Product Outsourcing to China: Less is More

International Manufacturing Contract lawyers

James Fallows did a post today comparing Barnes & Noble’s Nook to Amazon’s Kindle (with a nod to the iPad as well), both of which had their prices greatly reduced today. Within that post Fallows had a fascinating post from an unnamed “person with deep experience in the Chinese manufacturing industry.” The quote is essentially a less is more paradox on how the less you already have by way of a manufacturing operation the better off you will be when it comes to outsourcing your manufacturing to China:

The Nook was no ordinary development. Remember, B&N is not an electronics company. They’re not Amazon nor Sony. But what they were able to do was remarkable. Sources in China are reporting that they assembled a small focused team, and brought the product from a concept sketch into production in about a year. Compare that to Amazon and Sony that took three and four years, respectively.

This is probably the best example of what’s becoming the trend for successful consumer electronics product development. Those companies with nothing have everything and those with everything have nothing. This apparent paradox simply means companies with the urge and need to develop products are often better off without an entrenched engineering organization that slows things down and is resistant to doing things in new ways. Those that are free and unencumbered can assemble the best small teams and work with the best ODMs in China and do a better, quicker job.

My immediate instinct was to call BS and recount the dozens of times my law firm’s clients have essentially told us they have been shocked at how little help they received from their Chinese factories on how to manufacture their products. But then I realize I had not heard one of those complaints for a while and that our international manufacturing lawyers are right now are working with a number of companies that really are doing nothing more than putting their US brand names on near generic products, with a few small revisions, coming out of Chinese factories. And some of these products actually are quite sophisticated consumer and even industrial devices.

So this is all causing me to do a re-think and as part of that a re-ask. Have Chinese factories improved to such an extent that they are now manufacturing partners as opposed to just manufacturing flunkies?

5 responses to “Product Outsourcing to China: Less is More”

  1. I’m not sure why Fallows contrasted B&N with Amazon as he did. If he’s implying that Amazon was an electronics company, he’s dead wrong. The Kindle is their first (and only) venture into the consumer electronics business.
    My belief is that it took Amazon as long as it did because (a) they were working with the first generation of product-quality e-ink, and (b) they had to line up the no-contract wireless deal, which was non-trivial. By the time B&N came along, every ODM shop in Shenzhen had ripped open a Kindle, reverse-engineered the key technologies, and was ready to meet B&N half-way.
    And yes, Chinese ODMs are improving very quickly. Just go shopping in Shenzhen some time….

  2. I think we should distinguish between 98% of Chinese manufacturers (below 2,000 employees, no real engineering capability) and a few large structures (some of them have an internal lab, and hundreds of engineers working on R&D).
    I read that the likes of Dell and HP go to Foxconn and say “so, what new stuff can you propose to us?”

  3. Quote: ” Those companies with nothing have everything and those with everything have nothing. ” I like the way you point this out. We can see a lot of innovative and cheaper knock-offs coming from the Chinese market and people are still buying them like a child would buy candies from a candy shop. I guess, it will always be a fight between quality vs cost. Soon, China may come up with a perfect plan that will rival its first world counterparts. When this happens, we can see a great imbalance of the consumer-demand scale. “Made in China” will definitely step up to the next level as many firms learn from their mistakes.

  4. Dan – I make glass beads as a small hobby business. I found a company that partnered up with a Chinese manufacturing plant and they truly are partners. The Chinese manufacturers are the chemists and the American partners work closely to develop a complementary line of glass to what is being developed at the established factories in Italy, New Zealand, US, Germany.
    In general, I haven’t worked with Asia as long as you have, but I do have an overall impression of changes coming from being the manufacturer to becoming the innovators. I think I get that impression from your posts on IP from 4/27.

  5. This is definately true. In my company we take about 1 year for each product from development stage to market ready product. SOmehow, it cannot be reduced when the product is basic, but when a product is complicated and we get the freedom to use the expertise of Chinese suppliers, it is about 1 year.
    When we have to follow the customer’s engineering department, it takes forever, and we have stopped project when we have to deal with enginers, we prefer the general management. They have less expertise, and give more freedom.

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