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To Be or Not to Be - Manufacturing in China

Over the past ten years, China experienced the fastest growth in gross domestic product per capita of any major economy. Explosive growth of factories in China, coupled with low labor costs and a burgeoning workforce, created an extremely attractive manufacturing environment for global companies looking to expand their footprint in a continually increasing competitive environment.

China offers the potential to drive down costs significantly, provide specialized expertise in cutting-edge electronics and other technological areas, and provide a gateway to Asia, one of the world’s fastest-growing healthcare markets.

As a result, many manufacturing companies quickly set up in China. In spite of affordable operations and rapid growth, not all companies are prepared to handle the significant challenges China also presents.

Intellectual property protection, product quality, high worker turnover and cultural differences are just a few of the challenges facing a medical device company. The following are key considerations when deciding whether to utilize a China-based design and manufacturing services provider.

Chinese or China-based?

One notable change in China’s business dealings with the West is that it is no longer necessary to have a Chinese partner to establish a presence in the country. In fact, in the medical device sector, having a local manufacturer might actually be a disadvantage. Chinese manufacturers may not be familiar or compliant with current good manufacturing practices, and quality system regulations, for example.

Working with the China-based division of a global design and manufacturing services firm rather than a local Chinese company can offer the best of both worlds – not only for intellectual property protection but also to gain a partner with a better understanding of international standards and experience in addressing multinational requirements, particularly sourcing and logistics.

Ensuring reliable sources of materials

While the global economy has made the world much smaller, material acquisition can still present availability and logistical challenges. Extra expenses from utilizing the existing supply chain to support distant operations can quickly erode benefits from lower-cost manufacturing in China. Therefore, manufacturers should consider expanding their approved supplier lists to include local or regional companies.

Protecting Intellectual Property

A red flag when considering outsourcing in China is the risk to intellectual property. China has become skillful at duplicating goods; therefore a device company should conduct a risk assessment, beginning with an evaluation of the potential exposure. Selecting a China-based provider that is part of a non-Chinese company can substantially mitigate risk. Knowing that the China-based provider’s parent understands, has experience with and honors the intent of intellectual property agreements can increase confidence in the partnership.

It is essential to evaluate a manufacturing partner based upon their total value proposition – not just cost-effectiveness and location but also expertise in all elements of the process. Whether the company’s goal is cost reduction or market penetration, it can be achieved with the right design and manufacturing services partner.

Choosing the right partner

A medical device manufacturer seeking a global manufacturing company with China operations must ask several important questions. Ask yourself this: Does the company possess the required manufacturing capabilities as well as process and quality controls to ensure consistent and compliant production? Have they been certified to the requisite standards (ISO 9000, 14000 and 13485, for example)? Are you conducting onsite facility audits to ensure that these elements are adequately addressed?

The world continues to change as economies ebb and flow through economic turbulence. As China moves up the innovation ladder, providing attractive business benefits in spite of a slow economy, critical steps must be taken to ensure an informed manufacturing partner. Can your company afford to risk a venture in China without considering the quality of your manufacturing partner? The short term savings might seem attractive, but the implications of an unprepared manufacturing partner might actually reduce or negate any savings. Can your company afford to take this risk? What are you doing to ensure a successful investment in China?