Anti-Counterfeiting
Etratech Asia-Pacific HQ
in Shenzhen, China
OUTSOURCING MYTHS
– BUSTED
Outsourcing manufacturing to Asia has produced good
results for many companies, but others have had bad
experiences. Michael Desnoyers, president and CEO of
Etratech, looks at the facts behind the stories
the truth behind each of them:
President and CEO, Etratech, Michael Desnoyers
A well‐known North American white
goods company makes the decision to
work with a Chinese manufacturing
partner. It is a carefully researched and
planned business decision and everything
goes smoothly – until the final product is
delivered. While everything looks fine,
there is a failure rate of nearly 25 per cent.
Why? Because a critical component had
been substituted with a cheaper, look‐alike
part at the China facility.
While many companies have opted to
have their products built in China,
cautionary tales like this are heard more
and more frequently, to the extent of nearly
outnumbering the positive stories. The
myths about “cheaper, faster and better”
seem to be, in many cases, just that: myths.
That’s not always the case, of course.
Outsourcing manufacturing to Asia may be
the right option for many businesses, but
decision‐makers must know what to look
for – and what to look out for.
So let’s explore a few myths and get to
14 July/August 2014
Myth #1: Manufacturing costs are
lower in China – This is the most prevalent
myth about manufacturing in the Far East,
but is it true? Despite reports that
manufacturing costs in China will match
those in the US by 2015 (Alix Partners),
the truth is that the cost of manufacturing
depends entirely on the design and quality
of the materials used. To keep costs (and
bids) down, an Asian partner may opt for
lower‐cost inferior materials although, as
noted in the example above, this can
dramatically impact quality – which will of
course impact costs in the long term.
That’s why business leaders need to be
extremely detailed and specific regarding
the materials required for each project.
Myth #2: Labor is cheaper in Asia –
While this is largely true, the fact is that the
gap is narrowing quickly, particularly
compared to North America. This isn’t
because costs in the US and Canada are
lower, but because costs in Asia are going
up. In addition to increasing labor costs (on
average 15 per cent every year) the
combined costs of infrastructure, logistics,
inflation, duties and other expenses may
make the cost of offshoring nearly equal to
keeping the work on home soil. The total
cost of procurement may be only slightly
higher in North America, due to higher
efficiencies and advanced automation, both
resulting in greatly reduced lead times.
Myth #3: Intellectual Property (IP) theft
is a huge concern in China – This is
unfortunately true. The Financial Post cites
a report issued by the US government
estimating that “China is behind 50 to 80
per cent of IP theft cases globally, costing
the US and NA economy $300 billion every
year and millions of jobs”. The Canadian
government is suggesting that business
leaders approach deals in China with a
“healthy degree of vigilance”.
While outsourcing manufacturing
projects to China and other Asian
countries may be the right choice for
many businesses, there are many
potential pitfalls to avoid. Your road to
success relies on finding a trusted partner
with total control over purchasing and
quality systems. Identifying and securing a
China‐based partner with an equal
understanding of both Asian cultures and
business practices and your own, will
place you on the right path.
www.etratech.com
www.electronics-sourcing.com