New Product Manufacturing: What Are The Advantages of Manufacturing Overseas?
Many entrepreneurs and product-focused companies want to manufacture their products overseas for a variety of reasons. The advantages of manufacturing overseas are well documented, but there can be some drawbacks too. In this blog post, we’ll discuss the advantages of manufacturing overseas as well as the disadvantages so you can make an informed decision about whether or not it’s right for you or your company.
You want a manufacturer that will produce top-quality products quickly, at a fair price, and with consistency, but can overseas manufacturers deliver? Sometimes, but it’s not as easy as you think. You often need the help of experts to not only find you the perfect manufacturer for your product but to also act as your representative. Read on to learn how.
5 Advantages of Manufacturing Overseas
Many product developers immediately decide to have their products manufactured by overseas factories. It’s not difficult to understand why. Here are five of the top reasons why entrepreneurs, eCommerce sellers, and product-focused companies choose an overseas manufacturing partner.
1. Lower labor costs
The US has some of the highest labor costs in the world, about four times that of Chinese wages. Labor can be drastically cheaper when you manufacture overseas. Lower labor costs translate into lower manufacturing costs, which enable you either achieve higher margins or sell your products for less than if they were manufactured domestically or in another country with higher labor costs.
2. A large number of manufacturers
Many overseas countries boast a large number of manufacturers, giving product developers all kinds of options. China, for example, accounts for 35% of global manufacturing output. They not only have hundreds of manufacturers, but many of them produce massive quantities of products, leading us to the next advantage. Websites like Alibaba help connect innovators with a database of overseas manufacturers, but it is up to you to vet each one.
3. High-volume capacity
One of the biggest advantages of manufacturing overseas is due to production capacity. Overseas manufacturers can often produce large quantities of products in a relatively short period of time. Depending on your production requirements, you can save money with volume discounts. In fact, many manufacturers have minimum order amounts to keep their costs in check.
4. Proximity to suppliers of raw materials
US factories are usually a fair distance from where raw materials originate, which can dramatically increase time-to-market and costs. Not so in many Asian countries that have mature supply chains and relatively easier access to every type of raw material.
If you have your product manufactured in the US, you will likely face delays if your product requires raw materials. Countries with raw materials must ship their products to the US, and shipping costs and delays are at an all-time high due to COVID impacts. The National Retail Association found 98% of retailers have been impacted by delays at ports or other shipping delays, and costs are skyrocketing.
5. Plenty of skilled talent
The skill level in many other countries exceeds those in the US, mostly because US workers tend to shun manufacturing jobs. Unfortunately, this creates a skills gap in the US. The biggest need is for those with digital skills, technology, and computer skills, and programming for robots and automation, all of which can be found in other countries. In 2018, there were 508,000 open jobs in US manufacturing.
Because manufacturing is often a country’s biggest sector, some countries invest in training programs for workers. Indonesia, for example, formed the Polytechnic Education Development Project to fulfill the demand for skilled workers.
5 Disadvantages of Overseas Manufacturing
Even with all of the benefits, overseas manufacturing comes with its own challenges. Here are five of the top ones.
1. Higher shipping rates and longer lead times
One of the biggest pitfalls is that shipping rates are often higher in countries like China, which has made some manufacturing more expensive than in other places around the world. It costs significantly more both ways if you’re importing your product since overseas manufacturers will often charge an extra fee for delivery outside their country (i.e., import fees). In fact, these costs often negate the financial advantages of manufacturing overseas.
Being so far away from where your product is being manufactured poses some challenges. It takes time to get goods from overseas back into the US in order to keep up with demand at home (compare this with how long it would take if you were manufacturing domestically). You have to account for shipping time, as well as country holidays. For instance, the Chinese New Year lasts a month or longer, where factories completely shut down production.
2. Lack of oversight
With overseas manufacturing, you will not be able to engage in many in-person meetings to negotiate terms and check for quality issues. Without being there, it’s more challenging to build the relationship, even though many countries highly value face-to-face interactions. COVID has made international travel nearly impossible, and even if you could travel, the cost of regular travel is often prohibitive.
One way to overcome this challenge is to partner with a product development company that can assign a local representative to your account. They will be your eyes and ears at whichever factory you select, providing all of the quality assurance tasks you would do if you could be there yourself.
3. Language and cultural barriers
When you partner with an overseas manufacturer, you will likely find language and cultural barriers. This can pose challenges when negotiating contracts and pricing, understanding workflows and ethics, and respecting other cultural differences.
Again, having a local representative will ensure nothing is missed in translation. They will be a local resident or be fluent and intimately familiar with the culture so they can speak on your behalf and focus on your best interest.
4. Problems with customer service
Think about that one big shipment where something goes wrong or doesn’t meet expectations, and all those people waiting patiently for their product are left disappointed. If a customer complains about delays or quality issues, you’re left holding the bag. You are the face of your brand, and consumers won’t care that it was a manufacturing problem. You are to blame and must manage the backlash.
5. Safety Risks
Worker and environmental safety should always be a concern. Not every country values employee safety or the environment like the US. Finding manufacturing partners who are known for following good labor practices, implementing safety programs, and taking care of the environment should all be part of your vetting process. Work with a product development company that has established relationships with pre-screened factories. They will be able to guide you to the most reputable ones to save you the time and potential headaches of working with manufacturers that pose more risk than they should.
Manufacturing overseas often makes financial sense, but you will need to be able to overcome any disadvantages you’re facing if you want to manufacture products overseas. However, there are also plenty of benefits if you decide it’s the right decision for your company. You will need to weigh all these factors before making your final decisions about whether or not this is an appropriate move forward.
Contact us to learn more about overseas manufacturing and how to choose the ideal partner for your particular product.