Different Risks of Doing Business with China

Overview

Risk comes in all shapes and forms. Risk is present domestically and internationally. Occasionally, the risks outweigh the benefits of outsourcing to China. However, in the vast majority of cases China wins.

Article Highlights

  • Strategic risk is unavoidable and connected to a decision itself.
  • Operational risk can be mitigated by corresponding processes.
  • Compliance risk is usually associated to political or regulatory changes.

Strategic Risk and China

To mitigate against strategic risk, the best method is through planning. Strategic risk occurs when a business plan is implemented unsuccessfully. In the context of China, this could mean a fragmented implementation of moving manufacturing into the country from abroad. Teething pains occur with smaller projects like moving manufacturing to a new facility. Moving the factory internationally creates a higher probability of something going wrong.

Dependant on the size of the company, this risk can successfully be managed by partnering with an established firm specializing in manufacturing in China. Different cultures and

Operational Risk and China

As a broad overview. Operational risk appears through inadequate processes, people or systems. Looser control exercised by outsourcing operations to China does increase the level of operational risk. Workplace safety is a fitting example. Lower health and safety standards in China may adversely affect your companies brand. Large corporations have received frequent criticisms about their factories in China, with Apple coming under the spotlight for the environment at Foxxconn.

Professional companies exist to ensure operational risk is reduced to a minimum.  Perfection can never be achieved; therefore, operational risk will always exist. Companies generally accept operational risk as a cost of business. Before moving operations to China, weigh up the perceived benefits against the increase in operational risk. In the majority of cases, the advantages of China shine through.

Compliance Risk and China

The major concern for companies outsourcing to China should be compliance risk. Failing to meet industry regulations can result in significant financial penalties. Cheap manufacturing can result in corners being cut. Quality is usually the first. Chinese manufacturers have been known to fake trade certifications. Failure to meet set standards could result in lawsuits and reputational damage.

Compliance risk comes under corporate governance. Comprehensive risk assessments should be undertaken prior to any outsourcing. The majority of Chinese factories are reliable, reputable and compliant. However, due diligence must always be carried out to mitigate any risks of rogue suppliers.

Closing

Risk comes in all shapes and forms. Risk is present domestically and internationally. Occasionally, the risks outweigh the benefits of outsourcing to China. However, in the vast majority of cases China wins.

Planning and due diligence are the two greatest tools to mitigate risk. Implementing a plan and continuous monitoring are also required to keep risk levels under control. Outsourcing manufacturing ultimately makes managing risk much harder. However, many firms have successfully used companies based in China to their advantage. Visiting factories and performing checks is difficult if you are based thousands of miles away. Partnering with an established manufacturing specialist can enable your firm to benefit from China through mitigating risk.

Related Posts