For tech startups, one fundamental misconception about overseas manufacturing stands out above all else: Cost. While startups many times manufacture overseas because they believe it to be cheaper, many fail to look beyond that initial assumption.
However, when all is said and done, and the full breadth of design, manufacturing, and delivery activities are taken into account, manufacturing abroad typically does not result in financial benefits. Instead quality, communication, and logistical challenges quickly eat away at what initially looked like attractive cost savings.
When thinking about the financial implications of your contract manufacturer’s location, a key set of questions should inform your decision:
- What size organization will best suit your needs?
- Is your intellectual property sufficiently protected?
- Will an offshore manufacturer meet time to market requirements?
- Can QA requirements be met now and in the future?
- Will your manufacturer help you get more value from your employees?
- What impact will communication challenges have?
- Will currency fluctuations and related issues arise?
- Multiple vendors or a single, end-to-end partnership?
What Size Organization Will Best Suit Your Needs?
The weight a manufacturer gives your business, and thus the upfront and ongoing resources they will provide, is an important initial consideration. Even startups with significant initial production runs may face serious challenges receiving the attention they need from overseas manufacturers. This is simply because the landscape is dominated by very large organizations.
Furthermore, the lack of attention given to your product can result in downtime, quality issues, and other factors that have a real impact on your bottom line.
The size of U.S.-based operations, however, vary considerably. This means that, depending on a startup’s size and other circumstances, a new business working with a U.S. manufacturer can more reasonably expect to find a provider that suits their needs.
Is Your Intellectual Property Sufficiently Protected?
Is your intellectual property safe with a manufacturer on the other side of the globe? Given the history of IP protection issues in China and other manufacturing centers, this is a real concern for new startups – but a new business is too often willing to overlook this in order to achieve lower production costs.
The issue has a long history and is still – it will come as no surprise – very much in the forefront today. The U.S. Chamber of Commerce’s 2018 International IP Index ranked China 25th out of 50 countries when it comes to protecting innovations through rights laid out by law.
The U.S. ranked 1st.
Working with a U.S. manufacturer means protecting your business’s most valuable asset: Your intellectual property.
Will an Offshore Manufacturer Meet Time to Market Requirements?
It’s important to note that domestic solutions many times allow a business to bring a new product to market significantly faster than overseas providers. This is not solely due to geographic difficulties, but also because an end-to-end manufacturer will have shorter lead times when inevitable changes arise.
Nothing impacts a business’s bottom line more directly than a product idea that is not being brought to market. Doing so rapidly is a hallmark of U.S. manufacturing.
Can QA Requirements Be Met Now and In the Future?
Without your team present it’s difficult to ensure QA requirements are being met in real-time. Real partnerships based on trust are fostered through close collaboration and proximity. Without these partnerships, quality can fade over time. That is to say, even if your team ensures QA requirements have been met for an initial production run, future shortcuts or other unseen process changes can sometimes lead to quality issues.
A business should also be aware of additional efforts needed to ensure QA requirements are met from afar. Travel, downtime, and other costs can quickly have a serious impact.
Additionally, as consumers experience increased issues as quality fades, a brand’s reputation – and sales – can be affected.
Will Your Manufacturer Help You Get More Value from Your Employees?
By virtue of their working closely with a domestic manufacturer, your team will learn more about the manufacturing process. This in turn can inform future product design and innovation. For example, knowledge sharing with a manufacturer can help a tech startup ensure that Design for Manufacture and Assembly (DFMA) practices mean future products are designed – from the earliest stages – with optimal manufacture and assembly in mind.
Additionally, a U.S. manufacturer with an approach based on partnerships is many times able to provide all disciplines under one roof, allowing your employees to work with a single fully-informed team.
All this means that, again, your team will gain valuable insights while freeing up time to focus on core skill sets that help ensure future financial viability.
Will Communication Challenges Have an Impact?
Many businesses who work with overseas manufacturers face a number of communication issues brought on by language, distance, travel time, and longer-than-expected holiday delays.
It’s important for operations teams to stay in sync with the manufacturers they work with. That means the 12 to 15 hours that Shenzhen is behind U.S. time zones can have a real impact. The true costs associated with overseas manufacturing sometimes only becomes apparent after an agreement is finalized and work starts in earnest.
Launching a new product while staying on budget is difficult enough without these barriers, of course. This highlights another reason U.S. manufacturing is a competitive option for many tech startups.
Will Currency Fluctuations and Related Issues Arise?
If your finance team would prefer a model that does not need to account for currency fluctuations, tariffs, and potential trade conflicts, you may be well served by a U.S. manufacturer.
Manufacturing products at home means benefiting from a degree of stability that cannot be matched abroad, helping prudent businesses minimize risk.
Multiple Vendors or a Single, End-to-End Partnership?
The prospect of a single vendor providing a turnkey solution is another aspect of U.S. manufacturing that leads many startups to reconsider overseas organizations. By working with a startup during each phase – from the initial concept to product launch – a single manufacturer who questions contract manufacturing norms can provide invaluable solutions.
In short, with a U.S. partner, increased efficiencies available through vertical integration provide startups with benefits that cannot be readily matched by Chinese-based or other overseas manufacturers.
Recognizing Challenges Abroad and Unlocking the Potential of U.S. Manufacturing
As a full service contract manufacturer helping businesses bring new products to market, we understand that the collaborative process is more nuanced and involved than many startups initially realize.
A manufacturer with a partnership approach taking into account all aspects from concept to completion can help keep costs low. For startups based in the U.S., that type of partnership model is typically found in the U.S. This is because domestic manufacturers are more often the right size, employ full supply chain management and control, and work directly to quickly and efficiently implement changes.
This is why we firmly believe startups should explore all their options, question perceived norms, and work to fully understand the benefits and risks associated with this important early decision.