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The Inside Scoop on Manufacturing

Should you manufacture your invention overseas or is "Made in America" right for you? Our expert weighs the pros and cons.
January 23, 2006
URL: http://www.entrepreneur.com/article/83138

Once you've decided your invention is a worthwhile product to take to market, you'll need some way to mass produce it. But where do you start? After all, 99.9 percent of us aren't in a position to open our own factory and manufacture our own product. (And even if we were, it wouldn't necessarily make good business sense.) Thus, it's necessary to "outsource" your manufacturing; in other words, find a factory that can produce your product for you.

There's a lot to manufacturing, and there are books devoted to the subject. This column will address some early concerns, providing an overview of the pros and cons of domestic vs. overseas manufacturing, and pointing the way to locating an appropriate manufacturing partner for either scenario.

Manufacturing, Defined
First, what exactly is manufacturing? Manufacturing is simply the process of making things. Companies manufacture nearly everything we consume in our daily lives. There are countless types of manufacturers who work with various materials: adhesives, electronics, chemicals, hardware, machinery, tools, metals, plastics, rubber and textiles, to name just a few.

These manufacturers and factories are located across the United States and all across the globe. There are definite advantages and disadvantages to pursuing either option. Let's first examine the factors that go into manufacturing domestically.

Manufacturing In the United States
There are obvious benefits to finding a factory in the United States. Without a language barrier, and with minimal time-zone challenges, working with an American company can reduce the frustration factor. In addition, delivery time-frames are shorter, order minimums are generally lower (which can be a big issue when you're just starting out), and you don't have to worry about the complications of customs and freight forwarding. Plus it can be comforting for a beginner to work with another party that's subject to the American legal system, with all the caution and mutual understanding that goes with it.

So why go outside the United States at all? While American factories have taken steps to compete on price with overseas factories, they typically can't meet or beat their prices. However, even though your per-cost unit may be higher, be sure to evaluate every factor to determine if it might still make sense to manufacture in the United States.

For instance, if you want a relatively small manufacturing run, paying more early on to a U.S. company might make sense because you can receive feedback and evaluate demand prior to saddling yourself with a huge inventory. In other words, you may wish to minimize your initial costs by ordering a relatively small number of units--say, for example, 200. Once you see the product's selling well, you may decide to increase your next order to 400 units. Then, once you've established your market--and you're producing much larger quantities--you may then consider manufacturing overseas to lower your production costs, thus increasing your profit margin and your overall income.

Manufacturing Beyond the Borders
So why does manufacturing overseas cost so much less per unit, anyway? Labor and materials are simply less expensive. For example, an injection mold produced overseas can cost as much as one-tenth that of a U.S.-made mold. And if you can produce your product for less money while maintaining high-quality standards, you'll have a better profit margin in the end.

The greatest disadvantage to overseas manufacturing is that it adds another level of complexity to your business. Besides the obvious complications of overcoming differences in language, culture, currency, time zones and distance, you'll also need to understand the fundamentals of freight-forwarding, tariffs and U.S. custom payments. And with potentially frustrating communication issues, you must trust your vendor implicitly.

However, because you're working with people who are economically motivated to make the process work, the greatest challenge is less a meeting of the minds than it is of logistics.

While the media is rife with stories about overseas production problems, be assured knowing that thousands of inventors and U.S. businesspeople have good experiences with manufacturers in foreign countries--these stories simply don't make the news. This is evident by the predominance of products on our shelves that are made abroad. Once you learn the steps and your systems are in place, working with an overseas manufacturer is as simple as any of the other processes you put into practice when running a business.

Finding a Manufacturer
Of course, finding a reliable, trustworthy and quality-oriented manufacturer is of critical importance no matter where you decide to manufacture. Where do you start?

The first step is short-listing appropriate factories that can meet your specific manufacturing and material needs, budget concerns and volume requirements. For instance, you wouldn't approach a manufacturer that specializes in plastics to make a luxurious pillow.

It can seem like an overwhelming task--after all, unless you're living within a large metropolis it's unlikely you'll find a local factory that specializes in precisely what you need. Fortunately, there's a terrific resource that can help you identify and narrow down your options: www.thomasnet.com . This site includes a network of 650,000 sources to choose from domestically. You can search by materials (vinyl, wire, cotton, etc.) and/or by state.

Other means of finding appropriate manufacturers is to flip through the Yellow Pages, conduct a general internet search, or via word-of-mouth. Recommendations from other inventors can be invaluable to ensure you're working with someone reliable.

There are also some good strategies for investigating in overseas manufacturers. Most countries also have offices focused on attracting foreign business. For example, the Hong Kong Trade Development Council ( www.tdctrade.com ). This organization offers up-to-date business information about working with companies in Hong Kong and China. You can also look to the American Chamber of Commerce in most countries. For specific contacts, visit www.uschamber.com , scroll down the page to the "Full Site Directory," and under the "International & Trade" heading, click on "Find Chamber Abroad."

No matter where you're seeking to manufacture, plan to identify several appropriate companies, and then visit their websites so you're better informed about their services before you call. I suggest you interview at least three manufacturers before settling on one to partner with. Be sure to ask some pointed questions so you can compare and contrast your options. As a novice, I made some costly mistakes that could have been prevented had I known what to ask. Here's a list of questions to get you started:

Manufacturing Wrap-Up
Once you've weighed the pros and cons of domestic vs. overseas manufacturing, completed your research and interviewed potential manufacturing sources, you're on your way to making a critical decision. Don't be hasty, and remember to keep your options open. And when you get your first shipment of your very own product, you'll have a sense of accomplishment you never before imagined.