Traffic in Shenzhen is not one of the risks to which I refer. I am referring to the big risks to your outsourcing objectives. Here are the main ones:
1. Exchange Rate Risk - As the RMB appreciates against the US Dollar your savings is eroded. Actually, this can be a catch-all category for all cost increases in China that are not global. Right now labor, raw materials, and general inflation are all increasing faster in China than in the US.
2. Political Risk - There is the risk of conflict over Tibet, the Straight of Taiwan, or other issues. There is also the risk that the Chinese government will take some action that otherwise affects the outsourcing viability of your products.
3. Environmental Risks - Boy, we saw this with the earthquake didn't we. There is also the risk of pollution impacting your business, although that would take significantly longer than an earthquake. There is risk in the availability of water. I would also include the loss of electricity impacting your production in this category. The Chinese natural environment is not in good condition, so there are significant risks here.
4. Quality - This is the big one. There is a big risk that you will open that first container and there will be some major problem with your product.
5. Intellectual Property Theft - Another huge one in China. The Chinese just don't respect the value or claims to intellectual property. This is changing, but slowly.
So, what do you do about all these risks? Well, you don't miss-out on all the opportunities in China because of them. Rather, you take actions to reduce your risk and prepare contingencies in case bad things happen.
1. Get Educated - Learn about each risk and assess your level.
2. Prepare Contingencies - We encourage our customers to have plans in place for what they would do if they lost their Chinese suppliers for a significant period of time. Inventory can be a hedge against delays and quality problems. Having alternative suppliers in the US in mind is also a very good contingency step. There are others.
3. Get Help - Obviously having a firm like OPS America on your side in China greatly reduces many of the risks. There are also firms that just do quality inspections. Finally, there are resources in China supported by the US Government, like the US Commercial Service, that can help with risks.
4. Start Small and Gain Experience - I will write more soon about our clients that try to use a new product development project as their first foray into Chinese outsourcing. It's not a good idea. Much better is to start with non-critical items and learn. Then you can move to your key items and more complex projects as you gain experience.
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