What is the Advantage and Disadvantage of Commercial Kitchen Equipment Manufacturers in China

In the past few decades, China has grown to become a significant economic power. Much has changed for the country since the government decided to allow international trade and embrace the global market. China’s economic wheel began to turn very fast. These days, China is a giant, not only in terms of manufacturing but also in purchasing power. The country’s GDP is expected to reach $17.2 trillion in 2023. China’s large population plays a crucial role in both aspects. The large workforce means relatively inexpensive wages and a huge market to sell products.

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It is not surprising, then, that even the most significant most reputable brands in the world have been shifting manufacturing to Chinese factories for a long time. They get the benefits of low production costs and, in many cases direct market access to Asian consumers.

China’s outsourcing market is $23.3 billion with growth as fast as 30% in 2014. Many companies from other countries have moved their own headquarters to China to establish a business. Compared to many of its neighboring countries, China retains its place in the low-end industry segment better. The government has hugely supported this, introducing subsidies, incentives, and good infrastructure to keep local companies in a highly competitive global market.

However, this does not mean that China excels only in manufacturing low-end products. There has been an ongoing effort to make higher-value products. HSBC reported that China’s transport equipment and machinery industries grew 46% in 2015 (a significant increase from 21% in 1995) even when its lower-value exports declined.

The main reason to consider manufacturing in China is the lower manufacturing cost. Low production cost, especially for mass-market products, means you have enough supply to maintain competitiveness in the market. Some companies also choose to outsource to manufacturing facilities in China to ease the distribution process to other countries. When the manufacturing process is properly handled elsewhere, your company can focus its resources on research and development for future products.

Here’s a more detailed explanation of some of the biggest advantages of manufacturing in China.

Advantages

1. Lower Production Cost

Working with a manufacturing facility in China means reducing the production cost without reducing volume output. This is by far the primary reason why U.S. firms and entrepreneurs put up with the disadvantages of manufacturing on the other side of the world.

2. High Output in Less Time

Some domestic factories in the U.S. are limited in capacity and time, but this is never the case with their Chinese counterparts. Once again, cheap labor costs play a crucial role in this aspect. You can hire more people to complete volume-demanding production while requiring less money than domestic facilities. There are certainly ethical considerations regarding the low labor cost in China, but not all facilities are exploitative. Do your due diligence.

3. Easy Market Expansion Opportunities

When you have products made in China, you can also market the goods to the local market. Companies that outsource production do more than oversee the manufacturing process. They follow up by establishing a supply chain and local marketing efforts. They hire local employees and acquire equipment to support their ventures.

There is no need to ship the goods overseas because the factories are already in China. With over 1.3 billion potential consumers, you get the promise of good returns. This is a big advantage if you plan to sell your product abroad.

The biggest caveat is that manufacturing overseas typically only makes sense if you deal with large production runs. Manufacturing in China also comes with many drawbacks, which can only be offset when you take advantage of bulk ordering. Depending on the type of products you plan to make, overseas outsourcing may not be a viable option at all. Weigh the benefits of cheaper labor against the following significant disadvantages:

Disadvantages

1. Finding a Factory

The first challenge is the difficulty finding the right factory that’s willing to manufacture your products. It takes extra effort to develop relationships with facilities on the other side of the planet.

It’s critical that you do your due diligence here, not only so you know you’ll receive good service but also to make sure that the facility you’re considering is reliable and above board. You should make at least one trip over to visit them for yourself if you can.

You can look for companies online or visit tradeshows. This involves added costs, stress, and time. It can also be challenging to find factories in China interested in dealing with you unless you’re looking to manufacture hundreds of thousands of units.

Here’s a worst-case scenario that’s more common than you’d believe. A factory will agree to take you on as a client, but because they are typically dealing with multi-million-unit orders, you barely register on their radar at all, and your product order is delayed and neglected.

