I am personally an advocate of manufacturing in your home country (which for me is the US). There are still many companies that continue to move their manufacturing off-shore in order to take advantage of low labor rates in countries such as China, India, Singapore, Malaysia, and many other countries around the world. There are other countries that are moving manufacturing and operations to more developed countries such as Mexico, where the labor rates are higher, however, there is cost savings is associated with the movement of goods. Interestingly, there also has been a recent trend toward moving off-shore manufacturing back to the home country of the corporation (such as the US). Although the rate of companies moving manufacturing overseas is still much greater than those moving back to their home country — it should be noted that some companies are moving back due to the advantages and disadvantages listed in this post.
Whether you should manufacture in your home country or abroad depends upon your personal situation — which includes the type of product that you will be manufacturing, the quantity required, the timelines for each shipment, the specialization of the product, and where the product market is located.
Almost every type of product is currently produced offshore, which includes electronics, clothing, household appliances, toys, furniture, and automobiles. If one or more of the circumstances surrounding the product will be a challenge — then manufacturing in your home country will probably be the way to go. If you are strongly considering manufacturing a product off-shore, you have to keep in mind the following CONS surrounding off-shore production:
- You will probably have to order large quantities from an off-shore manufacturer. Finished goods are the most expensive form of inventory, and this reduces return on investment (ROI).
- You will probably have to leave a substantial deposit — or pay in full before you receive the product from an off-shore manufacturer.
- Although the cost of an average worker may be lower — you have to consider the actual productivity rate. This could be much lower per worker or per hour than it is in a more developed country.
- Although the labor cost per product, employee, or hour may be lower than in a developed country — often labor costs are only 30% of the total final cost of a product. The actual cost of labor (without other overhead expenses) is often overestimated.
- The cost of shipping from that country of manufacture and to your customer may defeat the cost-savings associated with producing the product overseas. In addition, there are customs fees, insurances, and other types of required licenses.
- You may have a language barrier in dealing with your business in another country. With that said, most individuals in other countries (in business) speak their native language and at least English.
- You will have less control over how your product is produced. You may have to travel to the place of manufacture for on-site inspections, which includes looking at the raw material sources, watching the production processes, inspecting the quality standards, and determining compliance with the local laws.
- Tight timelines can be difficult to meet (manufacturing and shipping can easily take a minimum of 30 – 90 days).
- Many companies that manufacture their products off-shore use foreign exchange to make payment (the currency of the country from which they are purchasing their goods). The rate of foreign exchange fluctuates in open markets.
- You have a risk of product damage during shipment, and a risk in dealing with customs of that particular country.
- You take a risk in assuming that the company will manufacture your product well. If they do not, an international lawsuit is difficult and expensive.
- There are lower labor standards in most countries that have low-cost manufacturing. (Although this always get bad press — you must keep in mind that although these standards are lower than the labor standards in more developed countries, these factories may be providing the local people in that country a better lifestyle than they previously had (although this is not always true, and many of these countries still have a long ways to go with their labor laws)).
- There is a lack of protection for intellectual property (IP). Intellectual property is often the most valuable asset a company has — although it may be difficult to measure monetarily. Protecting IP can be very difficult in some parts of the world. Often, the greater the percent of population living at poverty levels, the greater the risk of not having intellectual property stolen. Be it right or wrong — there are many individuals looking to survive at any cost (especially in less developed countries).
- Depending upon the country of manufacture, you may have to factor in political instability and corruption. In countries with dictatorships (and other forms of government), it is possible that the government could radically change their policies at any given time. Many countries that are becoming increasingly developed also suffer from waves of labor demonstrations and strikes from employees — who are demanding higher wages and benefits. Although I do not blame the employees for their protests — you have to consider that this may ultimately affect the production of your product.
- You may have to compete with the manufacturer’s other customers in terms of priority at the manufacturing site.
- If an issue arises, it may not be easy to fix. Some manufacturing engineers in other countries do not have the same follow through as their Western counterparts. This is due to their culture and society — your culture can affect your creativity and the way that you handle issues when they arise.
- You will have to spend time understanding the constraints of the company that you will work with. The company and/or country may not have the same regulations as in your home country, and you will have to determine the affect on your product (if any).
If you do not have any issues with the above CONS, or can work around these, then the obvious PROS of manufacturing abroad include:
- The cost savings.
- The increased manpower to produce your product. Unlike in the past, many of the workers are technically skilled, highly educated and multilingual.
- You won’t have the stress of hiring/managing workers to produce your product, and the associated staff to manage them.
- You may not need to rent or purchase a large place for your company due to having less workers (which again, leads to cost savings).
- You would have to invest in the necessary equipment for manufacturing your product, purchase and stock your raw materials, and package your product.
Some of the PROs to producing in your home country (which is the US in my case) are:
- You have complete control over your production — you can make one, hundreds, thousands, or millions of units of a particular product. You also have complete control over the level of quality that is produced and maintained.
- You can change manufacturing practices at any time. Design changes with manufacturing overseas take much more time and effort to implement.
- You can have total control of intellectual property, which is the life blood of many businesses.
- If the demand for your product decreases or increases, you can easily adjust the quantity produced. This will avoid having money tied up in inventory.
- You will not have a language barrier if you manufacture in your home country.
- You do not have the risk of product damage associated with shipping — or dealing with customs. You also avoid extensive shipping costs and fees associated with customs.
- You can tailor your production process to meet your required deadlines.
- Your can use the fact that you produce your product in your home country in your marketing campaign.
- The labor standards and practices are fair in more developed countries.
- You can easily participate in face-to-face meetings with your manufacturing team in your country.
- You can feel good about producing your product in your home country, and (if necessary) employing local people to help produce your product.
- The advantage of a country like the US is still the creativity, technology, and marketing — although the gaps are continuously growing narrower between the US and other countries.
- You may be able to create a more efficient manufacturing process than what overseas factories provide and/or use. Many of the off-shoring companies do not improve their processes due to their business of manufacturing low-cost items. You may be able to create a more efficient process for your company locally that may ultimately save money. A successful company often continuously creates new products and improves their processes.
Before you decide on the type of manufacturing that you will be right for you and your business, you have to research the PROS and CONS for your product and company — and matching your budget with these PROS and CONS. There are numerous overseas manufacturers that could be suitable for producing your product. Of course, we all want to create the highest quality possible product for our customers in order to grow our companies. Therefore, no matter what decision you are leaning towards — you will have to research companies, their reputation, competitors, business practices, standards, and history. During this process, it is also advantageous to either produce a prototype using your own manufacturing process, a prototyping company, or by the companies that you are considering for manufacturing. Depending upon your long-term outlook, it may not always be good to go with the cheaper option. Or if you do go with the cheaper option, you may have to strategically invest in engineering, marketing, and other high-paying jobs to support your business locally. The ultimate goal is to grow your business in order to deliver the most value to your customers in the long-term.