Question: What is one major challenge I should be aware of before manufacturing my product abroad?
The following answers are provided by members of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Quality assurance is a popular topic when it comes to manufacturing abroad, and for good reason. It is very easy to lose product quality while manufacturing elsewhere. Things usually start off OK, yet as time goes on, the quality can fade without your awareness. To better prevent this from happening, ensure you have quality clauses in your contract and you are always testing devices on your own.
Fixed costs of producing overseas are lower, often by 10 times! But you still need to manage your cash. Production takes longer (you’re not there to push the team); and of course you need to transport the products across an ocean. At first you’ll pay 100 percent upfront, which means you might pay for product you can’t sell for 90+ days. And if your client doesn’t pay you on time, you’re in serious risk.
You’re going to have to order LARGE quantities if you’re going to make it worth it to your business. It’s going to cause a bit of a cash crunch. When I used to own Organize.com, we’d sometimes have to order 10,000 units to get a price break. This can be hard for a business as most products take 2-3 months to reach the U.S.
Besides the cost of the product itself, the logistics of getting the product to you or your customer is probably going to be the next highest cost – occasionally higher. If not researched properly, this cost will likely be the greatest shock. Additionally, costs can range dramatically across various service levels and even various providers of similar services.
Variables Out of Your Control
We recently had a client product launch where we were waiting on product to arrive before launching the website and other sales efforts. The ship arrived and was in port in LA but then there was a dock worker’s strike, so the boat sat in harbor and was unloaded later than unexpected. There are a lot of surprises that you can’t control or plan for along the way, so be prepared to be flexible.
You’ll want an excellent lawyer who has set up these types of relationships before. And depending on the situation, you might also need local counsel to ensure that you are in compliance with that country’s laws and regulations. This can be a huge headache and expense, so make sure to educate yourself about potential legal costs.
Choosing the Right Manufacturer
When manufacturing abroad, you are exchanging reduced cost for higher risk and less control. The most critical choice an entrepreneur must make when manufacturing overseas is choosing the right manufacturer. Vet prospective manufacturers and select the factory with the best reputation. Be sure to inspect the factory or outsource an audit. Consider social and environmental implications.
Understanding the Host Nation’s Culture
Corporate giants often take advantage of developing countries. Before moving, you need to understand how the company will influence the new community by acknowledging the host nation’s business climate and culture. To make this easier, choose a foreign partner that shares the company’s values. However, the adjustment period will be demanding, so your team must be ready to learn.
Relationships can be more important than profits. The best advice is this: go to your factory and spend a lot of time there. Eat with them, meet their families, get to know them. This establishes respect and a shared sense of responsibility. The factory is less likely to be afraid to bring you potential problems if they feel like your business is built on a partnership as opposed to a transaction.
Protecting Your Brand
Manufacturing abroad, especially in Asia, could be detrimental to the integrity of your brand. So much of what we buy comes from China and, while people are generally accepting of items like electronics being made there, there’s a trend towards domestic manufacturing for personal care items. If your product goes in someone’s mouth or on their body, think twice before producing it abroad.
Time Zone Differences
One of the biggest challenges manufacturing products abroad is time zone differences. Most, if not all, of your most important calls with manufacturing specialists will occur based on the availability of the manufacturer. This means if you are on the East Coast you’ll likely be doing calls very late in the evening or during the wee hours of the morning. China is 12 hours ahead of Eastern time!