Is the Cost of Outsourcing to China Too High?

Filed in archive Outsourcing on August 18, 2007

Has doing business with China become too expensive? It's a simple question of cost-benefit analysis. But cost benefit-analysis is not really as simple as you might think...

Some of the cost of doing business in China is obvious to the most untrained layman. If you want to make stuff in China to sell here, you have to pay to ship it here from China after you make it there. You probably have to travel to China a few times, maybe even take a team with you to your China site.

A recent series of stories on National Public Radio (NPR) looks at the question of whether outsourcing to China is becoming too expensive. If you're involved in outsourcing to China you probably already know about the less obvious sorts of risks that have to be factored in when making a decision about having your American or British firm create products (or parts for products) in China for your home market. NPR points out a few. There could be a typhoon that blows away your production line. Or an earthquake could swallow your warehouse. Or, like the incidences that have made the news recently, your products could be defective, or dangerous, or both.



The NPR article points out that, in the grand scheme of things, the recent series of recalls of Chinese-made goods is "miniscule" compared to the volume of products that comes to us from there. For example, one 100th of a percent of toys imported from China have been recalled recently in America. That is to say that for every "made in China" toy being recalled, another 9,999 are still being played with.

But there are also the intangible costs of negative press and public opinion.

While the recalls might represent only a small percentage of products manufactured in China, the nice bloggers at Underwire point out the scope of the recalls. There have been, in the past few months, recalls of children's toys, seafood, pet food, and truck tires.

Perhaps one of the most damaging aspects of the China recalls has been efforts in the U.S. press to persuade readers that the real problem is inadequate monitoring by the U.S. Food and Drug Administration and similar agencies. The idea is that there are more dangerous products out there from China - perhaps a lot more - and we just haven't found them yet (because our government isn't trying hard enough). But they're here already - perhaps in your refrigerator waiting to be served for dinner, perhaps in your child's bedroom being played with even as we speak. And the moral is that, since the government here can't really protect you from this new Yellow Peril, you should be suspicious of all things made in China. Who knows, even something as simple as watching Jet Li movies could be causing brain cancer in America...

So, with all the bad press and the actual costs associated with these recalls, are businesses here looking for partners somewhere else now? Not really. A few individual companies will decide that the price is too high for them after they write off defective or dangerous goods they've recalled. But for many the cost was already factored in as a risk.

A comment left at the end of Underwire's blog post goes a long way toward illustrating the dilemma business face:

What alternative do you propose? Make everything inside the US. Then Mattel and other US companies will simply go out of business. Whether we like it or not the products from abroad will come into US, they will be less expensive(call it exploitation or slavery, but the work force is simply cheaper elsewhere) and they will be hard to distinguish from US made. We no longer have the infrastructure to support production on the levels required by US consumers.