Nowadays, more and more companies choose to source from low-cost countries. By outsourcing production to factories in these countries and then selling in your own country, you can make higher profits at lower manufacturing costs.
Today’s post focuses on low-cost country sourcing information, including:
Low-cost country sourcing: examples and advantages
Low-cost country sourcing (LCCS) refers to the process where businesses located in high-cost countries buy products from low-cost countries.
For example, a US-based POD company may choose to buy cotton blank T-shirts from China and sell them in the US. By investing the same amount of money, $1,000, the company is able to purchase more of the same T-shirts from China. This US company is using the LCCS strategy.
Major advantage: enjoy low production costs
Countries with abundant and low-cost labor and raw materials often have lower manufacturing costs than other countries. Companies can buy high-quality products from these countries while enjoying cost advantages.
In addition, some large-scale companies choose to build factories in these countries. For example, Lego set up factories in Jiaxing, China as early as 2016. Tesla established a super factory in Shanghai, China.
What are the low-cost sourcing countries?
The most popular low-cost countries in the world include China, India, Thailand, and Vietnam. Here is a list of these four countries, each with its advantageous products.
China
China produces many commodities for daily use, such as electronic products, clothing, shoes, toys, etc. Products made in China are exported to various countries in the world.
Many factories in China are concentrated together to form industrial clusters, which makes production more efficient and convenient. Guangdong province and Zhejiang province are the two main industry clusters in China.
- In Guangdong province, Huaqiangbei in Shenzhen is China’s capital of electronic products. Chenghai is the world’s capital of toys.
- In Zhejiang province, Yiwu is the city world’s largest wholesale center for low-value and daily used products.
Click to enlarge the “China industrial cluster map” (source from Ministry of Commerce, PRC)
Vietnam
Vietnam’s manufacturing industry benefits from preferential policies implemented by the Vietnamese government. The main industries include textiles, furniture, handicrafts, clothing, and bags. Electronic products are also a major export product of Vietnam, but one should not expect to find a huge OEM electronic product supply chain ecosystem like that in Shenzhen.
The industrial clusters in Vietnam are mainly distributed in Ho Chi Minh City.
India
India’s manufacturing industry is widely distributed and includes multiple fields such as textiles, software, pharmaceuticals, chemicals, etc. Industrial clusters are mainly distributed in cities such as Mumbai, Bangalore, Delhi, Kolkata, and others.
Thailand
Thailand’s manufacturing industry is mainly composed of small and medium-sized companies, but there are also some large companies, such as automobile and electronics manufacturers. The industry in Thailand mainly produces goods such as electronics, machinery, chemicals, food, and textiles.
Among these 4 countries, China has the most complete industrial production and the most diverse range of products. That’s why 80% of consumer products in the world are made in and exported from China.
Six tips on managing low-cost country sourcing
Verify suppliers in advance
Before mass production, it is important to assess the reliability of your supplier. You can ask questions and communicate with suppliers to determine their familiarity with the industry and your product. For complex customized projects, you can evaluate their ability to propose timely solutions. After receiving samples, you can carefully check the quality and other aspects to ensure they meet your requirements.
If necessary, you can sign a NNN or NDA with the factory to prevent the disclosure of product design and other confidential information.
Estimate sourcing time
You should carefully consider choosing which shipping solution as it will affect the entire sourcing time. Air and express delivery will be faster, while sea freight will be much slower.
Additionally, if you are dealing with complex custom projects or developing a brand-new product, the lead time may be longer.
Therefore, it’s best to estimate the sourcing time to avoid receiving the goods too late to influence your business.
Calculate total costs
Product price and shipping cost are the two main parts of the total cost, and their prices are relatively transparent.
- For product prices, you can get a reasonable price range by comparing multiple suppliers’ quotes on platforms such as Alibaba.
- For shipping costs, you may get different quotes from multiple freight forwarders.
It is important to combine these costs and compare the total cost.
Arrange quality control
Before your goods leave the purchasing country, it is best to check the product quality with the help of a sourcing agent or a third-party quality inspection agency. This is important because returning goods is a complicated process and can consume a lot of time and money.
For most low-value ordinary products, a defect rate of 5% is acceptable. But for high-value products, sometimes the defect rate should be 0%. If you have doubts about the quality, you’d better explain to the supplier your defect resolution and compensation requirements.
Know different cargo standards
Export restrictions on goods vary depending on the country and cargo types. For example, more than 20 countries in the world, including India and Malaysia, have implemented export restrictions on grains such as wheat, corn and tomatoes. However, these products can be exported from China.
Therefore, you’d better consult your supplier or freight forwarder in advance to see if such goods can be exported.
Buy from politically stable countries
It’s best to avoid sourcing from countries with unstable political situations. Because you may face risks of production stoppages due to worker strikes, war, or other factors. This means that not only will you not be able to make a profit, but you’ll also lose your investment in production.
JingSourcing: your best cost sourcing partner in China
If you choose to source from China, you can work with a trusted purchasing agent like JingSouring. We can handle everything for you, from supplier selection, production follow-up, quality inspection, customs clearance, and arranging shipments, making your importation process smoother and more efficient.
Get suitable suppliers efficiently
There are many ways to find suppliers now, like Alibaba. However, you may spend a lot of time and effort verifying suppliers and finding that the products they make are not what you want.
But don’t worry about this problem when you work with JingSourcing. They provide more direct solutions for your product sourcing needs. They assist you in negotiating favorable prices with their cooperative suppliers, obtaining samples, and comparing them at local factories. Then, they provide you with the best quotes and samples.
Save money in your position
Whether you want custom packaging & existing items or new product development, we will break down costs before mass production so that you can have a clear understanding of every investment. We’ll also stand in your shoes and help you save costs to the greatest extent.
For example, suppose you have a custom toy that contains many plastic parts, we will carefully evaluate your project and tell you which parts can directly use existing inventory, which can be made by modifying existing molds, and which require new molds. Because compared to making new molds, this way can save a lot of money.
In addition, we can also choose the appropriate technique based on your product. Because different techniques have different prices. And some techniques, although expensive, the effect is not the best.
Arrange strict QC
We have our own warehouse and professional inspection staff and can provide general and full inspection service according to your requirements.
If you choose our Pro Plan and use our selected suppliers, we will fully guarantee the quality of your products. This includes free replacement of defective products once they are found in our warehouse. What’s more, we will replace or compensate you for defective products found 15 days after you receive the goods and provide evidence.
Frequently asked questions
What are the risks of low-cost country sourcing?
Sourcing from low-cost countries offers cost savings but comes with challenges. Language and cultural barriers can cause misunderstandings about requirements, but hiring sourcing agents can help. Quality and intellectual property protection are also concerns, needing legal safeguards and thorough checks. Political instability and unrest can disrupt supply chains, so careful risk management and planning are essential.
What is the low-cost country sourcing strategy LCCS?
Low-cost country sourcing (LCCS) is a strategy where businesses source materials, products, or services from countries with lower labor and production costs to reduce overall expenses. This approach aims to save costs and improve profit margins while maintaining product quality.
