While low-cost manufacturing and the world’s biggest potential market have mostly driven China investment in the past for international firms, setting up an integrated engineering and sourcing team in the country is a key potential competitive advantage not just for Fortune 500 multinationals but also mid-size US and European companies.
The rapid rise of Chinese universities, the millions of students who have gone overseas for higher education and returned, the vast educated population, and the emphasis on STEM education have all resulted in the world’s biggest talent pool in engineering and related fields.
The country now produces the largest number of hard science graduates at both the undergraduate and graduate levels. PRI’s headquarters are in Beijing, home to more than one million university students. Of those students, 35 percent are in hard science subject areas, forming an exceptional pipeline of engineering talent. PRI also has an office in Shanghai, home to another large university population and the largest concentration of research and development centers in China.
China’s last 40 years as the world’s workshop means innovation is not limited to just computer algorithms and software development but also includes manufactured goods. Chinese engineers often gain early-career experience working on metal cutting equipment, for example, and in the design of electrical or mechanical products.
PRI has assisted a number of our clients to set up design and engineering centers in China, taking advantage of China’s growing, low-cost engineering talent pool. Adding China engineering and design capabilities to a team that does sourcing in country offers three benefits: a quick start up at comparatively lower costs, an increase in speed in the engineering and design process, and a natural base for local sales.
First, a China engineering and design center can be accomplished with a quick start up at low cost. While the increasing cost of direct labor in China’s factories over the past decade has seen the country graduate from the list of the world’s lowest cost manufacturers, China continues to offer exceptional value to US companies as a source of high-quality, low-cost engineering talent. Total compensation costs for engineers in China still average about one-third that of those in the United States.
This abundance of engineering talent also allows for a quick start up of operations – a capable partner on the ground in China like PRI can find the right talent that fits the needs of the foreign company, assist in all legal, HR and finance functions, and locate the engineering and design center in an ideal location, whether near to other engineers, in factories and/or with access to laboratories or key suppliers.
One US company has partnered with PRI for integrated sourcing and engineering services for their non-automotive aftermarket parts business. The company first sends parts samples to PRI in China, which arranges for material testing to be done to verify the composition. This is very important to ensure the final quotation is accurate.
Next, the engineering team creates detailed drawings of each part and sends them to the customer for review. After the drawings are approved, the purchasing team prepares pricing for each part and gives the information to finance to prepare a quotation. The quotation package consisting of the material test results, engineering drawings, and quotations (including molds if necessary) are then sent to the customer.
After approval from the customer, PRI’s sourcing team then works with local suppliers to manufacture the parts. When the parts come in, quality control inspects them first before they are put into the warehouse. Finally, the project leader will coordinate with the logistics team to ship them to the USA.
In a short time, PRI has worked with this company on more than 100 SKUs and completed 130 pages of drawings.
Second, PRI has found that when used in tandem with a firm’s existing engineering resources in the US, a China engineering center increases the speed of product design 2.5x.
The time zone difference between the US and China allows for a company’s engineers to be constantly working. Engineers, like most people, prefer to work during the day. The US team will work on a product design and at “quitting time” will send over their day’s work to the China team. The next day, the US team will arrive to the office with a new iteration of the design, which had been done “overnight” by the team in China.
When speed is important, for new product design for example, the US-China engineering collaboration has proved to be greatly beneficial for those companies that have implemented this system.
Having struggled to hire enough qualified design engineers in the US, one American company partnered with PRI to establish from scratch an engineering center in China. Starting with one employee in China, the company went through two phases of expansion, eventually hiring a staff of seven full time engineers that now does a large portion of the firm’s design work for the global market.
Third, the China engineering centers often become natural bases for local sales. China’s economy accounted for 16.8% of global GDP in 2020 according to Moody’s Analytics, meaning that proportionally sales in China should be at least 15 to 20 percent of total worldwide sales for international companies.
China’s market, while vast and growing, is also highly competitive and demanding. The China market demands some levels of customization of almost every product and service. As sales opportunities present themselves in the local China market, the engineering centers become a natural place to host and train application engineers – a must when you do local sales. PRI has helped a number of mid-size US companies set up engineering and design centers, which have led to expanded opportunities to do local sales in China.
About PRI: PRI Management and Consulting helps companies thrive in China because we think like owners. With offices in each of China’s major economic super-regions, we help you develop growth strategies, hire and administer some of the world's best engineering talent, build your supply chains and sell your products and services to the world's fastest growing and biggest market.
To schedule your free consultation with PRI’s experienced team of consultants and managers, write to Jonathan Kendrick at email@example.com
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