2. Language Difficulty

China has opened itself up to international trade, but that doesn’t mean everyone is proficient in English, and you probably don’t know much Mandarin or Cantonese. Hiring a translator can make the business run smoother, starting from the initial negotiation to the production process. There are a lot of things you’ll want to discuss with your Chinese partners, making a translator necessary. But, again, this is a cost that you need to weigh against the savings in labor costs.

3. Shipping

Shipping can be a real pain. Shipping from China means having your products packed up and put on cargo ships that sail around the globe. This leads to long lead times and significant shipping costs. Depending on your distribution network, these costs can vary. How you deal with the items once they arrive state-side is also an important consideration.

It is usually much easier in this regard to deal with local manufacturers. Inventory management becomes very important when you’re dealing with international lead times. If your items are out of stock, your customers will go elsewhere. The added time spent in transit means you always need to think two or three steps ahead when dealing with overseas manufacturers.

4. “Made in China” Versus “Made in the U.S”

There is a certain stigma attached to the ‘Made in China’ label and a certain prestige attached to products ‘Made in the U.S.’ Whatever you might think about the validity of these notions, the reality is that many consumers value domestically manufactured products and are often willing to pay a premium for them.

This is something to consider if the margins you would make by manufacturing in China are marginal. Once all the shipping, travel, and translation costs are taken into account, consider that you might be able to sell your product at a higher price point with that coveted “Made in the U.S.” label.

5. Quality of Work

We’ve all seen those knock-off purses and sneakers that are made in China out of shoddy materials and are quick to fall apart. However, manufacturing in China isn’t necessarily a death sentence for your product. In fact, Chinese manufacturers produce good products more than they do bad ones.

There is one caveat to that, which is that you shouldn’t manufacture complex, sophisticated items in China like electronics or clothing with intricate designs. If your product is a simple textile or gadget with just a few parts, you shouldn’t come across any problems as long as you vet your manufacturer. Make sure to routinely check the factory for quality. If you do go with the Chinese manufacturer, connect with an agent who can ensure the factory is always following best practices and that the goods are being produced accurately and on time.

6. High Minimum Order Quantities

Because Chinese workers typically work for less (meaning lower profit margins), the factories require very high minimum orders. If you’re looking for small-batch manufacturing or one-offs, you’ll have trouble getting your needs met in China.

7. Intellectual Property (IP) Risks

One of the concerns associated with manufacturing in China is the risk posed to intellectual property (IP). The enforcement of IP protection is an issue consistently raised by the US-China Business Council (USCBC), and fortunately, the Chinese government has recognized this concern and IP protection is improving. For example, the Chinese government has begun to increase the number of IP courts to help manage IP issues.

However, there are still challenges. With long-standing issues in terms of uneven enforcement, trade secrets, and procedural barriers, it’s important for companies to be aware of the level of IP protection that they’ll need and to then develop corporate protection strategies to combat these risks.

Ways to Counteract Intellectual Property Risks: Patenting is a simple way to reduce the risk to your IP. Before manufacturing, you should register your IP with a trademark, brand name, copyright, or domain. This prevents copycat manufacturers from stealing IP without consequence and preventing someone else from patenting your IP. You don’t want to be in a position where you have to buy the rights for your own IP to continue manufacturing.

Changing the value chain of a product’s development can also help protect IP. One way to do this is by splitting research and development tasks between departments in the US and China. Compartmentalization can help keep critical components of the manufacturing process out of China, reducing the risk of copycat manufacturers employing reverse engineering tactics. Without the full picture, there is less risk to IP.

Alternatively, a company can establish a Chinese research and development department to strengthen its relationship with Chinese partners. Creating a level of trust with your manufacturing partners creates a greater incentive to avoid leakage. In addition, developing a good relationship between your company and the Chinese workforce is essential. If employees feel secure and wish to build a long-lasting career with your company, they will be more loyal, reducing risks to IP.

Whether you compartmentalize your company or expand research and development, the most straightforward tactic to protect your IP is to be proactive. Browse Cad Crowd’s patent services for more information on how to begin the patenting process so you can start protecting your IP.

For more information, please visit Commercial Kitchen Equipment Manufacturers in China.

