Don’t manufacture in the wrong country
At some point in your inventing journey, you will likely need to find someone to manufacture your product for you. You most certainly want to make sure you don’t manufacture in the wrong country for your product.
In this article, we will look at what you have to consider when deciding which country to manufacture your invention in.
What country should you manufacture in?
When it comes to which country to manufacture in, making the wrong decision can easily erase any viability the product might have had. Choosing the wrong country to manufacture in can really hold you back in a serious way, and ultimately be the reason even a popular product fails.
First, you need to decide what is more important to you and your business. Is your goal to grow as large as possible or is it something else.
It’s worth noting that what might seem like the obvious country of choice to achieve your goal might not actually be the right move. It takes a more in depth understanding of the realities of the supply chain to know for sure. Sometimes the right move is to do what seems like the opposite of what you want to achieve.
If your goal is to reduce cost to have the margin to grow distribution as much as possible, manufacturing in low labor rate countries might not always be the right choice. If your goal is to create jobs in your home country, manufacturing in your country might net fewer total jobs than had you manufactured somewhere else. Don’t manufacture in the wrong country, learn and make an educated decision.
Here are some common goals people have that often dictate which country is best for their manufacturing.
Business Growth:
One of the main considerations most businesses think about when they want to be sure they don’t manufacture in the wrong country, is Growth potential.
There is very little substitution that if you want to grow as far and as fast as possible, you have to aggressively keep your costs down and continue the downward pressure as your business grows. Especially as a brand and product just starting out. However, that doesn’t necessarily mean China or other low labor rate countries are the right choice. It might actually be cheaper to make it in your own country, even if you are in a high labor rate country like the US or Canada.
Though it’s likely cheaper to produce the actual product overseas, that savings could be erased once you factor in other expenses such as freight, customs clearance, tariffs, duties, taxes, etc.
Buying overseas might also require larger orders than your cash flow can accommodate. This could cause you to incur debt services costs that you might not have otherwise had to pay. It could indeed be cheaper to manufacture your product in your home country than manufacturing in China even if the piece part costs disagree.
The factors that make certain products better candidates for overseas manufacturing are:
How Much Labor goes into making it:
The more hands that touch your product in its manufacturing, the more labor has to go into it.
With labor rates high in the west and low in the east, Asia has a clear advantage. But if your product is simple, requiring only one or two simple manufacturing processes, high labor rate countries might be a competitive option.
Some manufacturing processes are also more or less labor intensive than others. Injection molded plastic for example is often a mostly automated process once the machines are set up. You can make a ton of units with minimal actual people running the machines.
If yours is a product that you can simply set a machine and let it make your entire product in full, your product might be a candidate for domestic manufacturing.
However, if your product requires additional processes such as finishing your part with a CNC machine, or welding or assembly, those generally require a human to handle for of the process. That adds labor cost, which can really add up in high labor rate countries.
You should also consider if your invention needs custom molds and tooling to make it. If that is the case, customs molds and tooling are usually very labor intensive to make. This makes Asia a much more attractive place to at least make the molds.
A good Industrial Designer can remove cost in the Design by choosing lower cost manufacturing processes or materials. They can also simplify designs so they utilize off-the-shelf parts or just cut out unneeded components in general. You can find an Industrial Designer in our Directory that can help.
How Large is it:
Sea freight cost is mostly calculated by volume. CBM (Cubic meter) to be exact. And there are only so many CBM in a shipping container. The larger your item is, the less of them might fit per CBM. This means the cost of that CBM is distributed among fewer widgets. Smaller items, or items that nest together well will naturally have lower freight costs than larger items.
This is also why it is so important to not design your product or its packaging any larger than it absolutely has to be. If you think about it, reducing the size of how your product ships by 25% can reduce your freight cost by up to 25%. Doing this also often reduces cost in other ways, such as using less material and otherwise just being easier for everyone down the line to handle it. Which can shave cost down the line as well.
If you are shipping by air, Freight is mostly calculated by weight. Though volume is also consider for larger items. If you can shave weight out of your product, you will save on air freight costs. Even if you don’t ship by air, this could also help in other ways.
