Run for the Border

Domestics too costly? Look into foreign manufacturing.

Magazine Contributor

March 1, 2002 6 min read

This story appears in the March 2002 issue of Entrepreneur. Subscribe »

Inventors are often unable to get their products to market because they can't produce them at a low enough cost. As a result, they face three unappealing choices: Sell the product for no profit, price it above what the market will bear, or abandon the idea.

If you're thinking there must be a better way, there is-find someone to manufacture your product for less money. Sometimes inventors try to set up deals with U.S. manufacturers to make the product for the least amount possible. But when that avenue fails, take heart: It just might pay to set your sights overseas-and hire a foreign manufacturer instead.

On the Home Front

That's exactly what Brian Donnelly did when U.S. manufacturers wanted to charge way too much to make his product: a special chair designed to be easy to get out of. "I extended the arms forward on the chair, so people had something to hold on to when getting into or out of the chair," explains Donnelly. "I also extended the legs outward so the chair wouldn't tip over when someone stood up."

Donnelly, 48, first started developing his LifeSpan Furnishings product line back in 1992, when he was an industrial design professor at San Francisco State University. By 1996, having perfected the Easy Up design, he set out to either license the product or hire a U.S. manufacturer to make it. Because he had already won many awards for the innovation-including a gold award in a competition from the American Society of Aging-Donnelly was sure it wouldn't be too difficult.

Because his first version of the chair was made of metal, he started researching that market: He looked at ads and publicity releases in trade magazines (listed in Gale's Source of Publications and Broadcast Media, available at larger libraries) and browsed through local stores for similar furniture products. He also searched state industrial directories (also available at the library) to find manufacturers that made similar products.

Eventually, Donnelly located three U.S. manufacturers and presented his product to them. But his negotiations for a license hit a dead end, as the manufacturers asked for too much money to make the product. Having exhausted his domestic leads, Donnelly decided it was time to find a manufacturer overseas.

Foreign Relations

Again Donnelly perused stores, looking for metal furniture made similarly to his. He ran across some patio furniture made in China that seemed ideal. The products were distributed by Iem, a company in Riverside, California, with factories in China. "What I liked about Iem was that they didn't just sell what the factories made," he says. "They asked [them to make] what they thought would sell." Donnelly approached Iem, demonstrating the need for his product among seniors and a sizable and growing initial target market made up of nursing homes, assisted-living centers and home health-care stores.

Iem not only was willing to arrange for production, but was also interested in investing in Donnelly's product. When Donnelly decided to expand his product line to include wooden furniture-which Iem doesn't make-the company helped him find manufacturing partners in China for that, too.

In late 1998, when Donnelly was finally ready to launch the Easy Up, he decided to first approach larger potential customers so he could build up a distribution network. So Donnelly started out by compiling a database. "I attended the American Association for Home and Services for the Aging and the American Society of Aging shows in 1999," he explains. "I sold to a number of major assisted-living and independent-living homes and had a solid list of leads for the future."

One thing Donnelly has always been careful about is keeping Iem posted on his marketing plans as well as his projected sales. Whether you're working with a U.S. or overseas manufacturer, you need to be careful not to get its expectations too high. The manufacturer will understand that you need to ramp up slowly and will be happy to keep working with you. If you end up promising more than you can deliver, though, the manufacturer might drop you.

Donnelly has since found another way of locating an overseas manufacturer. "In 1999, I attended the International Furniture Fair in High Point, North Carolina," he says. "At the show, there [were] many booths from Asian country trade councils looking to find customers for their manufacturers back home. The shows also had booths from many distributors of Asian-manufactured products similar to Iem."

That's because major industry trade shows are attended by global representatives on the hunt for U.S. companies that want their products manufactured overseas. To find a trade show, log on to www.tsnn.com or www.expoguide.com. If you can't attend a show, call the show sponsor and ask for a show directory. Inside, you'll find contact names and phone numbers for the exhibitors and trade councils in attendance.

Donnelly's successful partnership with Iem has resulted in a fast start for his LifeSpan Furnishings-sales totaled just under $1 million in 2001, after only two years in the market. And business looks even brisker for 2002.

Now that he's acquired a secure base in the senior market, Donnelly has started approaching mainstream retailers such as Sears with the hope of entering the mass market by the end of this year. According to Donnelly, "None of my success would have been possible without the lower costs and continued support from Iem." If you find yourself in the same predicament Donnelly faced-with manufacturing costs squeezing your margins-hiring an overseas manufacturer could help you turn the corner to success.

Safety First

One of the big risks in dealing with an overseas manufacturer is you have to provide an irrevocable letter of credit to the manufacturer. The letter lets your bank transfer money to the manufacturer when the product ships.

But what happens if the product ships too early, ships too late or ships before you have a chance to approve the production run? The letter of credit may transfer your money anyway. One way to minimize this risk is to arrange for shipment through an international freight forwarder. The forwarder can contact you for authorization when the product is ready, and you can refuse delivery if the order isn't correct. Forwarders also help you with a letter of credit, customs and delivery information. To find a freight forwarder, check the Yellow Pages of large cities.

Far and Away

If you can't find an importer or U.S. distributor to help you out, contact your state's Commerce Department, which should have a department that offers import/export assistance.

You can also use a sourcing agent or work with a manufacturer directly. Sourcing agents will not only find an overseas manufacturer to make your product, but they usually have overseas offices to give you easy access to the foreign manufacturer. Regardless of whether you work with a sourcing agent or a manufacturer, make sure you inspect the first few models off the assembly line to ensure they're up to snuff.

For more information, try the following websites:

Sourcing agents:

Direct sourcing:

Don Debelak is a new-business marketing consultant and author of Think Big: Make Millions From Your Ideas.