4 Things to Know Before Manufacturing Overseas
Moving manufacturing production overseas can be a costly and daunting task. With a high level of uncertainty in any foreign market: Why would companies want to shift such an integral part of their business overseas? The Savings. With lower labor costs and production facilities streamlined for mass production, overseas destinations like India and China have become hotspots for businesses looking to save a dollar. However, with the added value gained from manufacturing overseas comes its own breadth of problems. Here are 4 things you need to know before moving your production overseas.
Making sure products translate from idea, to design, to prototype requires persistent communication from both design and manufacturing teams. A miscommunication can lead to a loss in production time, materials and more importantly a loss of funds. Now try communicating your needs to someone in another country: in a foreign language. Trying to make others see your vision and dream can be tough and trying to convey your message in a foreign language is even tougher. Barriers such as language, time zones, and culture, can make communicating and working with a foreign manufacturer a headache. Finding the right manufacturer, working out lead time and minimum orders and setting up contracts can be a disaster without an interpreter.
Once you have your production underway then you have to make sure your product and idea is understood by the manufacturer. Often westernized designs do not translate well overseas and laborers will not understand product usage leading to unwanted changes in design or changes in production means.
In short, communication is a hurdle when dealing with an overseas manufacturer. No one wants to be up at night waiting for a 2am phone call to discuss product specifications. Understanding how other people do business and what their expectations are, can drastically improve overseas production. Making sure that your expectations are understood and met is just as important.
Understanding the culture of any country where you do business is important. Countries such as India and China often place a higher value on culture than western societies. Most manufacturers want to establish a relationship before doing business which can be hard when meeting face-to-face requires a visit overseas. Knowing who to trust, and who is a quality, reliable, manufacturer is not as easy as looking online, as would be the case for a North American manufacturer. You need to spend time finding the right manufacturer and work out terms and conditions that will work for both entities. It takes time to establish this relationship and the savings and trust won’t come overnight. Eventually these relationships bring better pricing, smaller order sizes (if required), faster turnover and even product improvement.
However, the time and work involved to establish these connections and build these relationships, offers a challenge for businesses in a foreign market. This is when understanding the culture is important. In China, many people will never give the answer “No”. Even if they know your shipment is delayed they will reply “Yes” if you ask if it’s on time. They were always raised to offer a positive view and “No” is looked upon as representing weakness in the ability to complete a job. This is just one of many cultural differences that need to be recognized and identified as a potential threat to a business. Coupled with communication issues, learning how another culture does business can be stressful.
Lack of Control
Regardless of what manufacturer you choose, or which best suits your needs, there can always be a feeling of lack of control over your business. Who will be working quality control for you? Do you need someone to certify and inspect your products? If you have someone working at your manufacturing plant on quality control, how will you know if they are doing their job? This is why building a relationship and trust with a manufacturer is so important.
Many businesses run into issues with manufacturers ceasing production due to insufficient resources, or bankruptcy. Not to mention dealing with late shipments, customs hold-ups and slow turnarounds, only add to the increased risk of doing business overseas. Some manufacturers will use suspect, uncertified, or recycled or cheap quality materials, to cut corners and meet deadlines. Much of which occurs without the knowledge of the person paying for the manufacturing!
Relationships are very essential when moving production overseas. Not having confidence in a manufacturer coupled with a differing legal system adds to the dangers of oversea ventures.
There are inherent dangers when dealing with manufacturers in a foreign market. Many companies have faced wrath due to the social injustices that have been reported in some manufacturing facilities in China and India. Making sure you are aware of the legalities of a venture overseas is very important for risk management. Businesses need to have inspectors to keep an eye on production facilities and make sure they are up to code and running legally. This means having a trained inspector who knows the foreign markets legal system.
The Intellectual Property laws in countries such as China are not as strict, or not even followed! In unreliable manufacturers this can lead to product designs and ideas being stolen and produced elsewhere, either by employees or management.
And when you finally have your product in production you have to worry about getting it back to you. There are tariffs and custom laws to worry about, not to mention exporting fees, shipping costs, packaging, customs clearance and the list goes on. Understanding the legalities and how they concern you in both your own country and in foreign markets is important to mitigate the risk involved when working overseas. Many businesses fail in making the transition because they do not anticipate the dangers and risks encompassed with the move.