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understanding China's manufacturing geography leads to better sourcing
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How understanding China's manufacturing geography leads
to better sourcing results

Posted: November 09, 2016

By Adam Gilbourne

As
an importer it’s vital you’re familiar with China’s manufacturing geography as
price levels, quality, logistic costs and manufacturing capabilities all vary
region to region. The information that can be gained through a quick survey of
manufacturers and their location is significant and should not be
ignored.

If
99% of factories making a particular product are concentrated in one region, you
can bet there is a competitive advantage to them being there. Typical regional
advantages include access to raw materials, access to component parts, cheap
labour, specialised labour or logistics.

That
doesn’t necessarily mean that you should dismiss outlier factories. However,
before purchasing from these suppliers you must be diligent to ensure that price
advantages arise from genuine competitive advantages (i.e. cheaper production
costs), rather than poor quality control systems and bad management.

This
article will lay out the differences in China’s regional development and how
that may play into your sourcing decisions.

The
Pearl River Delta (PRD)

Located
in China’s south, the PRD encompasses the areas of Hong Kong, Guangzhou and
Shenzhen. This region owes its industrial transformation to the “reform and
opening up strategy” of Deng Xiaoping and the creation of “Special Economic
Zones”. The PRD developed rapidly as foreign companies invested heavily into the
area to leverage favourable trade and tax policies, access to cheap labour, and
proximity to Hong Kong.

The
two cities you need to know, Shenzhen and Guangzhou:
Shenzhen has grown from a market town of 30 000 people to become an
international city of over 10 million people. Guangzhou, Shenzhen’s older
brother to the north, is the main manufacturing hub in the Pearl River Delta.
Guangzhou hosts the bi-annual Canton Trade fair, which attracts thousands of
prospective importers every year.

What
does the PRD specialize in producing?
The PRD is transitioning away from labour intensive consumer goods and now
specialises in high-tech electronic equipment, machinery, and auto parts. The
region does, however, still lead the way in the production of footwear,
lighting, and toys. It’s also a good place for sporting equipment, stationery
and art ware, construction materials and furniture (amongst other
things).

What
are the advantages of sourcing from the PRD?
Factories here are experienced with the demands of the international
marketplace. The infrastructure in the PRD is world class which makes
transporting your goods from here affordable and efficient. Sourcing component
parts, raw materials, packaging materials, production equipment etc. is easy due
to the massive concentration of manufacturing within what is about a three hour
driving radius. It’s by far the best place to manufacture complex or high tech
goods.

What
are the disadvantages?
Due to the reasons mentioned above, prices are generally higher in the PRD.
Manufacturers here are also well aware of the going market rate for their
product in your home market. They will negotiate prices to a point where it’s
just enough for you to make a profit in your home market and nothing
more.

The
Yangtze River Delta

Surrounding
the megalopolis of Shanghai, the Yangtze River Delta (YRD), with its enormous
population of 105 million (2014), historically manufactured products for China’s
domestic market.

Production
in the YRD has traditionally been geared towards high volume, low margin type
commoditized goods. Competition for business here is fierce and this has
generally kept prices low. The downside to this is that tight margins encourage
factories to cut corners on quality and cut production costs by using inferior
raw inputs. Service in the YRD is also of a lower standard compared with the
PRD.

While
it can be more difficult sourcing from this region, importers should not be
discouraged. With careful oversight, factories in the YRD can produce excellent
quality products and at low prices. As China’s number 2 export base, the region
is moving up the quality scale as firms gain experience selling into
international markets.

Cities
you should know:
The major cities in this region are Suzhou, Ningbo, Shanghai, Nanjing and
Hangzhou.

What
does the YRD specialise in producing?
Labour intensive consumer goods, textiles, metals, glass products, furniture,
motor and bicycles, electronics, household appliances, construction materials,
paper products etc.

What
are the advantages of sourcing from the YRD?
Costs for manufacturing many products are cheaper than the PRD. The YRD has the
same advantages as the PRD in terms of excellent infrastructure and access to
raw materials.

What
are the disadvantages?
The region focusses on price over quality. Many factories in this region are in
debt and risk going under. Copyright infringement is rampant in the region so be
cautious if you have IP to protect.

The
Northeast

Historically
the Northeast has been China’s heartland for heavy industry due to its abundance
of coal and oil. Industry here is heavily centered on the production of iron,
steel, oil, petrochemicals, shipbuilding, machine tools, aviation and automobile
manufacturing.

In
recent years the government has set about transitioning the region away from
heavy industry to become a centre for modern manufacturing. Reform efforts are
yet to come to fruition. Problems of overcapacity, poor investments, and a
dominance of state owned enterprises remain.

Cities
you should know:
Shenyang, Dalian, Harbin, Changchun and Anshan.

What
does the YRD specialise in producing?
Heavy industry: iron, steel, oil, petrochemicals, shipbuilding, machine tools,
aviation and automobile manufacturing.

What
are the advantages of sourcing from the Northeast?
While it is unlikely that you will be sourcing from this part of China, you can
find non-heavy industry factories here that produce at unbeatable
prices.

What
are the disadvantages?
Sourcing from the northeast can be a major challenge. Production needs careful
oversight and you must pay careful attention to project management, IP
protection, quality assurance and due diligence. Logistics from this part of
China is also more challenging than from the south.

The
West

The
Western regions of China have long been the supplier of cheap labour for the
richer coastal regions. Migrant workers, attracted by higher wages and
guaranteed work, flooded the coastal regions and sustained China’s comparative
advantage in labour intensive manufacturing for decades. Rising rent and labour
costs have pushed manufacturing inland, away from the coast, in recent years,
which has convinced migrants to return home to the west. The Government’s
“develop the west” initiative – which has pumped massive amounts of money into
the west – is also contributing to this shift.

While
manufacturing is gaining traction in the West, it is unlikely that you will find
yourself sourcing from these areas. Similar to the northeast, while pricing
might be attractive, problems with logistics, IP protection, quality assurance,
due diligence and export licencing make exporting from the west a
challenge.

Cities
you should know:
Chongqing and Chengdu.

What
does the West specialise in producing?
The West is China’s manufacturing hub for motor vehicles. It is also a hotspot
for computer parts/components.

What
are the advantages of sourcing from the Northeast?
Significant savings can be made on production costs due to lower prices for
labour and land. For computer components, heavy machinery and automobiles it may
be the cheapest place in China to source from.

What
are the disadvantages?
Being landlocked, logistics from the region is difficult, time consuming and
expensive. Goods must travel by road, rail or most commonly via river all the
way up to a port in the Yangtze River Delta (Shanghai) or the Pearl River Delta
(Shenzhen).

As
this article has shown, you can reveal significant information about your
supplier by knowing their location. Will lead times be slower? Is the price
advantage due to nefarious reasons? How long has this factory been in operation?
Do they have an export licence? By looking first at location you will naturally
provoke important questions that will expose the legitimacy of your
manufacturing prospects.

Want
to learn more sourcing best practices?

Join the Global Sources Summit that combines conferences and
networking, co-located with our Hong Kong trade shows. The event will be held
April 17-19, 2017, and is geared toward online and Amazon
sellers.

Adam
Gilbourne is the founder of Easy Imex Ltd and helps importers to source product &
manage their supply chain in China. He writes advice for importers on the Easy
Imex blog. He lives full time in Shanghai, China. You can contact him at This email address is being protected from spambots. You need
JavaScript enabled to view it.

.

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