And again, less material can mean less cost.
What is the Duty or Tariff rate:
Duty or tariff rates can be highly dependent on the country of export and the country you import too.
Buyers in the US for example might have to add 29% to the cost of the goods from China, while buyers in Canada might only have to add 2%.
Every product is different, and every country can also have different rates and costs. Regardless, this is a cost that can often make a huge difference. Tariffs are a cost of business that many people forget to consider.
You can find a good Customs Broker/ Freight Forwarder in our Directory that can help you with choosing the right HTS code to classify your product as.
Quality:
It used to be that if you wanted top quality, simply having your product made in a western country known for quality craftsmanship was the way to go. You wouldn’t think of manufacturing a medical device in China. You only went to China if quality wasn’t as important for the product.
Though there is still some truth to that, times have really changed in both regions. If you don’t want to manufacture in the wrong country, quality isn’t necessarily as important a deciding factor as it used to be.
Getting poor quality from western countries is now just as common as getting high quality from eastern countries like China. The reason is many western countries have been forced to compete with eastern countries. This downward pressure on price has forced western many manufacturers to cut corners and otherwise compromise on quality. While at the same time, eastern countries have really stepped up their game. That’s not to say every manufacturer has changed though.
The point is just that you can in fact get higher quality out of China than many manufacturers in western countries.
Quality starts with you
You must also recognize that quality is driven by the brand more so than the manufacturer.
Receiving a higher quality product from a manufacturer, regardless of which country, starts with how good of job you do defining the requirements.
It also means confirming that your manufacturer’s machines and equipment are actually capable of achieving such tolerances. To achieve the highest quality, it can sometimes help to be involved in your supplier’s supply chain.
Finding and working with high quality suppliers in any country comes with different considerations than standard or low-quality suppliers. If you want the highest quality, that has to start with you.
What quality does your invention need?
It’s also important to understand what quality your invention actually needs.
If top quality costs your customer $10, while acceptable quality is $7. That $7 product will outsell the $10 product by a substantial margin all day long.
There is a common missperception that people will pay more for higher quality. Though that is certainly true for the types of products where higher quality matters, it is not true at all for types of products where good enough quality is good enough.
You can usually go a lot farther by using your branding to portray quality instead of actually paying for higher quality.
Customer care
A similar thing can be said about the quality of the responsiveness of the supplier.
If you seek the best suppliers to work with, that is no longer an eastern/ western thing anymore. It’s actually usually easier to find a supplier that is easy to work with in China than it is in North America.
Yes, it is in fact usually harder to work with western suppliers in your own country than it is to work with eastern suppliers in an entirely different country and culture. It’s just an unfortunate reality of the global supply chain.
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Create Jobs:
If your goal is to create jobs and economic opportunity in your country, you might be surprised to hear that the best way to do that could indeed be manufacturing in a different country.
This has to do with the different tiers of Distribution and which channels you plan to sell your product. Or better yet, how many more tiers you can cut in if your cost was less.
Let’s look at two different manufacturing scenarios.
Manufacturing in Western Countries:
If something is manufactured in North America for $10.00 for instance, the raw material supplier likely made $2.23 per unit in profit. The manufacturer who then turned that into the widget likely made $3.33 per unit in profit. Then if the brand sold that widget to the end consumer for $15.00, then they likely made $5.00 profit. (Not including overhead and other costs of course)
Lets say through price testing, you determine that $15.00 is the maximum the market is willing to pay for the widget without a steep decrease in sales. Let’s say this price point results in about 100,000 units sold per year or $1.5M in annual economic benefit distributed between the raw material company, the manufacturer and the brand.
Manufacturing in Low Labor Rate Countires:
Now, it is very reasonable depending on the product, that the brand can get their cost down to $3.50 if they manufacture in Asia instead.
At $3.50, they have enough margin to cut in thousands of retailers all across the country (And the world). They likely have the margin to also cut dozens of distributors into the mix as well and still cut the price to the consumer by quite a bit.
