies featured in the Global Innovation Index (Lexology). The country was named a world leader in nine indicators: PISA scales in reading, maths, and science, domestic market scale, firms offering formal training, patents by origin, utility models by origin, labor productivity growth, trademarks by origin, industrial designs by origin, and creative goods exports.
China houses many innovative companies and high-tech startups. Outsourcing your business functions to China could be a competitive edge for your company. Doing business in a country like China can present huge research potential and quick access to the newest technologies.
5. Great Business Policies
The Chinese government is very welcoming towards foreign companies looking to outsource. Its outsourcing laws are constantly being improved and amended to ensure a smooth outsourcing process. The country also prioritizes bigger and better infrastructure to support the countless businesses choosing to outsource to China.
China is also full of startups because of the country’s improving policies. These small businesses are the key to business agility and customer-centric innovations. China’s excellent startup culture helps other businesses flourish and makes outsourcing convenient and efficient.
Notable Industries in China
China is the country to look out for. With a fast-developing economy, China is central to many regional and global issues. The country has massive influence over other developing economies through trade and investment. One industry that China is known for is the e-commerce industry. It has generated almost 50% of the world’s transactions with online retail transactions reaching more than 710 million consumers. As the number of internet users increases, the industry’s sales revenue has skyrocketed further cementing China as the largest e-commerce market in the world.
Arguably, China is most known for its manufacturing industry. In 2020, the manufacturing and industrial sectors represented almost 40% of China’s GDP. The Chinese produce steel, iron, textiles, toys, electronics, aircraft, and many other products. China also saw a surge within the service industry with the sector accounting for nearly 55% of its GDP.
Aside from those mentioned above, the major industries in China are:
- Real Estate
- Online Shopping
Outsourcing Challenges in China
There are a few outsourcing challenges you may encounter in China. First is that you may come across lower quality when it comes to products. There are times when Chinese products do not meet international standards. Considering their price range and affordability, the value of these products is very low. In outsourcing, you must have strict quality control and inspections to ensure that your products will maintain high quality.
The language barrier is also a massive problem in China’s outsourcing industry. Your Chinese partners may find it hard to communicate using English as there is a lack of English-speaking employees. In this case, outsourcing your customer support processes to China may not be the best decision if your target market is full of English speakers.
Outsourcing in China
China is a country that has proven itself on the global stage. With a strong and thriving economy, this country has immense opportunities for development and growth. As a small business, choosing to outsource to China can be advantageous. The Chinese government is very supportive and has great policies to support outsourcing ventures. There is also huge research potential, innovative solutions, and technologies to help you gain a competitive edge.
Before outsourcing to China, you must consider many things to get the most of its advantages. Contact us and let us help you out!