How Will Outsourcing Change in China?

The Covid-19 pandemic is by far one of the worst black swan events of recent years. What started as a respiratory infection in Wuhan turned into a global pandemic with devastating impacts on China’s manufacturing industries as well as the worldwide economy.

At the same time, the novel virus exposed vulnerabilities in supply chains, forcing Chinese manufacturers to rethink their strategies. This article will explore the impact of the pandemic on offshore manufacturing and how it’s reshaping the future of outsourcing in China.

china manufacturing

The Future of Outsourcing in China

Here’s what businesses outsourcing in China should expect in the future:

Heavily Automated Offshore Manufacturing

The impact of the Covid-19 pandemic on China’s workforce was nothing short of devastating. During the first lockdown, most employees were either quarantined in other cities, infected, or too fearful of the Covid-19 virus to report to work. As a result, offshore manufacturing companies and factories across the spectrum couldn’t run at full capacity even after the first lockdown.

In response, Chinese factory supply chain and risk managers are now keen on embracing operational automation to boost production efficiency. For instance, Chinese factories are gradually incorporating robots into their workforces to keep production going amid staffing shortages. Logistic companies are also employing robots and autonomous vehicles to address trucking driver shortages while lowering labor costs.

Although the country was already experiencing a robotics revolution, a 22% increase in the YoY industrial robotics output in 2020 suggests Covid-19 significantly accelerated the adoption and transition to automated manufacturing structures.

Expect to see more robots, drones, autonomous vehicles, and other forms of advanced manufacturing technology when outsourcing in China. With automation tends such as data analytics, artificial intelligence, and IoT, expect offshore manufacturing to continue to be more and more sophisticated.

More Attention to Health and Safety

China was hard hit with the Covid-19 virus but collective efforts by Chinese citizens, businesses, and offshore companies saw the country achieve a dramatic reduction in infections by the summer of 2020s.  During the first wave, Chinese manufacturing companies began making and supplying medical supplies to meet the rising demand while assisting the affected.

Other important supply chain players like UPS offered free transportation of PPE. A year later, offshore manufacturing companies and businesses in different sectors are still on the frontline in the fight against Covid-19 and have been critical in preventing and mitigating the impact of new Covid-19 infections.

At the company level, manufacturers are:

  • Introducing strict social distancing and disinfection protocols
  • Educating employees on new Covid-19 symptoms and prevention measures
  • Shifting to e-commerce business models to minimize contact

Given Covid-19 is still in the picture, these control measures will remain in place for the foreseeable future.

Sustainable Offshore Manufacturing

Besides mitigating the spread and impact of Covid-19, the Chinese government is committed to reducing carbon emissions and achieving neutrality by 2060. To comply with the government’s new green initiatives, and reduce their carbon footprint, offshore manufacturing companies in China are now investing in high-tech manufacturing equipment (cue robots and drones) and using innovative and recycled raw materials in production.

Many manufacturers have also been collecting supplier data to measure their emissions and efficiently improve sustainability. They’re also embracing sustainable shipping by minimizing air freight, consolidating shipping, and offsetting their carbon emissions by donating or investing in carbon offset programs.

Thanks to the country’s renewed enthusiasm toward green courses, offshore manufacturing in China now and in the future will be an opportunity for businesses to pursue and maximize sustainability-oriented sourcing benefits.

A Highly Agile and Diversified Offshore Manufacturing Sector

Even though the Covid-19 pandemic affected nearly all industries in China, demand for essential goods and services peaked, forcing manufacturers to rethink their strategies. They used the crisis as an instructional opportunity to remodel operations to meet increasing B2C demand.

Instead of shutting down, some manufacturers set up makeshift assembly lines for masks, medical supplies, and other PPE in demand during the pandemic. This not only created a steady source of revenue, but it also helped employees keep their jobs.

The pandemic was an eye-opener for other companies and provided an opportunity to increase their focus on health-relevant products. This created a flexible, highly diversified overseas manufacturing products market for anyone outsourcing in China.

Better and Improved Supply Chain Risk Management Systems

The Covid-19 pandemic proved most businesses and offshore manufacturing companies have severely inefficient emergency response programs. As a result, businesses are now re-evaluating their existing approach to global manufacturing and sourcing activities to boost resilience, reduce risks, and make outsourcing in China a reliable endeavor regardless of market conditions.

For instance, to cope with global raw material shortages, sourcing companies are now:

  • Buying ahead to secure materials where there is a short supply
  • Redesigning products using new raw materials where the primary materials are not readily available
  • Adjusting consumer allocations
  • Offering discounts on inventory reaching the market late

Manufacturers are also proactive in performing operational risk assessments to test the resilience of critical business functions. They’re setting up open lines of communication with key suppliers and industry stakeholders to stay current of demand volume changes.

These adjustments make the future of outsourcing in China more reliable as most offshore manufacturers are now better equipped to handle globally disruptive events, such as the Covid-19 pandemic.

China’s Position in the Global Market as the World’s Factory

china manufacturing
source: Global Times.

Despite China’s bright future in outsourcing, looming concerns about rising labor costs, government tariffs, and competition from alternative countries have seen many businesses looking for alternative overseas manufacturing.  While these concerns are legitimate, the following lists reasons why China’s position as the world’s factory will remain unhindered:

The Economy is Slowly Rebounding

Although it was among the hardest-hit countries by the Covid-19 pandemic, China is steadily regaining its position as the world’s second-largest economy. It grew by 18.3% and 7.9% in the first and second quarters and is expected to attain 8.5% growth in the remaining yearly quarter.

Like the economy, China’s industries, including the outsourcing sector, are slowly resuming normal operations. That means production will soon be back to normal levels and likely higher given the increasing automation and improved supply chain risk management.

A Strong Manufacturing Ecosystem

China’s robust manufacturing ecosystem supports the country’s manufacturing companies.  As a global manufacturing hub, China is home to some of the biggest names in auto, tech, chemicals, and other large-scale manufacturing industries. The country also has abundant suppliers and highly skilled workers who supplement these industries, making offshore manufacturing more streamlined. It’s interesting to note that countries like Thailand are dependent on China’s deep supply and demand networks.

Relocation is Easier Said than Done

Although alternative countries like Vietnam and India look promising, offshoring and reshoring are time-consuming and incredibly costly. In addition, there are plenty of new complex geopolitical regulations that businesses must learn and adhere to, which can make decoupling from China problematic and disruptive.

Take Advantage of ITI Manufacturing’s Expertise and Experience

China has a bright future as an economy and as the world’s preferred destination for offshore manufacturing. If you’re interested in moving your production offshore but aren’t sure where to start, ITI Manufacturing can help.  Also, if you are currently manufacturing offshore and the results are not what you hoped they would be, ITI Manufacturing can help.

Contact our team and experience working with a first-class offshore manufacturing management company with over four decades of experience, a strong network, and committed staff. Providing customer service and support and delivering high-quality products is our focus.

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