Equipment In China: Why It’s A Smarter Strategy Than You Think – Even Now

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Equipment In China Why Its A Smarter Strategy
Than You Think Even Now
China is the worlds factory, a global
manufacturing hub that produces the vast majority
of electronics components used around the world.
Those components power everything from
smartwatches to cars to appliances, as well as
critical medical equipment such as ventilators,
ultrasound machines, hospital beds, and more. But
with incredibly high tariffs imposed by the US
on many of those goods including medical
equipment is it worth it for manufacturers to
stick with their operations in China? The
industry has been divided on that. Youve
probably seen your fair share of stories about
major OEMs moving some of their manufacturing
operations to other countries. This past spring,
as production lines shut down due to COVID, its
no surprise people were contemplating the
benefits of decreasing their reliance on
China. However, does avoiding those tariffs
warrant the huge effort it takes to relocate
operations? After a long year and many tough
decisions, the overwhelming answer has beenno.
For most manufacturers, the advantages outweigh
the 25 tariffs.
So what are the advantages of manufacturing
medical equipment in China?
Advantage 1 Staying in China poses less risk
than moving With change comes risk thats a
fact of life. Switching manufacturing partners,
even within a region, has significant chalenges.
Relocating to a whole new country is even more
time-consuming, expensive and risky, with a steep
learning curve that involves extensive travel,
multiple factory tours, work sessions, and more.
And its a level of risk many arent willing to
embrace. According to Forbes, Manufacturers are
sticking with partners they know and trust,
despite the tariffs. With restricted travel,
de-risking new partners has been incredibly
difficult, so most have opted to work with teams
they know. In addition, China lived through
COVID-19 for months before it impacted the rest
of the world that experience has enabled them
to be at the forefront of developing strict virus
controls. With those controls, the types of
shutdowns that happened in the first months of
2020 are highly unlikely, and medical equipment
companies will be able to count on continuity and
supply chain dependability moving
forward. Advantage 2 A massive, highly-skilled
labour force China has the biggest labour force
in the world, topping out at 783 million workers.
Unlike countries with comparable populations,
like India, they have been a manufacturing hub
for 20 plus years, and have the depth and breadth
of specialized skills required to build the
premium-quality electronics needed for medical
equipment. Advantage 3 Low labour costs Yes,
labour costs in China have been creeping up since
minimum wages were instituted in 1995, with jumps
related to wage increases in 2010 and 2019 and
they are higher than countries like India or
Vietnam. But they are still dramatically lower
than in western countries. For example, in
Guangdong, a key manufacturing region in China,
minimum wage is approximately 2.15 an
hour. Keep in mind that with those marginally
higher wages come skills and experience you wont
find in other regions, with greater speed and
much more efficient lead times than other
countries can provide. Advantage 4 Quality of
logistics and infrastructure Companies can
benefit significantly from Chinas established
manufacturing history. They have robust
infrastructure in place to move everything from
raw materials to finished products quickly and
efficiently through the country and across
international borders. 40 of Chinas roads are
national highways, and they have 2/3 of the
worlds high-speed rail lines, spanning 290,000
km, with trains that can travel up to 250 km an
hour. Add modern cities, world-class airports and
marine ports to the mix, and you have a setup no
other country can come close to.
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According to Wharton Magazine, China has
arguably the best physical infrastructure outside
the western world. Advantage 5 A robust
domestic medical device market The scale of the
manufacturing China does for their own medical
market is enormous, representing close to 100
billion in health care spending. Which means
western companies have access to a market focused
on quality and innovation one they can
leverage for their own production and expansion.
This also means they can draw on the countrys
robust manufacturing supply chain, including
top-quality, cost-effective raw materials that
can be used for local production. Advantage 6
State-of-the-art manufacturing facilities China
has more FDA-registered medical manufacturing
facilities (Class II and Class III) than any
other country apart from the US. That may be why
a number of large medical manufacturers,
including Roche and Johnson Johnson (with Bayer
and Novartis announcing upcoming plans), have
moved not just production facilities to China,
but also RD operations. The Made in China
initiative is also increasing manufacturer
confidence in the quality of Chinese goods.
President Xi Jinping has committed to making the
words Made in China synonymous not with cheap,
low-quality goods, but with top- quality
manufacturing, especially for complex products
like medical electronics. The big disadvantage
25 tariffs have a huge impact on
profitability Thanks to trade wars between the
US and China, tariffs have escalated to punitive
levels. And not only do they include finished
goods, but also metal alloys (including steel and
aluminium) used in many medical devices. From
this perspective, theres no arguing that
manufacturing in countries that havent had this
tariff imposed on them is the cheaper
option. Not all medical items are subject to the
tariff, however. There are a few exceptions,
which include microwave ablation antennas, tube
suspensions used to position X-ray equipment, and
food allergen analyzers. Plus, medical device
manufacturers can apply for individual
exemptions, but that may not be easy several big
medtech firms have had their applications
rejected. As a workaround, some manufacturers
have been routing Chinese-made goods through
other countries, like Vietnam, adding Made in
Vietnam labels to avoid the tariffs. We dont
recommend this tactic both the US and Vietnam
frown upon fraudulent labelling, and any
companies found doing this are likely to face
heavy fines. Negotiations with the US Government
over tariffs continue, and there is hope that
with the incoming administration, the issue will
be addressed in a way thats favourable to the
industry. However, the outcome of the new
Presidency remains to be seen political
analysts predict that Biden is likely to be a
little softer with China than Trump has been. But
despite some initially promising statements,
theres little indication he will lift the
current tariffs. Ultimately, the talk weve been
hearing about restructuring supply chains has
ended up being mostly that talk. Despite
punitive tariffs and COVID complications,
manufacturers have overwhelmingly chosen to stay
put. Theyre sticking with trusted partners, a
skilled workforce, sophisticated manufacturing
capabilities, and low labour costs, which for
most, outweigh the tariffs. Kingstec
Technologies Inc. pioneered contract
manufacturing in Asia and remains an innovative
leader in the field. Building on our original
success in electronic components, over the
decades weve worked with companies large and
small across a broad spectrum of sectors, from
telecommunications to health care to industrial
products. At our corporate headquarters in the
Greater Toronto Area, weve built a team to match
our customers exacting needs in everything from
engineering and quality assurance to logistics
and project management. Source Url
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