In this guest post from Renaud Anjoran, President of China Manufacturing Consultants, he explains in detail at some of the key mistakes that foreign companies who are looking to set up a factory (manufacturing WFOE) in China should avoid...
Don't Fall Into These Traps When Setting Up Your Manufacturing WFOE
The opportunity of setting up a factory from scratch in China has been morphing over the past 20 years but it is still present.
As China upgrades its manufacturing sector, it is now possible to source higher-tech and higher-precision components locally; and finding competent staff and service providers in the areas of new product introduction, quality engineering, maintenance, and HR management has gotten much easier over the past 10 years.
If this is your plan, watch out for the 6 common mistakes CMC's experts have seen foreign companies planning to open a factory in China commit over and over!
1. Choosing the wrong area
Don't pick a city simply because you like it, because it has convenient transportation, or because labor and rent are cheap.
If you end up working with subcontractors that are thousands of miles away, it will seriously slow your supply chain down. If the competencies you need are lacking (e.g. you need to weld stainless steel but no one in the city you pick has previous experience with that), you will fight an uphill battle.
I would also suggest to ask other foreign manufacturers for their opinion. If they complain heavily about the local government or a local mafia, this is a red flag.
2. Hiring the wrong staff
The type of staff you hire at the beginning will impact your company for years to come.
Are you hiring an HR manager from a certain province, who will hire a management team from the same province, who will find workers from that same province? If you set up your factory in an area with many migrant workers, this is to be expected.
Be aware of the pros and cons. For example, some might say: "Henan workers have a reputation for starting fights – think twice before hiring a majority of Henan people." If you find that this kind of advice is being given often about a certain group, it may be worth considering it before making hiring decisions.
Mixing origins can be worse. Make sure you don’t end up with a part of management from Hong Kong or Taiwan (for example) and the rest from mainland China – they often end up in competing factions.
Moreover, are there sufficient local workers that are willing and qualified for your activity? Or will you need dormitories? Try to avoid that expense and responsibility if you can.
3. Starting with the wrong building
Do you need a lot of heavy machinery? You might be better served with a large factory with only a ground floor, like a car plant. Is it mostly light manufacturing that can be cut into a number of lines? A multi-story building will do just fine.
Is it in an area prone to flooding? Is it going to be very dusty because of large construction nearby? Make sure you look for these types of risks. The choice of the building will likely commit you for years to come.
4. Laying out processes the wrong way
This will be easier if you already have first-hand experience running the same type of factory. Plan for the best way to use your different workshops.
We often see a production manager commit the following mistakes:
- Specializing each workshop by process type – this might not be a great idea, especially for high-mix, low-volume productions
- Planning for the short term only. Then, as more equipment is purchased and installed, it simply gets placed where there is available room!
5. Not training the staff
Let’s say you need about 20 assembly workers at the beginning. You find people who have already been doing this type of work before. Great. But it’s only the beginning!
Do they know the products to make? Were they given work instructions and trained to apply them?
Do they know what is critical from a quality standpoint, and how to ensure it is fine?
Do the front-line leaders and the supervisor know how to do their job well, based on your company’s management system? Will they conduct daily meetings in each area, a production meeting and a quality meeting every week, will they chart KPIs on a wall, etc.?
6. Launching production all of a sudden
Are you planning for a ‘big bang’ launch, with all the pieces working smoothly from the start? Don’t count on it. Many things will break and management will likely be overwhelmed. It is far better to start with small volumes and to ramp up as time goes and as problems (both internally, and from suppliers) get worked out of the system.
Have your say on setting up a manufacturing WFOE...
Have some of these issues happened to you? What did you do to avoid them? Do you have any tips for others planning on starting their manufacturing WFOE? Write a comment below and we’ll make sure to respond!
About The Guest Author
Feel free to contact CMC regarding improving your factory operations and results in China here.