Manufacturing IoT Devices in China: Pros and Cons

The IoT market is developing with a really amazing speed. In 2016, it reached over $150 billion. In 2020, it is expected to exceed $450 billion. Considering this forecast, it is more than logical that you are thinking about starting an IoT project.

However, most of such projects require not only software development, but also manufacturing of the related devices. At the moment, China is one of the most popular manufacturers — over the past few years, its IoT market has been growing by 20% annually. It reached over $130 billion in 2016. Looks impressive, especially in comparison to the worldwide market. But, unfortunately, this doesn’t mean that China is a perfect manufacturer of IoT devices — production in this country has both advantages and disadvantages. We will talk about all the pros and cons to help you in doing business with China, but first let us quickly introduce the Chinese production scope to you.

What IoT Devices Are Manufactured in China

China produces virtually everything, and even the most famous and expensive IoT solutions are manufactured there. Here are several examples:

  • Thermostats, cameras, doorbells, and other products from Nest
  • Amazon Echo, a smart speaker
  • Smart watches and other gadgets from Apple
  • Smart TVs and other devices from Samsung

Obviously, this list is not full — there are much more gadgets present at the market which are manufactured in China. And even more are expected to appear.

Why to Manufacture IoT Devices In China

Now, when you know what IoT devices are, it is time to talk about their manufacture. Let’s start with the good news — with advantages. So, here are 4 reasons why you should manufacture your IoT gadgets in China.

1. Lower costs on manufacture

That’s probably the most obvious advantage of manufacturing IoT devices (and many other things) in China — the costs are usually lower than in most other countries. First of all, there is a huge difference in labor cost. Just take a look at this data collected by Deloitte. The labor cost in the USA is almost $38 per hour, in Germany — over $40, and in Japan — around $24. At the same time, in China the labor cost is just a bit more than $3 per hour. The same research shows that India is still cheaper, but the thing is that India can’t offer as many experienced manufacturers as China.

Therefore, here comes the second factor which lowers the cost — China has an enormous number of factories producing all the essential parts: sensors, batteries, cables, touch screens, etc. In 2008, there were almost 2 million factories. Unfortunately, there is no data regarding how many of them were producing electronic components, but this number is still impressive, right? So, in China you won’t have to wait for weeks or months until the components you are looking for will be produced — they are already available there.

2. Faster production

Since China boasts numerous factories and cheap labor, you can get your IoT devices in a shorter time — you can simply hire more workers to complete the production faster, and this step won’t affect your budget too hard. Some people say that Chinese factories are so fast only because of horrible labor treatment: extremely low payments (even lower than we described), too long working days, and so on. Yes, this problem exists, but not all the factories think that their workers are slaves. Many of them follow the legislation, so you only have to make a right choice when looking for a factory. However, we will talk about this a bit later.

3. Market expansion opportunities

If you are planning to conquer the global market, manufacturing IoT gadgets in China is a pretty good way to start — it allows you to bring your product to the Asian market quickly and without enormous expenses on shipping. Besides, Asia offers a lot of potential customers. For instance, there are over 1.4 billion people living in China, and this number is not going to decrease significantly in the nearest future. Asia is a giant market you shouldn’t miss, and producing gadgets in China will help you to get closer to it.

4. Better service

This is not something you will get for sure — we can’t guarantee that any factory you choose will be just awesome in terms of service. However, the number of existing factories is very high, and the competition is extremely severe. So, many factories will do their best to meet your expectations and leave a good impression which is essential for future cooperation.

Why Not to Manufacture IoT Devices In China

1. Difficulties with finding a factory

In spite of an enormous number of factories, finding a proper one may be challenging. First of all, it is essential to find a factory which will be able to manufacture your product. Look for those ones which specialize in similar products — their experience can guarantee that you will get gadgets of high quality. Those factories which produce everything should be avoided, as trying to do all things at once usually leads to poor results.

Then, it is important to make sure that the factory is reputable and doesn’t make its employees work round the clock. People who work 16-20 hours can’t really concentrate on what they are doing because of exhaustion, which can affect your product quality. Obviously, it would be great to visit a factory in person and make sure that everything is okay, but we guess it will be a pretty far and expensive trip. Here is what you can do — ensure that the quality control is included in the production chain, and discuss a valid percentage of defective items. You may still have some of them even in case the factory workers don’t work overtime, but such a trick will help you to reduce their number.

