Doing Business in China: New note of caution sounded by major U.S. manufacturer

Patrick Burnson, Executive Editor -- Logistics Management, 3/18/2008

SAN FRANCISCO—While sourcing manufactured goods from China can still provide U.S. businesses with healthy margins, the risk involved is ramping up substantially, said Saji Daniel, president and CEO of Tradex International Inc., the largest supplier of general purpose disposable gloves in the United States.

“Maintaining transparent relationships with manufacturing facilities is crucial to ensuring consistent quality and timely delivery of product,” he said, “but this can be difficult due to the language barrier that still exists.”

In an exclusive interview with LM, Daniel said that “the lingering communistic political environment” can also create hurdles with property rights and other freedoms taken for granted in the U.S.

“In addition, prospective manufacturers should thoroughly analyze the effects of China’s industrial metamorphosis from commodity goods to high-tech products will have on their plans,” he said. “Labor costs are rising quickly as demand increases and access to higher-skilled jobs grows.”

Tax incentives, once in place to promote the export of low-cost goods, are quickly disappearing, said Daniel.

“As China is not considered by the U.S. government as a ‘government security program’ nation, companies also lose duty-free benefits available by importing products from eligible developing countries,” he said.

Finally, said Daniel, it is essential to consider the economic climate.

“The weakening U.S. dollar has made imports significantly less profitable as the purchasing power of the greenback has decreased against many of the world’s leading currencies, including the Chinese Yuan,” he said. “Plus, with over 6,200 miles separating Beijing and Los Angeles, recent exponential increases in crude oil prices must be weighted heavily.”

On the bright side, said Daniel, current economic conditions favor exporters more than in the past as the U.S. dollar weakens and demand for commodity goods by Chinese consumers grows. 

“Economic trends aside, concerns such as customs clearance and freight handling tend to be very similar for importers and exporters alike,” he said. “In regards to the United States specifically, export documentation is markedly simpler than import documentation as is to be expected.

Editor’s Note: Second part of this interview will appear tomorrow.