Have you ever considered moving your manufacturing operations out of China? The trend of reshoring and moving manufacturing operations back home has been a hot topic for a few years and companies often ask MTG, “Should my business leave China?”
The answer is always the same: “Maybe. It depends on your product and what you are trying to do.” Depending on your business, reshoring and setting up a new factory can be a great idea. Not all companies are the same, so the same solution does not apply. Here are eight general reasons and MTG’s experiences on why it may make sense to stay in China and buck the trend of companies rushing for the exits.
Established Supply Chain Infrastructure
China has a Mature Supply Chain
Developed over decades, China’s supply chain ecosystem offers unmatched efficiency and scalability. With tightly connected clusters of raw material suppliers, specialized component manufacturers, and final assembly plants, businesses benefit from reduced lead times, lower production costs, and just-in-time capabilities. Regions like Shenzhen and Suzhou provide access to industry-specific suppliers, ensuring flexibility and fast response to changing market demands.
No other country can compete with China regarding established supply chain infrastructure. Any company would find it difficult to manufacture its products without something produced in China.
Proximity to Suppliers
Many suppliers of critical components—especially in industries like electronics, textiles, and automotive—are concentrated in specialized regional clusters, such as Shenzhen for electronics and Dongguan for textiles. This proximity minimizes lead times and transportation costs by enabling rapid coordination between manufacturers and suppliers. Businesses can source parts, prototype, and adjust production schedules with agility, reducing downtime and inventory holding costs.
One of our clients is setting up manufacturing in the US and will still import electronics and other components from China. However, most other companies prefer to have all their operations and suppliers in the same place. Even if the surface costs are higher, the ease of supply chain management makes staying in China the most effective method.
Cost Advantages
Labor Costs
While labor costs in China have risen over the years, they remain competitive compared to other countries, especially for industries like consumer electronics, textiles, and toys. China’s labor market also offers a unique blend of experience and skill, with a workforce adept at mass production and specialized tasks. Transitioning to other markets with cheaper labor, such as Southeast Asia, can lead to increased hidden factory costs, including lower productivity, longer learning curves, and quality control challenges.
Chinese labor costs are relatively competitive, but focusing on high-volume, low-margin products is less of an advantage. For products like that, leaving China is a perfectly good option.
Economies of Scale
China’s unparalleled economies of scale provide manufacturers with significant cost advantages that are hard to replicate elsewhere. With vast production volumes, Chinese factories benefit from bulk purchasing raw materials, streamlined processes, and optimized logistics, lowering per-unit costs. Moving operations to smaller markets may disrupt this efficiency, as new manufacturing hubs often lack the same infrastructure and production capacity, potentially driving up overall production costs and extending timelines.
Chinese companies have an advantage in economies of scale. Many suppliers we have worked with have found that companies outside of China that are less experienced have difficulty scaling production. Scaling within China is also easier because dozens of factories can likely produce a similar product.
Technical Expertise and Skilled Labor
Specialized Manufacturing Expertise
China has accumulated extensive technical know-how across key industries like electronics, textiles, and machinery, making it a global leader in manufacturing excellence. The country’s workforce offers specialized precision manufacturing, robotics, and automation skills, ensuring large-scale output. China’s ongoing investments in AI, robotics, and Industry 4.0 technologies drive innovation and further enhance its technical capabilities.
Specialized industries are a highlight of the Chinese manufacturing landscape. Most electronics manufacturers do not even discuss the possibility of leaving China now. Shenzhen is still the “Silicon Valley” of electronics. Chinese robotics and equipment companies have made significant gains over the past 10 years and, with a little help, be an excellent resource.
Adaptability and R&D Collaboration
Chinese manufacturers are renowned for their agility and ability to quickly adapt to new processes. They excel in mass production and collaborative research and development (R&D), working closely with global firms to refine designs, prototype new products, and optimize production techniques. This adaptability, coupled with a willingness to embrace emerging technologies like automation and AI-driven manufacturing, gives companies operating in China a competitive edge in staying ahead of market trends.
Many Chinese companies are good at R&D, but it is not uniform. Companies looking for manufacturing assistance should be careful about which company they choose to work with. They are not all created equal. Look for companies with transparent processes like Agilian. Previous clients of ours have used this company to great effect.
Infrastructure and Logistics
World-Class Infrastructure
China's ports, transportation networks, and warehousing systems are among the best in the world. This makes it easier to move products efficiently both within China and for export to the U.S. market.
Efficient Logistics
The infrastructure surrounding China’s manufacturing zones is meticulously designed to support high-volume production and seamless global trade. Major industrial hubs are strategically connected to world-class ports, airports, highways, and rail networks. Ports like Shanghai, Shenzhen, and Ningbo streamline global exports with advanced logistics systems and fast customs processing. Additionally, expanding high-speed rail networks and the Belt and Road Initiative strengthens trade routes between inland manufacturing hubs and international markets, reducing lead times and transportation costs.
