Asian Manufacturing

The following is background information on Asian manufacturing in developing economies. This information represents some of the factors that determine where we will manufacture your products.

China is the top manufacturer in the developing world. In 1979, market reforms began in costal regions. Since that time, China has gradually emerged from isolation to become the factory of the world for many products. Although China started with products of low value and quality, it has rapidly improved its infrastructure, manufacturing know-how and skills to become the producer of many high tech products of superior quality and exceptional value.

China’s manufacturing advantages include a large, skilled, disciplined work force, government incentives for both foreign and domestic manufacturing companies, low labor costs and a currency which many consider to be undervalued.
China’s rapid growth has contributed to rising wages and a rising currency. These have reduced some of China’s manufacturing cost advantages. However, China continues to offer considerable cost savings for the manufacture of most products. China entered the World Trade Organization (WTO) in 2001. Since that time, continued market reform and infrastructure improvements have attracted massive foreign investment and improved China’s manufacturing base. China most likely will remain the best place to manufacture many goods for the foreseeable future.

Hong Kong
As Hong Kong becomes more integrated with China, the importance of manufacturing to the Hong Kong economy has decreased. China’s abundant labor attracted a Hong Kong investment boom in south China and beyond and fueled growth in both economies. Production, particularly in labor-intensive industries, has gradually shifted to China. However, Hong Kong has retained some significant light manufacturing in industries such as garments, plastics, electrical and electronic equipment, appliances, metal products, watches, jewelry, and toys.Asian Manufacturing

Hong Kong manufacturers will remain an important bridge to China in the foreseeable future due to their extensive experience in Western business practices, excellent infrastructure and proximity to China.

As its economy has grown and advanced, Taiwan has seen a gradual decline in labor-intensive manufacturing. The mainstay of its manufacturing has shifted to capital and technology-intensive industries, such as chemicals, information technology, electrical equipment, and electronics. Taiwan has become the world’s top manufacturer of many information technology products.

Unlike many of its Asian neighbors, Taiwan’s economy is dominated primarily by small and mid-sized firms. This makes Taiwan very flexible in adapting to market changes.

Although exports have surged in recent years, India’s export-driven manufacturing remains limited in comparison to countries like China due to regulatory, infrastructure and other barriers. Major export products include textiles, jewelry and chemicals. As it works to create a knowledge-based economy, India has become well established in the export of services such as engineering and software.

South Korea
With its rapid economic development and increase in wages, South Korean manufacturing has shifted to high technology and high value-added products. Major export industries now center on electronics, automobiles, machinery, shipbuilding and petrochemicals.

Thailand, Indonesia, Vietnam
Thailand, Indonesia and Vietnam all have emerging manufacturing sectors. Of these Southeast Asian countries, Thailand is the most open to foreign investment and is therefore the most developed with growing exports in clothing, wood products, jewelry, electronics, and consumer appliances.

Indonesia’s major export industries include textiles, food processing, tobacco and timber products with growth in machinery and other sectors.

With its large, low-cost labor force and opening economy, Vietnam has attracted increased foreign investment and has increased its exports, particularly as costs in China rise. Some of Vietnam’s major export products are garments and footwear.

Manufacturing Sourcing and Sampling

Before beginning production, a sample should be made to confirm the quality of the manufacturing, flush out potential problems and ensure the factory understands the exact product specifications.

First and foremost, a sample gives a good indication of the quality of the manufacturer’s work. The sample process allows the purchaser to weed out low-quality manufacturers before investing significant time and money in them. A factory unable to produce a quality sample should be immediately dropped.

A sample also ensures the manufacturer understands the purchaser’s exact specifications. Even when a manufacturer and a purchaser feel they have reached an understanding, language, cultural and other differences may hide the fact the two sides actually have very different ideas. A sample significantly decreases the possibility of miscommunication.

The sampling phase often exposes unexpected problems that otherwise might not be noticed until production has started. Even if the manufacturer is 100% certain of the purchaser’s specifications, making a sample can reveal unforeseen difficulties in the manufacturing process.

In the event there are problems with the quality of the order, a sample sets a clear standard of accountability for the factory.