Balance Everything Out

The advantages and disadvantages of manufacturing in China need to be balanced out. You can’t have only one without having the other. The key to a stable manufacturing process is to consider your options carefully and take precautions.

Regarding rapid manufacturing and prototyping, you want to work with U.S. companies. U.S. manufacturing has seen a bit of an upswing in recent years as manufacturing becomes increasingly automated and labor costs gradually become less important. Starting with Trump’s presidency, the US government’s promise to penalize American companies manufacturing overseas is also something to consider. However, many of these promises have yet to come to fruition.

Cad Crown Has Freelance Manufacturing Professionals

If you’re looking for U.S.-based manufacturers, Cad Crowd can help. Take advantage of our contract manufacturing services to connect with 3D printing, molding, or CNC providers in the United States. In you need help with design and engineering, you can launch a design contest or get a free quote today.

ODM is a term that appears commonly when you are searching for import options in China. It is used to refer to the outsourcing of products which you cannot obtain locally. ODM products are usually developed by an external manufacturer because clients do not have the technical know-how or tools required to build these products.

Many people tend to confuse ODM meaning with OEM, which stands for Original Equipment Manufacturing and is different in purpose and features from ODM. In this article, we will explain ODM meaning and how it is used in industries. We shall explore how you can benefit professionally from using ODM products.

ODM Meaning

The acronym ODM typically stands for Original Design Manufacturing. It is a type of contractual manufacturing system which offers broad services to clients. ODM structures product development opportunities which result on the basis of designs made by a manufacturer. Sometimes an ODM can provide services for the entire lifecycle of a product. These products could be developed by a supplier or it can be the replica, both legal and illegal, of someone else’s brand or product.

How ODM can benefit you

The exact service and scope of an ODM varies on the basis of its capabilities. In plain terms, an ODM can provide a solid outline on how to transform an idea into a tangible good. For instance, you have an idea about a laptop that you want to create. Upon performing research on your local market, you come up with a plan to sell affordable and high-quality laptops to your audience.

To make your desired laptop, you will want to include several features and accessories in it. However, you may have limited understanding in regards to the extent of the technical scope needed to create the laptop. In such a case, you might visit an ODM firm for assistance. They can create new designs based on technical specifications that you may not be aware of. You need to provide them with your idea, and chances are that the ODM firm has an existing line of products which you could customize depending on your needs.

ODM makes the product building process smooth by overseeing the manufacturing of your product. These products can be branded with your name to make them appear as if you were the manufacturer. This is why ODM products are also known as ‘private label products’. Several e-commerce companies have become involved in doing business with ODM products in recent years.

Use of ODM in manufacturing

Despite knowing ODM's meaning and its purpose, customers tend to mistakenly assume that suppliers have constant access to ODM products. While there is a chance to find products of a similar type, most ODM products need to be ordered in advance because factories typically do not have ODM products readily available.

Also, ODM products are typically of three types:

• Products invented and developed by the supplier: In some cases, a supplier may choose to invest in research and development for a product. Depending on the case, the supplier may have opted to do it for all products available in their firm. Suppliers will tend to retain more control over the product since they own the intellectual property rights to it.
• Products developed by customers: These products have designs that are owned by customers. Some of them may have tools that are owned by the customer as well. The product might be similar in appearance to another model made by the supplier but the supplier could have no design specifications for it. 
• Products used for demonstration purposes: When a supplier showcases images of a product that they may not have manufactured, a customer is required to pay for the tools of the product. In such cases, it is not certain whether the product may be considered as an ODM product. It may be accepted if it is a virtual design developed by a supplier who wants to showcase their abilities.

Pros of ODM products: Conservation of resources

ODM products offer several advantages over other types of products such as OEM (Original Equipment Manufacturing) products. The former products help to save resources such as time and money that you would otherwise invest in developing a product. With this advantage, you can invest more effort into your essential operational activities.

