China, manufacturing power house; why you should leverage on this Success!

China manufacturing power house; why you should leverage on this Success!

China has perfected one thing, manufacturing. Many companies across the world have closed their factories and out sourced to China. But why is China accomplishing what so many in the world seem to fail at? Below we look at the major assets (competitive advantages) China manufacturers have, which manufacturers in other countries only dream of.

  • Cheap labor as compared to other countries. $5/hr for Chinese Labor compared to $7-$8/hr for US labor.
  • Raw materials of products are cheap because of 2 factors: One, most of them are produced in China itself. Second, due to high demand they are available at cheapest price.
  • China only has VAT taxation system which allows taxing only value added services. So production is cheap. Plus, China doesn’t charge on export. And the US doesn’t have import duty for Chinese goods. China charges on import though. This makes it hard to access the 1 billion people (20% of worlds population) Chinese market from outside,
  • Costs of compliance to health & environment safety are neglected in China. Thus reducing costs
  • Chinese currency, Yuan, is kept lower than US $. This means that for a low price of US $, the Chinese companies can still make huge profits.
  • Mass production enables china to further bring down costs of production.
  • China has negotiated for free exports zones with many countries.

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So, what does this mean if you are a manufacture here in Kenya? To be complaint and allowed to operate, you will need to pay not less than 12 different licenses. Don’t forget, you will also pay VAT, Excise duty and the corporate tax once you are producing, plus other operation costs. If today instead of manufacturing you start to import same products from China, you will only pay for the goods (This price is usually very low compared to the cost of production you would have footed manufacturing and without margins) and shipping. Nothing more! Don’t be surprised! Chinese goods are not taxed entry in Kenya. Whether this is by design or omission, i don’t know, what i know is China government has gone as far as negotiate free trade zones. This is not only happening in Kenya. Even in the US, Chinese products aren’t taxed

So my question is, why should i or anybody else invest so much to build a production line instead of leveraging on China? I say there are no bad decisions, only uninformed decisions. Thus information is power, and with todays world, information is right on your hands with a mobile phone.

Next, i will start to serialize on how to leverage on Chinese power house with ZERO RISK!



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