The Ultimate Guide
Once a product idea is ready for production, the familiar path most people take when researching manufacturers to produce their products is to go online. Sites like Alibaba are often the first place product developers turn.
There’s no denying the success of Alibaba as a business. It has opened the door to countless entrepreneurs and product development companies, providing information and access that was once a guarded secret among those who made such connections part of their business model. While Alibaba has its merits, it has had its share of problems as well. For years, Alibaba has been hit with media exposés describing massive issues with counterfeits, fraudulent sellers, and credibility.
But Alibaba is not the only option. In fact, the old fashioned route may still be the best path.
The Race to Manufacture
Many innovators get excited when they finalize their product designs without realizing there is more work to be done. Finding and vetting the right manufacturer can be daunting, but it is a critical step in producing a product as even the best design can fail in the hands of the wrong manufacturer.
As manufacturing sourcing experts, we have come across common mistakes that plague companies and entrepreneurs as they work to find the right manufacturing partner. Our goal in this guide is to show you another path.Today, companies need to learn how to do things remotely without sacrificing best practices.
COMMON SOURCING MISTAKES
When you first take on the challenge of finding a manufacturer, you will no doubt face some challenges. Among the most common are:
- Not having a fully-developed set of product specifications.
- Not knowing if you are dealing directly with the factory, a middleman, a broker or a trading company working on the factory’s behalf.
- Not appreciating cultural differences.
It is essential to understand the role that due diligence plays in finding a factory. You have to do your homework beforehand and be prepared. Keep in mind that your goal is to develop a trusting, long-term relationship with your chosen factory partner. The more rapport you can build and the better you can communicate your requirements and understand their process, the more successful the manufacturing stage will be. You can develop these relationships yourself, or leverage a partner that already has long-standing relationships.
The Confident Approach to Factory Sourcing
Before you can select a factory and begin a relationship, you must see it in person. Visiting factories overseas can be expensive and time-consuming, unscalable for most small-to-mid-sized businesses and entrepreneurs. These visits should never be a one-time occasion. If you want to maintain control over the process and quality and maintain a close relationship with the manufacturer, site visits should be the norm. In the times of COVID-19, traveling to visit factories in person has become harder, as well as riskier.
For many product companies, onsite due diligence is best left to local partners who can be your eyes and ears, providing you with first-hand accounts of what’s happening with your product and your manufacturer. They are there to maintain the relationship on your behalf and can bring you in if any issues need escalating. When you have confidence in your partner and develop trust in the process, you get peace of mind and earn respect from your manufacturer. They want to work with experienced representatives, ones that understand their language, culture, and operations to keep producing humming.
Have a functional product design backed by your product specifications.
Your product design is a visual representation of your product and must attract the factory’s attention and pique their interest in working with you. For private label products, you are buying an existing product and branding it as your own. You need to find a factory that is already making the product, or find one that can recreate it from your product specifications.
Developing a new product from scratch or modifying an existing product to improve a feature through incremental innovation is a bit different. In these instances, you will need to provide detailed specifications for the new product or anything you are changing with the existing product. Without defined, detailed specifications, your factory will not know what to do and production will be delayed.
By working with an experienced sourcing provider, however, you can save money and time in finding the right factory in either scenario. Even better, work with a partner that has both sourcing and design experts. They will be able to work in parallel to make sure the product specifications are exactly what the selected manufacturer will need to rapidly produce your product.
Know with whom you’re working.
A common phenomenon is to have middlemen pose as the factory, trading companies, sourcing agents, and Alibaba sellers. It can be difficult to tell the difference, and since these middlemen may be better at marketing than the actual factory, you are likely to find them before the factory.
The location of a company tells you a lot about who they are. Are they located in the central areas of the major manufacturing hubs? Are they on the outskirts? Some factories are highly sophisticated (e.g. they make iPhones), and others are incredibly primitive (the garage at someone’s condo). The key is to “right size” and find a factory that is actually interested in working with you and will give you great value for the money. If you are looking to place a $10,000 purchase order, the iPhone factory is not going to want to talk to you.
Deciphering a factory from a reseller or middleman is not always immediately apparent. If you are dealing with an intermediary, you can expect they will add their profit to the pricing, so you are likely not getting the best available price. Again, working with a partner who can navigate this for you alleviates these hassles.
Let cultural norms shape the way your negotiations unfold with factories.
It is critical to “speak the language” of your partners. While language barriers can be a problem, the main point here is to approach negotiations with an appreciation for the culture of the region. It is always preferable to learn the culture, if not the language, in order to build a sustainable, long-term relationship that respects each other and works towards mutually-beneficial collaboration.
Think Long-Term, but Know You Have Options
While it can be discouraging to navigate through the clutter and deal with non-value-adding go-betweens, we encourage you to maintain a partnership mindset. Try not to view your first order as just a transaction but instead as the beginning of a partnership with a factory that could be your best ally for years to come.
It is essential to always have a relationship-building versus a transactional mindset. Remember that you typically have options and factories know this. Explore multiple factories to understand your options.
The first time you work with a factory, it is a trial, giving you the opportunity to feel out the factory and make sure they are the right fit for your project. The factory wants to work with product creators who are serious and in the process for the right reasons. They may be okay with a smaller order if they believe there will be future orders.
You will find that the majority of factories are in China, and the majority of products you will source will come from China. That said, there are many factories in places like Vietnam and Thailand who have Chinese ownership. As you focus on relationship building, it is essential to understand how the differences between American and other cultures play a role.
Bridging Communication Gaps & Cultural Differences
American and Chinese cultures differ in some significant ways, making negotiating a business relationship with a new factory partner in China challenging for newbies. Chinese factories want to try to create your product but first must determine if they have the capabilities, know-how, and processes to get the job done. American product creators have high expectations of what they will see from the product’s initial iteration.
Chinese cultural norms are called guanxi. Primary elements of guanxi are:
- The factory owner will want to meet you or your representative in person.
- They will want to share a meal and develop a personal connection separate from your business relationship.
- It is not merely a question of “What can you do for me?”
- Chinese factories, in particular, want to build long-term, mutually-beneficial business relationships.
A “yes” orientation
- It is hard to find a factory that will admit to not being able to do something.
- This sentiment is why it is so important for you or your representative to do your due diligence in person.
- It is essential to see how the factory operates, looking closely at what they have produced previously and getting a product sample before they ramp up the full production run.
Timely payments are vital
- When working with a manufacturing partner in China, paying on time is critical to keep the flow going.
- China extends credit for their goods and services on almost all production runs.
- These terms could be 30% down and 70% due before the product ships, or even better.
- Taking on credit consistently can hinder operations for factories that you don’t pay in a timely fashion.
- It is good to have a trusted partner to facilitate the transaction, as well as ensure the product meets specifications before making payment.
An understanding of cultural norms is a significant element in relationship building. With this understanding, it is easier to conduct due diligence on factories and continue to work through the sourcing process with confidence.