Assistance from a supplier

You would also gain from the expertise of an external original design manufacturer. This may prove to be helpful especially if you are more knowledgeable about managing your business and may not be as familiar with the technical or manufacturing aspects. When you enter into an agreement with an ODM manufacturing organization, you get access to their skills and knowledge which can benefit you in your future product development efforts as well.

Lower costs

Typically, the cost to manufacture an ODM product through a supplier can be less expensive than developing it yourself or with assistance from an OEM. Since you do not have to spend resources developing technical designs and making the product, you benefit from reduced costs. You also benefit from economies of scale from the ODM manufacturing organization. If there are special design requirements, the supplier will be paying for them.

It is possible the supplier may be generating products in bulk amounts, yet are then sold in smaller quantities. By contracting with your supplier, you can save expenses by purchasing small quantities of products from the bulk production. In some instances, you could be sharing your supplier with another brand of considerable repute that uses the supplier for a certain category of products.

More time for managing your business

Another benefit of ODM products is that you can benefit from a faster business setup period. If you are in the position of having no external assistance with product research and design, it can be time-consuming to prepare the design by yourself and arrange a production line. By contracting with someone else, the responsibility of creating the product rests with them. This gives you the time to brand and publicize your product.

Since the ODM manufacturing unit takes care of your technical requirements, you can use your time to move forward with market testing, building the brand, and ensuring a proper launch for your product. This is especially useful if you own a large firm where several departments are involved in the process of product testing.

Cons of ODM products

In addition to these advantages, ODM products have certain disadvantages as well. The product that you receive will not be unique or differentiated. As mentioned earlier, your supplier may be involved in business with other brands and designing products that might compete with yours in the same market. To avoid this, your product needs something to distinguish it from the rest. You can include a different packaging format or offer additional free items while putting your product on sale.

Also, private labels are selectively beneficial for some types of products. It might not be beneficial for you if you want to sell a unique product having a specific design type. In such cases, you would benefit more from using an OEM product.

Industries where ODM products are more popular

There are several industries that take advantage of ODM products worldwide. These include electronics, computers, machinery, and food industries. Plenty of supermarkets have their own shares of basic items but in many instances they tend to share their supplier with a popular brand. The products are rebranded in their own name.

Developed industries which require tools that are more costly to manufacture typically make use of ODM products. Industries that sell kitchen appliances are an example. Medium and large sized firms operating within this industry contract with an ODM manufacturing organization to manufacture a specific appliance. These products are then branded to match the other products belonging to the same company. Such companies do not need to invest in appliance components by themselves as the ODM firm takes care of it on their behalf.

Medicine and fashion industries also rely on ODM products which are first received from a supplier and then marketed as the product of a specific company. ODM products are not as popular in industries that are more focused on design rather than function of a product. Examples include cosmetics and jewelry industries.

ODM meaning in the Chinese manufacturing industry

While searching for ODM meaning, it is likely that you will not discover ODM specific suppliers. In every industry, manufacturers typically begin as OEMs and develop products on the basis of requirements provided by buyers. However, some suppliers have started developing ODM products exclusively and you can find them in China.

The ODM manufacturing industry is growing fast in China. Chinese suppliers have product design skills which they use to provide both white label and private label products to consumers. Research indicates that the ODM sector experienced a 2% growth in volume in 2016.

Over the last ten years, Chinese manufacturers have been making a concerted transition from OEM to ODM. With assistance from automated technology and other operational procedures, the ODM sector is focusing largely on creative designs and brand development. Having expertise puts manufacturers at an advantage when it comes to conceptualizing design and tool requirements for a particular product.

Conclusion

As explained above, ODM meaning and its purpose is different from that of OEM. Companies are able to obtain business products through contractual agreements with ODM manufacturing firms. ODM offers many advantages in comparison to OEM. These include but are not limited to lower price, resource savings, assistance from a third-party supplier, fewer risks, and extra time for building brand identity and marketing efforts. Such advantages put ODM products and the manufacturing sector at a greater advantage for the coming years.

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Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.

For more on China sourcing visit our website or write to us at info@sourcingallies.com.

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