O-Two has not offshored all of its production line. Most of its durable goods, such as resuscitators and ventilators, are
still manufactured in Canada. These products are complex, contain significant proprietary technology, and the cost advantage
of manufacturing them in China is not high. The products that O-Two manufactures in China are primarily disposables, such
as masks and tubing. "Mature commodities are ideal for offshoring," says Van Voorst. "The most important driver with these
products is low cost, something China is very good at."
Table 1. Advantages and disadvantages of the three common business models for offshoring to China*
Although O-Two is using a classical offshoring model, it believes this approach is only a first step in its china strategy.
In the future, the company may investigate more complex models.
MODEL 2: JOINT VENTURE
DGel Electrosystem Inc. (
http://www.dgelelectrosystem.com/) is an independent research and development company based in Montreal, Canada, that provides support to life sciences organizations.
The company also produces its own line of diagnostic products. DGel's recent expansion into China has given the company access
to additional production facilities that meet its own needs as well as those of its clients. Thus, DGel has become a North
American R&D center partnering with an independent manufacturing facility in China.
A key factor in DGel's collaboration with its local partner, GSBS Shanghai, is cultivating a solid relationship. Like many
companies that enter Asian markets, DGel found that its local partner's network facilitated the Western company's integration
into the local environment. "Trusting the people you're offshoring to in China is key," says Pierre Sévigny, DGel's CEO and
director of R&D and production. "We have a full-time associate in China [GSBS] that reports to us, and helps us in our communications
with our local partner," he says. "GSBS is our eyes and voice in China."
In the beginning, DGel encountered some cultural difficulties in working with its Chinese partner. "Formality was an issue:
our partners like producing, but did not like the accompanying paperwork," says Sévigny. In China, an important distinction
must be made between external and internal formality. Although governmental bureaucracy is familiar to Chinese companies,
the production of internal documents, follow-up reports, and regulatory approval documentation often does not receive the
same level of attention. As a result, DGel had to take special care to explain the meaning and importance of some of the documents
Novartis plans $100 million R&D center in China
Also, language was a constant barrier, especially in a partnership that relies on trust. But these are minor hurdles, Sévigny
believes, compared to the benefits of having a partnership that significantly increases the company's capacity at a reasonable
cost. "Good preparation is key," he says. "[The project] was slower to start up than we expected, but once we managed that,
it became very efficient. The Chinese like doing things quickly."
So where does China shine? DGel has found that China offers great opportunities in the areas of costs and human resources.
The Chinese workforce has many people skilled in accurate and quality product manufacturing who can handle difficult challenges.
Sévigny says they tend to be fast learners of new technologies, and they adapt to new ways and understand the needs of their