Cutting in retailers and distributors alone is often enough to increase sales by an order of magnitude. But if you factor in the steep cut in cost to the consumer and the effect that naturally has on sales, we are talking tens of millions in economic benefit to the home country you wanted to help.
Think of how many jobs that would benefit. From the retailers, to the distributors to your brand itself. And of course all the indirect services, infrastructure and trickle of economics. The benefit to the home country is clearly greater by manufacturing overseas in this case.
The point is, manufacturing things overseas can often improve the viability of a product. But it can also make an un-viable product, now a viable product by allowing for a price point that might not be possible if manufactured in a western country.
Avocados can indeed be grown in Minnesota. It just requires significant investment in indoor growing infrastructure. Though it is technically possible, the cost per Avocado would be so high that no one would buy them. It makes more sense for Minnesota to outsource their Avocado production to countries that are much better suited to grow them. And as a result, avocados are readily available in nearly every grocery store.
The same economic realities apply to manufacturing.
Infrastructure:
It’s also important to understand the differences in manufacturing and supply chain infrastructure between the west and particularly China.
When people say manufacturing overseas, they mostly mean China. Though there are likely comparably priced suppliers in other Asian countries, China is hands down still the best bet and there are multiple reasons for that.
Geography:
China’s supply chain is specifically set up to be as efficient as possible geographically in order to most efficiently leverage the country’s natural and human resources.
For example, If you want Electronics, Lights, Ceramics, Shoes, etc. You might be best suited to work with a manufacturer in Guangdong. If you are looking for Textile clothing, Leather, Household appliances, etc. You might look in Zhejiang.
These product types are positioned geographically to best utilize the country’s natural and labor resources. Though you can find manufactures of nearly any goods from any region within China, they likely aren’t as efficient or lack in other ways.
Though there are certainly regions in the US that are more known for certain industries than others, that is generally on an enterprise level industry. Which isn’t quite as important to the individual inventor size products.
In China, the vast majority of international manufacturers are strategically located close to a major shipping port. This significantly reduces cost in inland freight and otherwise handling their export related expenses. While in countries like the US, there is often a lot of distance between manufacturers and their customers. Adding extra shipping time and cost as well.
Business Process:
Asia has been manufacturing for many decades with an emphasis on efficiency and cost savings. Though they started with low quality items, they have used that experience to drastically improve their abilities over time with higher quality items.
They have been really stepping up their game as being the global manufacturing leader they are. This has also lead to the creation of a robust support network for their supply chain that is second to none.
Alibaba.com makes it incredibly easy to find exactly what you are looking for out of China. No other country has such a comprehensive and effective system of helping foreigners find what they need.
That platform also helps those supplier better serve international buyers in a very powerful way. Though there indeed may be better suppliers suited for your product in even other Asian countries, finding them and working with them can be significantly harder than China.
This is why it is usually easier to work with suppliers in China than it is in the US, even if you yourself are in the US. Regardless, there are differences in culture and manufacturing practices that need to be considered.
Cultural differences in business practices can be a struggle sometimes. What might be standard business practice in the west, could be rare in the east. You can find an experienced Sourcing Agent in our Directory that can help you with this process.
Politics:
It’s not to be overlooked that some people have different political reasons for perhaps not choosing Asia as a manufacturing partner. Particularly China.
In which case, that decision is a personal one. If that is you, then you already made up your mind. If you are not aware of those reasons, it might be worth your time to research them to see if that might factor into your manufacturing strategy.
The concerns are real, but it is absolutely critical that you understand who is giving the points of view and how realistically they understand the Supply Chain and Distribution economics of the world.
Most people who advocate not to have your goods manufactured in China make great points. But they rarely have any idea how the Supply Chain and Distribution systems actually work. They don’t care in the least if it ruins your business’s chance of success entirely. And it absolutely could.
As well, they often have a completely unrealistic opinion of what manufacturing in your own country actually means for your business or the local economy. Just make sure you make your decision based on what is actually true vs what someone that doesn’t know what they are talking about thinks.
Conclusion:
In the end, there is a lot to consider if you don’t want to manufacture in the wrong country. Which country you manufacture in depends on your product and what is important to you and your business.