People Usual think that Chinese labor cost is lower and that is reason for lower manufacturing cost. Infact the main reason it a complete infrastructure in place and Government support.
How Chinese Factory Produce a Product?
Every factory doesn’t produce all components that goes into their product e.g. a smartphone factory would buy the housing / body of phone from one company, Display from second, Speaker for third, Camera from forth, the Processor or board from another one and so on, then assemble it together. So an assembly company is a factory.
In China, almost every product is produced in a same region where their suppliers are all nearby. for example electronics in Shenzhen, tiles in Foshan, furniture in Shunde, and so on. Having suppliers nearby plays an important role in supply chain management specifically saves alot of time and cost.
Since each company makes only their range of products, e.g. a display manufacturer just makes smartphone screen, they focus on more volume for that product, which gives them leverage to bargain on raw material costs.
The more the volume you order, the better prices you can negotiate. Also, your machines work more efficiently, the process of work is smoother, all these factors bring down the total costs.
Bad quality is another factor people think when it comes to Chinese factory. Good or bad depends if you are willing to pay for the price, many companies are willing to drop the quality or replace components with the cheaper alternative to save on costs such as most of Chinese Smartphone manufacturers install cheaper or older camera sensor most of the time f/2.2, which why most of cheaper phone doesn’t snap good pictures specially in low light quality is mediocre. If you consider prices, you should also compare the quality. Moreover it’s usual that samples are of good quality but production is made a little cheaper.
In this cut throat economy, margins are small. Many companies such as Xiaomi or Oppo are willing to sell at low / no margins or even at a loss to get a new customer on board or to stay alive and try to see it to the next phase by losing a little but retaining the workers and factory space etc.
China has developed their logistics in a very efficient manner. You can get things cross country in a couple of days or across the city in a couple of hours. Less downtime, higher efficiency with very lower costs.
As everything evolves so the manufacturing, in many industries, manual labor is being replaced with automation as salaries have risen a lot.
Owners are willing to relocate, change suppliers, hire / fire workers and do what it takes to reduce costs. Most are very hardworking and quite involved in their daily business.
Last but not least Government supports and promotes exports and gives export companies a rebate on the value exported. Many companies rely solely on this rebate as their profit margin.
It has taken China years to set up such an infrastructure and so it is not easy to replace them by moving to other countries where labor costs are lower as that is only one component of the cost
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