Another potential challenge is high minimum orders. Most factories don’t take on small orders, so you may face difficulties in case you need only a small set of gadgets.

2. A language barrier

We have already mentioned the population of China, remember? And here is one more interesting fact for you — only around 10 million Chinese people speak English. In comparison to the total population that’s virtually nothing, so you may experience serious difficulties when trying to explain what you want to produce, at what cost, and so on.

What is worse, Chinese culture is extremely different from, for instance, the European one. This means that you will have to learn all the cultural details regarding the business relationship, and be even more careful than you usually are. This can be complicated.

3. Expensive and time-consuming shipping

After a set of gadgets is manufactured, it has to be shipped. Everything will be fine in case you are going to sell them in China, but if you are going to ship to European countries or the USA, you may have to pay a lot and wait for a pretty long time until your order arrives.

4. Potential problems with quality

Unfortunately, China is not associated with an outstanding quality of products. We don’t mean that everything produced there is bad — no, we only say that this stereotype still exists, and it is still well-founded. So, if you choose a wrong factory, you may face problems with the quality of materials and work. And the more complicated your gadget is, the higher the risk rises.

Unfortunately, Intellectual Property protection in China is still rather expensive and risky. Things are getting better, but they are not perfect yet, so you may have some troubles with trademark and copyrights. Besides, Chinese IP law is pretty different, so the problems may arise exactly because you don’t know it properly. One day you may simply find your product being sold under almost the same name without your permission!

What to Do If You Still Choose China

We have listed more disadvantages than advantages, but in case you still choose to manufacture your devices in China, follow these steps.

1. Find a proper factory. This is how you can do this:

  • Get some recommendations from industry trade groups, get in touch with companies and people within your network, and visit international trade shows — these little tricks can help you to narrow the search.
  • Look for manufacturers which produce more or less similar products and find some reviews about them. Try to contact their previous and current customers.
  • Check to which countries these manufacturers export their products. The factories which produce for Western countries and the USA tend to have higher standards of quality.
  • Ask manufacturers to provide their licenses and certificates. Reputable factories usually have no problems with documents, and don’t refuse to show them.
  • Discuss all the details with the factories which have successfully passed all the previous steps. Find out everything about the minimum order, prices, production time, and so on.

Then, you can make a choice. However, before doing this, we would also recommend you to visit a factory, if it is possible. It is always better to see everything with your own eyes before signing a contract. Oh, and by the way, make sure that people you are establishing partnership with speak English!

2. Calculate the expenses. And do this very carefully! We don’t talk now about expenses on manufacture — we think you have calculated them while choosing the factory. No, this short paragraph is about shipping costs. If you don’t want to get into an unpleasant situation, you should calculate the shipping time, and all the related prices, tariffs, and duties before starting the manufacturing process.

3. Find a trusted local agent. Traveling to China every time you want to check the quality of work is expensive and time-consuming. Living there during the production time won’t help too, as you may not be able to evaluate the quality on your own, so you will have to take some of your team members. But hiring a local agent who will be able to control the quality in person can solve the problem. You only have to find a really reliable person.

4. Know your rights. When it comes to IP protection, it would be great to find a local attorney, who will know the law perfectly and, obviously, speak Chinese with no problems — this person will help to protect your product from diverse infringements. Apart from this, deal with all the copyright things before launching the manufacturing process. This strategy will prevent your manufacturer from stealing your product.

5. Explore Chinese business culture. There are more than enough ways to do it: reading articles on the Internet, talking to people who already had such an experience, reading books (for instance, this one)… Feel free to choose, just make sure that your knowledge of culture has no gaps.

What to Do If You Don’t Want to Manufacture In China

Actually, in this case things become much simpler. First of all, you can find a factory not in China, but in another country. This can be more expensive, but, at least, the list of disadvantages should be shorter. The second option is finding a local factory. This option is among the best ones, as you will be able to control the manufacture yourself, and there will be no language barrier. The third variant is cooperating with your software development team. A really good and responsible team, which has experience with IoT, can always help with finding a reputable factory.

By 2020 95% of IoT devices are expected to be manufactured in China, and we hope by that time most of the pitfalls we mentioned in our article will disappear. But at the moment you are aware of all the dangers, so you will be able to make a right decision and find a proper manufacturer.

16 Feb 2019
Anastasia Lushyna / Business Development Expert
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