Should Tech Businesses Continue to Outsource Production to China

COVID-19 has impacted the technology supply chain as the pandemic rampages countries around the globe. In addition to other concerns with manufacturing in China, now businesses don’t know when or if their orders will arrive. There are still positives and negatives to outsourcing production to China. Companies need to look at all the factors and decide on the best option based on their specific products and customer base.

Automation Software Technology Process System Business concept

On February 27th, 2020, Tim Cook, Apple’s CEO, announced factories in China would finally reopen. However, their supply chain has been severely disrupted by the health issues in China, and products won’t be available as they normally would. There’s no doubt Apple’s annual profits will take a deep dive. Apple isn’t the only tech giant facing supply chain issues.

Not only is China a supplier of tech goods but also a major consumer. The pandemic in the country is certain to disrupt business on two fronts. United States tech companies are rethinking their outsourcing strategies after seeing how deeply impacted their brands might be by this latest scare. However, deciding to outsource or not isn’t an easy decision. There are many factors to consider.

U.S. Consumers May Not Buy

Some people are angry. At the root of that anger is fear over what the virus might do to the economy, to loved ones and self. Still, American customers may seek out items not made in China due to that anger and fear. Part of doing business is ensuring your customers remain happy. For some, that will mean looking for tech products made in places other than China for the time being.

Don’t Rule Out China, Though

This pandemic will pass, and China is still a vast untapped market with a ton of potential. Manufacturing is traditionally cheaper there, and the massive population provides enough workers to keep up with demand. One solution might be to keep some of your facilities in China while moving others to the United States. 

China has its own customers and traditions. Doing business there means learning the ins and outs of the culture. Understanding China will also benefit your company if you plan to sell goods to Chinese citizens. You’ll have a deeper understanding of what drives them to buy.

  1. Communication Isn’t an Issue

In the past, language and distance was a barrier to manufacturing in other locations. However, with today’s communication and teleconferencing solutions, the walls fall, and companies are better able to stay on top of changes in the industry and management of their product manufacturing. 

Most Chinese businessmen speak excellent English. Even if they do not, interpreters are easy to hire and utilize during remote meetings.

Industry Disruption

Most business experts agree that the U.S. tech industry will see the biggest sector disruption from the COVID-19 pandemic because it relies on Chinese manufacturing. No one has a crystal ball. What seemed like fast, cheap solutions for supply and demand were the best choice at the time. Unfortunately, your organization might hurt for a bit as you work out the kinks in the new supply chain changes from the disruptions.

While you can’t do anything about where your manufacturing is at this moment, you can work up a plan to move at least part of your production back to the United States. If there is ever another pandemic or similar catastrophe, you’ll be ready to ramp up production in your U.S. plant and still meet the needs of your customers. Having an option for a Made in the USA product may appeal to some of your customers, too.

Elements Impacting Your Bottom Line

There are many factors that make manufacturing in China cost more than in the past. New tariffs put in place happen when goods enter the country. The fees add to the overall cost of manufacturing in China. You also must weigh the additional cost of lengthy shipping. With COVID-19 concerns, your products might get held up in quarantine as well.

The cost of manufacturing in China isn’t as cheap as it once was. The cost of living has gone up in the country. Wages are higher, and manufacturing costs more than before.

While it’s likely still cheaper to product tech products in Asia, weigh out all the factors. The U.S. may temporarily ease import taxes to allow the import of medical supplies and other goods in high demand. However, there will come the point where those tariffs are put back in place, so plan for the future and not for today.

Other Disruptions in the Tech Industry

The Wuhan district of China was ground zero and production all but stopped for a while in the country. Wuhan is one of the top manufacturers of optic fiber pieces and is known as “Optics Valley.” For example, the lack of optics could impact 5G networks. The exports of electrical components from China to North America dropped 50% due to the coronavirus outbreak. 

Lack of product may drive consumers to seek out other solutions and impact your company’s bottom line. Since the second half of the fiscal year is a time of rolling out new products and gearing up for holiday sales, the second half of 2020 may be a severe challenge to North American tech companies.

Should You Outsource to China?

Only you can answer the question of whether outsourcing to China is in the best interests of your brand. Keep in mind that there are other places you can manufacture products, both in the domestic U.S. and outside of it. If you currently have plants in the country, don’t rule out other solutions. Instead, take stock of where you are and if it would be best to diversify and have plants in a variety of places or move work back to the U.S. instead.

Economies around the world will suffer in the coming months as everyone tries to recover from the globe shutting down to contain an unseen enemy. There is something to be said for adding opportunities for jobs and bringing manufacturing back to your local economy. However, you also have to consider if the option is one that is affordable to you as a business owner and still allows you to run a profitable tech company.

Lexie is a digital nomad and graphic designer. If she’s not traveling to various parts of the country, you can find her at the local flea markets or hiking with her goldendoodle. Check out her design blog, Design Roast, and connect with her on Twitter @lexieludesigner.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

Speak Your Mind

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.