Manufacturing heavy industry assets in China? Here’s what you need to know.

Over the past decade, capacity to manufacture heavy engineered assets in Australia, Europe and the USA has been reduced significantly. The manufacturing capacity for mining, rail and construction industries has moved offshore to countries like China that have a lower-cost manufacturing base. This transition has led China has become a powerhouse in design and manufacture in heavy industry as many international companies now manufacture some or all of their products there.

Some may think that China’s manufacturing capability is relatively new and unskilled. Contrary to this belief, China has been manufacturing internationally for the mining, rail and construction industries for decades. From the late 1970’s onwards the Chinese government structured economic policies to “reform and open-up” the country by promoting foreign investment and allowing private businesses to operate for the first time since the communist rule began. This change in strategy has allowed China has become one the world’s biggest manufacturers of heavy industry assets and as of 2018, China accounts for approximately 34% of global market share in heavy industry machinery, a staggering figure compared to other developed markets like the US which accounts for only 2% (The Economist, 2019).

What benefits are there to manufacturing in China?

Manufacturing in China, if managed correctly, can have significant financial benefits by increasing your bottomline through reduced CAPEX costs and even improve your competitiveness in winning contract tenders.

Here are some potential benefits of manufacturing in China:

• Meaningful cost savings when compared to manufacturing in developed countries

• Well established manufacturing industry

• Expertise in mining, rail and construction products

• Increased production capacity and reduced lead times

• Ability to meet International standards and specifications

• Product design capabilities

• International manufacturing experience and skills base

• State of the art facilities

• Access to a supply chain that was previously unreachable

• Geographically favourable logistic costs.

What are some of the challenges?

Whilst the upside is significant, there are just as many challenges which could bring your project to a halt and potentially erode any cost savings that brought you there in the first place. Over the years we have witnessed a wide range of project management approaches from our clients when they begin manufacturing China and it’s safe to say that the way you’re used to doing business in your home country will most probably not work in China.

Here are some key challenges faced when manufacturing in China:

• Difficult to find the right factory or manufacturing partner

• Contract re-negotiations during the project

• Inconsistent product quality

• Non-compliance to specifications and standards

• Intellectual property (IP) risks

• Disconnect internally between the manufacture’s key departments

• Language barrier and other cultural difficulties

• Lack of in-country (onsite) presence to manage project and product quality

• Bribery and misconduct.

Where to from here?

If your company is looking to begin manufacturing in China, purchasing heavy industry assets or sourcing fabricated steel and building products across the mining, rail and construction industries, give the team at manufactconsulting.com a call or drop us an email to discuss your requirements.

Your on-the-ground resource for procurement and manufacturing in China.

The Economist. (2019, July 13-19th). Special Report: Global supply chains. The Economist: Riding High, What could bring down Americas economy?, p. 6.

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