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10 Things To Consider When Preparing for Your Factory in China

May 3, 2021

 by David Collins III

factory preperation

Our previous blog highlighted that manufacturing set up in China covers two parts; Site Location and Factory Preparation. We have gone through the processes and tips for Site Location and will run through factory preparation tips to help you open your manufacturing plant in China.

We’ve broken it down into ten essential tips for your factory to have a smooth launch and operation in the short term and the long term.

The ten tips listed below are the bare essentials to preparing your factory. Depending on your company and product type, other steps and considerations need to be handled. Feel free to reach out to our team, and we will be happy to provide you with solutions.

1. Maintaining a Good Relationship With Local Government

Maintaining a good relationship with the local government is essential to a successful operation. Signing the investment agreement is vital to nurturing this relationship early on. 

China’s local government holds jurisdiction to move operations any time they please, without any reasoning. Therefore your factory needs to stay on the government’s good side to prevent discrepancies in the long term. Generally speaking, local governments are typically more than happy when a factory opens as it creates jobs, tax revenues, and cascades throughout the region. So, don’t be afraid of the government; instead, nurture a symbiotic relationship with them.

2. Registering as a Chinese Company

Opt to create a local company to administer operations in China. A few of our clients have shared their concerns regarding the difficulty of starting a company in China (governmental restrictions); however, many concerns regarding conditions are not true. A common way to create a local entity is through Whole Owned Foreign Enterprises (WOFFEs). The local government should be able to assist you with this process easily, and hiring a local lawyer to help through the process is recommended.

3. Review Leasing Agreements and Contracts With a Local Attorney

When signing a lease agreement or contract with local supply chains, review the contract extensively to prevent any misunderstanding from both parties. Have the lease agreement reviewed by a local attorney with experience in the field to make sure you understand what is expected of the contracts.

4. Building up a Factory if You Are Willing to Invest

Building a factory and using a factory that was already there has its pros and cons. It’s recommended to build up a factory if you have decided to invest in buying the land. Building up a factory can be beneficial as it tailors towards your production needs, and efficiency will provide more profits in the long run. For those who are on a tight budget and are not interested in buying land, it’s worth just running your operations on a rented facility.

We cover the complete list of what else to consider regarding site location and land in our blog series about “Factory Relocation”, feel free to give our blog a read to learn more about the difference between renting out a factory or building one from the ground up.

5. Design the “Decorations” and Hiring a Contractor

“Decorations” in a factory are necessary for operations—rooms such as offices, employee areas, break rooms and cafeterias, etc. Choosing a good contractor is vital to prevent cost overruns and delays. Ensure that the contractor completely understands the needs of your equipment and manufacturing specifications before installing anything to avoid inefficiencies and costs.

6. Thinking Ahead and Building Validation

Validation is the process of receiving the certifications, approvals, etc., necessary to build your products.

Ideally, your factory should be ready to go when the systems are in place, and the staff is trained. Thinking ahead by starting the factory decoration, hiring staff, and outsourcing operations before validation helps mitigate any inefficiencies. Doing so can help operations move faster and hit the ground running once validation is achieved. 

7. Hiring Key Staff  

It is surprising how often factories in China do not hire the necessary staff. Bringing in a general manager and the proper financial staff as soon as you can is essential. A general manager (GM) will lead the operation and hire the rest of the team. Ultimately, the GM will be responsible for the factory’s success, so he or she should be part of all significant hiring decisions and set the standard for hiring operators and technicians. Pay close attention to hiring financial staff as having a record of financial information will be essential to gauge costs and help profitability. This allows the factory’s operations in the long run and prevents significant problems with staff and finances down the line.

8. Sourcing From a Local Supply Chain

Ideally, you will have picked your location with the location of the local supply chain in mind. The closer your suppliers are to your operation, the better. Choosing a local supply chain helps cut costs, and sourcing the appropriate supply can help your factory thrive early on. To learn more about the local supply chain, refer to our earlier blog discussing site location. 

9. Investing in Proper Training for Staff and Employees

Employee training is often overlooked by Chinese factories, with many factories often just opting for on the job training. This system may seem like a good idea, but it’s terrible news in actuality. Untrained operators are far more likely to make mistakes and work less efficiently without adequate training. First, establish standard work procedures (Renaud Anjoran’s blog is an excellent place to start) and train staff to the standards set. Spending the resources at the beginning on staff will save the initial investment in better productivity and reduced costs multiple times. 

10. Implementing Factory Systems Relevant to Your Operations

Successful factories are an interconnected network of systems and people. Ensuring that the suitable systems are in place and used the right way is critical to success. Enterprise Resource Planning (ERP), Quality Management Systems (QMS), and maintenance are just three vital systems needed to run operations efficiently. What system works best for your factory depends on your particular needs. Building these systems into the preparation of the factory rather than grafting them on later saves significant time, energy, and production.

Open a factory in China or elsewhere, and not sure how to do it? We can help! Please reach out to speak with one of our partners to see how we can make your operations more effective.

Need expert advice on setting up a new factory in China? Click below.

New Factory Setup in China

Topics: Manufacturing Consulting, New Factory Setup, Manufacturing In China

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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