If you have ever traveled around China, you know that it has an excellent and comprehensive transportation network. Vietnam and India are progressing but lag far behind China’s transportation systems. Most of the supply chain challenges created by COVID have been resolved, and moving goods in and out of China has never been easier.
Speed and Agility
Rapid Prototyping
China’s manufacturing sector is known for its speed and agility in product development, particularly in industries like consumer electronics. The ability to move quickly from concept to production is a competitive advantage.
Many Chinese companies are excellent at rapidly prototyping new products. However, ordering through Alibaba or MadeInChina is a gamble. Many companies listed on those sites subcontract to other manufacturers that may not meet your needs. We found the supplier for a previous client was outsourcing production to a facility that did not meet the medical standards required by the client. Due diligence is still vital to get the most out of manufacturing in China.
Flexibility in Production
Many Chinese manufacturers can rapidly adjust production volumes, essential for companies with fluctuating demand cycles or seasonal product offerings.
Though companies are improving flexibility, our experience is that many still struggle with rapid changes and flexibility. Traditional Chinese companies like large minimum order quantities and struggle with low volume and high mix. The old mentality of maximizing output and revenue over all other concerns is still prevalent, yet more and more companies are adapting.
Transition Costs and Risks
High Costs of Relocation
Moving manufacturing out of China to other countries—such as Vietnam, Mexico, or India—requires significant upfront investment in infrastructure, retraining, and establishing new supply chain networks. These costs could outweigh any potential long-term savings.
Companies often do not understand the huge costs associated with relocation. They often underestimate the time, money, and effort it takes to reshore. One company told us they did not need any planning: they would simply relocate the machines to the new factory.
Manufacturing Disruption Risks
Relocating production away from China can introduce significant operational delays, quality control challenges, and logistical complexities that disrupt the smooth flow of goods. Transitioning to new manufacturing hubs often involves working with untested suppliers, leading to longer learning curves, inconsistent product quality, and unexpected bottlenecks in production. Companies must also navigate regulatory hurdles and supply chain uncertainties in new regions, further complicating the transition and increasing the risk of missed market opportunities.
A good rule of thumb is to estimate the costs at whatever you estimate them to be, add 50% for the unknowns, and add a few more months to the turnaround.
Technological Advancements in Automation
Automation and Innovation
China’s rapid adoption of robotics, automation and AI-driven manufacturing is transforming its industrial landscape. These innovations enable companies to reduce their dependency on manual labor and significantly enhance efficiency. They also enable manufacturers to optimize workflows, minimize human error, and maintain consistent product quality even at high volumes. China’s government-backed incentives for smart manufacturing encourage investment in automation, making it easier for companies to adopt Industry 4.0 technologies and future-proof their operations.
MTG has noticed more automation than before, and some Chinese companies are using it more effectively. However, it is still not widespread in the smaller and medium-sized facilities that we typically deal with. That is an advantage, not a disadvantage since it means the factory has more room to improve and significant untapped potential.
Government Support and Investment
Incentives and Stable Regulatory Environment for Manufacturers
The Chinese government plays a pivotal role in fostering the growth of its manufacturing sector through a wide range of subsidies, tax breaks, and infrastructure investments. For instance, export subsidies help companies remain competitive in global markets. High-tech manufacturing companies that need support from the state governments are eligible for a 15% corporate income tax (CIT) rate, as opposed to the normal 25% CIT.
Despite being stringent in some areas, the regulatory environment for manufacturers is relatively stable and is tailored to support manufacturing operations. Regulatory bodies oversee compliance within specific industries, to ensure conformity to national standards and testing.
Chinese cities and provinces are desperate to keep more manufacturing in the country, making now an excellent time to negotiate for a better deal. MTG has routinely gotten our clients large tax breaks and subsidies. This is especially true in certain industries, such as medical devices and electronics, which are projected to contribute large financial benefits to China’s long-term economy. It is more difficult for manufacturers of heavy industrial products and painting, as those run afoul of the increased focus on cleaning up the environment.
China's Unique Advantages: A Strategic Manufacturing Choice
While new markets offer opportunities, many of China’s offerings like government incentives and high economies of scale remain unmatched for many industries. China’s ongoing investments in automation and innovation position it as a long-term manufacturing hub, even as labor costs rise. For many companies, a China +1 strategy or selective diversification may offer the best balance, but for others, staying in China ensures efficiency and competitive advantage in an unpredictable global manufacturing market.
Still indecisive about whether to leave China or not? Contact us to learn more about how we can help you.