It is therefore critical to have a sample made as precisely as possible to specifications. Even if problems with the sample and changes needed are minor, it is not advisable to simply request the issues be fixed in production. Without another sample which meets all the purchaser’s specifications, there is a greatly increased chance of error, misunderstanding or other problems.Sourcing and Sampling

However, it is not always possible to make a sample, and a sample is not a guarantee of the quality of work the manufacturer will perform.

Manufacturers sometimes outsource the making of samples to third parties. Therefore, ask where the sample will be made and take other steps to make sure the manufacturer understands the process.

Also, making an exact sample is not always possible due to the nature of some manufacturing processes (e.g. plastics can only be manufactured in large quantities). Alternatives such as carving a model can sometimes be employed.

Finally, since the exact material that will be used in manufacturing cannot always be purchased in small quantities for samples, alternative materials may sometimes need to be used when making a sample. It is therefore important to specify the exact material to be used in production.

While a good sample will not assure a flawless manufacturing sourcing process, it is a good way to avoid potential problems and set the standard for quality. Therefore, if possible, a sample should be made before an order is placed.

Manufacturing Quality Control

Ensuring quality control is a critical issue when sourcing from China and other developing countries. There is no simple solution to this problem and addressing it takes multiple strategies.

The quality of Chinese and other Asian goods has improved in recent years as these firms gain more experience and move up the manufacturing food chain to higher value products. However, serious differences remain in how quality is perceived. Developing countries, many of which have a legacy of planned, isolated economies, generally do not have the same ideas about quality that are taken for granted in richer nations.

Therefore, it is critical not to assume an Asian manufacturer shares the same views on what comprises good quality and it is advisable to take steps to assure quality control.

Any strategy to avoid quality problems begins when selecting a factory. When choosing a manufacturer, consider the following questions:
1. How much experience does the factory have in exporting overseas? Examine their product lines and ask for references.
2. Does the factory have representatives with a good command of English? While it is not reasonable to expect fluent speakers, a very low level of English proficiency is a sign the manufacturer is inexperienced in overseas markets.
3. Where is the factory headquartered? A factory operating from a more developed country such as Hong Kong or Taiwan, with more exposure to western markets, is much more likely to produce quality goods even if their manufacturing takes place in less developed countries such as China.
4. Where is the factory located? For example, different areas of China tend to specialize in different products. Producing the product in an area that specializes in that product is best. Check the address and avoid areas known for cheap products such as Yiwi in Zhejian province in China.
5. Did one quote come in much lower than the others? The old “buyer beware” adage should be kept in mind. If the quote sounds too good to be true, there is a high likelihood the manufacturer produces inferior goods.

Once a factory has been selected, insist on an exact sample before going into production (see sampling).

Be sure the order confirmation and any other contracts clearly state that products not made to specifications will be replaced and shipped at the manufacturer’s expense within an explicit time frame.

No matter how competent the factory may seem, it is advisable to inspect the goods before shipment, especially the initial order. This can be done in different ways.

Quality Control The most obvious way is a direct visit to the factory by the purchaser. If the travel and other costs of sending someone are manageable, this is the best method of ensuring the goods have been made to the required specifications.

There are also a number of companies that will inspect goods on the importer’s behalf before they leave the country of manufacture. The costs of using these services are much lower than a direct visit. However, one needs to keep in mind that the person doing the inspections for these companies is almost always from the country that manufactured the product, and therefore might not understand the quality requirements.

Some factories may try to deny they are responsible for defective goods if they were missed by a pre-shipment inspection. Therefore, be sure the contract clearly states inspections by the purchaser or third parties do not release the manufacturer from either their responsibility to ensure quality or their responsibility to replace defective goods.

Once the goods are received, inspect them as carefully as possible for quality. Any defective goods should be reported immediately. In this case, it may be necessary to return the goods, or the factory may agree to replace them without the need to return them.

Before placing an order, factor in that a 3%-5% rejection rate is common.

While ensuring quality control is a challenge, major problems can be avoided with careful factory selection, taking steps to verify quality, and making sure contracts clearly state the manufacturer must replace goods not made to standards.