For the past nearly three months, I’ve dealt with China and manufacturing in China. It has been stressful and interesting and exhausting and eye-opening. I don’t know nearly enough yet, but I know a lot, and what I’ve discovered agrees with what I’ve heard from others who have spent years and decades there. The following are some things to consider before going to China.
Don’t go until you are ready
I went to work on my prototype and hopefully have a manufacturable design by the time I left. The theory was that with access to the people building the products I’d be able to make a better design and prototypes. The reality is that the language barrier makes acquiring anything a challenge, and factories only want to deal with you if you are building thousands of units; they laugh at you if you give a number in the 1s or 10s, and I’ve been waved away by people who just didn’t have any interest in doing business with me.
There are companies in China who focus on rapid prototyping. Star Prototype and A-Tech were two places we toured. But they will charge Western prices to do it, so what’s the advantage? On a tight budget, I needed a place that could let me play with materials myself, and my local hackerspace had better facilities to do it.
I was also refining my schematic in China, and prototyping with parts acquired at the electronics market. They’re cheap, you can get them quickly, and the variety of parts there is enormous. But the cost may not be worth it. Certain parts of my schematic were failing, and it was impossible to determine if it was my design, or if the part I was using was the wrong one, or if the parts I was being sold were so cheap because they were defective and I was a white boy. With no datasheets, and frequent miscommunications, it’s just not possible to know where the fault lies, and when testing a design, that’s an extra layer of hassle. Without the datasheets, I had issues as well. There were no example schematics with recommended values for resistors or inductors, and there were no indications what the electrical and thermal and mechanical characteristics were and whether I was within spec.
When you go, you should have your design complete, your schematic complete and tested with a complete BOM and estimated costs in quantity. You should have all the files ready in a variety of formats so that you can whip them off to a factory engineer to print and examine, or a PCB assembly house to quote costs.
Go to reduce costs and produce in mass quantity
You’ve been building small batches in the U.S. and the higher costs of components are eating your margins and the labor cost is making it unsustainable. You don’t have the facilities to ramp up production, and you’re getting lots of orders you can’t fulfill in a timely manner. Your product is proven, demand is estimable, and you have enough certainty that you can raise capital to fund a trip and tooling and setup costs. THAT’s the right time to go to China.
When I went I didn’t know for certain my target market really wanted my product. I had indications; emails asking about availability, great feedback on the prototypes, etc. But not enough certainty that a bank would give me a loan. So I was on a super tight budget, and on a tight budget doors do not open and favors do not get granted.
I didn’t have a complete design that I knew would work and be easy to assemble and produce. I didn’t even know what materials I would end up using. When touring a factory and the engineer asks if you want to use PS, PP, PE, PC, ABS, or Acrylic, and what thickness it will be and you reply with “What do you recommend?” then things are destined for failure. But when you already have everything ready and are just going to try to reduce costs and produce in quantity, then the engineering problems are much smaller and the factories understand your needs and can either meet them or not.
China is set up for this. Labor is cheaper (though it is rising and many are saying they are starting to price themselves out of the market and major manufacturers are starting to look elsewhere), and they work longer hours. Sometimes it is cheaper to hire someone to make a tiny adjustment to a part than to retool a mold to get it right. And quantity is what they are after. One thousand is a starting number, but tens or hundreds of thousands is preferable. Setting up a line isn’t easy or fast, so the larger the batch, the less overhead is lost (as a percentage of total time) on the setup.
Think about ALL the costs
BOM and assembly costs are just the tip of the iceberg. You also have to test each unit, and depending on your assembly process and factory choice, this can mean higher failure rates, which either get reworked or scrapped at significant cost. There is frequently palm-greasing cost. There is shipping cost (way more expensive if air shipped, but can take a month or more if by boat). There are duties and taxes. There may be environmental costs as well, if one of the cost saving measures the factory takes results in bad practices.
Then there is the cost of sending a person over there to tour the factories and live there for weeks or months, setting up the assembly lines and being present for the initial run to work out all the bugs. Depending on the level of engagement with the factories, this can be intense and prolonged and stressful. The person will have to deal with all kinds of health and mental issues, from as simple as jet lag and a girlfriend at home to longer term health effects of factory presence and exposure to the various toxins and bugs that are at much higher levels than the U.S. It’s not just costing money; it’s costing someone’s life for a certain amount of time. This can be alleviated by hiring a company like Dragon Innovation, whose job is to be the China presence and ensure quality and represent your interests, but of course this too cuts into your margins.
There is a time cost. If you have a shipment leave China by boat and arrive two months later, and you find that it is damaged or defective, then you lose not just that batch, but the last two months of production may have the same problem as well. The delay of shipping can be significant to a business that can’t afford to have such long lead times. Also, as much as people praise the ability to work during the day and then let China work during the night, the reality is it takes 24 hours to get a response to an email because you have to wait until their shift starts, and the only time you can have real time conversations is the small window in either the morning or the evening where both of you are awake, and it’s not convenient and it’s poor audio quality.
Financial institutions are another significant but hidden cost. With exchange rates, wire fees, and other various mechanisms for skimming money off of transactions, a lot of money just disappears in transit. This needs to be considered.
Some people talk about manufacturing in China as if it’s exploiting people, and taking jobs away from the U.S. From what I’ve seen, manufacturing in China has increased the standard of living immensely; Shenzhen is remarkably middle class and wealthy. Granted, the further out you go the worse things get, but people who have been around a while have been amazed at the improvement in everything in the past few years. We are bringing a lot of money into China, and they are doing better because of it. It’s still not perfect, but it’s arguably better than it would have been if we weren’t there at all. Still, there’s no escaping the fact that money and jobs are going overseas, and that’s potentially a cost to the conscience.
There are some good reasons to go to China, and it’s important to know when is the right time to go. Too early and you won’t get what you’re looking for and may find yourself swindled or broke. It’s not as cheap as people think and there are a lot of factors to consider before doing it.
Bob Baddeley is a software/hardware engineer from the USA. In 2012 he was chosen for a Chinese hardware startup accelerator to work on his product, the Portable Electronic Scoreboard. His articles can be found on his blog www.engineerinshenzhen.com.