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The four levels of Chinese factories

Posted: August 27, 2013

by Renaud Anjoran

Over the years, I noticed that it is possible to lump most factories in one of four categories:

  • Level 1: the recently-created and unstructured workshop
  • Level 2: the semi-organized factory that got out of level 1 but that is still struggling to keep quality & timing under control
  • Level 3: the factory that made big efforts to get organized, with the objective of pleasing large customers
  • Level 4: that rare bird that applies lean manufacturing, and that avoids level 3′s rigidity

In this article I am excluding Chinese state-owned enterprises, which are a breed on their own.

Most manufacturers are at level 1 or level 2:

Level 1: the unstructured workshop

Typical profile:

  • 0-200 workers, engaged in simple processing (often assembly)
  • Managed by the owner and his family
  • No quality system, no quality control staff
  • No ability or time to work on complex prototypes before production starts
  • Focused only on “making production” fast and on the cheap
  • Can accept small orders, as long as purchasing components in small quantity is possible
  • Seldom works directly for export customers
  • Count on other manufacturers or trading companies to get business

Result: very low costs and low MOQs, but needs to be followed very closely by customers.

Level 2: the semi-organized manufacturer

This category is a mixed bag. Some export 100% of their output and are very familiar with their market’s quality & safety standards. Others focus more on the domestic market or the most price-sensitive countries (Middle East, India…), and should be avoided by importers from North America and Europe.

Still, it is possible to draw a somewhat typical profile:

  • 200-800 workers
  • Has grown out of the “disorganized workshop” stage
  • Has had to hire a few professional managers because of the growing complexity of operations
  • Has had to hire a few QC employees, to avoid big disasters
  • But still, low concern for quality among staff and managers (in most cases)
  • May have English-speaking salespeople if direct relationships with foreign customers is a goal
  • May still get orders mostly from trading companies and other factories

Result: costs are relatively low, and quality & timing are relatively unstable. The owner’s motivation for your orders still determines their reliability.

Level 3: the organized manufacturer

Typical profile: 800+ workers, owner is often from Taiwan or Hong Kong.

They have tried hard to comply with demanding buyers’ requirements:

  • Every aspect of production is specified in detail
  • Production is checked thoroughly by QC department
  • Hopefully, strong staff discipline to follow the system
  • Customers’ IP rights are more strictly respected

I described this type of company in more details here.

Result: few quality issues, but high indirect labor costs (QC, middle management) and low flexibility.

Level 4: the continuously improving manufacturer

Typical profiles:

  • Part of a large multinational group, or
  • Midsize factory with a process-oriented general manager.

They follow the lean model:

  • Regular improvements to material flow and to each processes
  • Errors are prevented or corrected at the source
  • Staff is trained and supports the philosophy

Result: high customer satisfaction (close to zero defects; production cycle below 5 days) and relatively low cost (high productivity of operators, limited QC staff and rework).

Unfortunately, these companies are a very small minority.They usually do not advertise themselves on B2B directories. They are very hard to find.

What kind of Chinese factories should you work with?

First, a couple of rules to keep in mind:

  • If you work with a supplier that is too large relative to your orders (e.g. you would occupy 1% of their annual capacity), you will be quoted high prices and given poor service.
  • If you work with a small supplier that cannot produce the quantities you order, they will be forced to subcontract production and you will probably be in for a disaster.

My general advice would be as follows:

  • If your orders are very small, you might need to work with a trading company that will place your orders in a level 1 factory and follow production
  • If your orders are large enough to work directly with a manufacturer, but not big enough to be interesting to big factories, go for level 2
  • If your order are considered large and even big companies actively fight for your business, go for level 3
  • If you are in a very quality-sensitive industry and you cannot afford even 1% of defects, spend time and search for level 4 (but you might not find any in your vertical)

What do you think?

Renaud Anjoran is the founder of Sofeast Quality Control and helps importers to improve and secure their product quality in China. He writes advice for importers on the Quality Inspection blog. He lives full time in Shenzhen, China. You can contact him at

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