In the previous post – R – Rep Your Product to Manufacturers – I discussed an approach to licensing your product with manufacturers.
Now, let’s shift gears to a different path forward: manufacturing your product overseas so that you can build a business around your product.
I’ll be blunt: it is not fun sourcing overseas and being in the import/export business.
The process has many moving parts and you must become good at the logistics of manufacturing and shipping schedules and planning to meet your business needs. I have manufactured in China for 9 years now and have worked directly with my current manufacturer for 6 years.
So, why not manufacture in the US and avoid all the headaches and hassles?
The simple answer is math: you need a 4X to 5X mark up from manufacturing cost to retail price. With rare exceptions, it is impossible to succeed in the marketplace paying the “high” cost of US manufacturing when all of your competitors, who source globally, obtain much lower costs. Put another way, a US factory simply cannot pay employees $30 per hour to make a $30 consumer product – the math does not work.
So, here is my three-step strategy for manufacturing your product:
1. If you can cost-effectively manufacture in the US, then by all means, do so!
2. If you cannot manufacture in the US, consider manufacturing in Mexico.
3. If Mexican manufacturing is not practical or possible, manufacture overseas.
If yours is one of the rare exceptions where US manufacturing is cost effective, that is the way to go. Your order turn around time could be weeks rather than months. If there is a problem, it is easy to pay a visit to the factory. Lastly, your business contacts speak fluent English and have similar business practices and customs to you.
If you can manufacture in Mexico, there are key advantages (versus overseas):
• Nothing has to be loaded onto a ship – much shorter shipping time, reduced costs
• NAFTA generally means import duties are going to be zero – significant savings
• Order turn around could be perhaps a month or 6 weeks
Of course, Mexican manufacturing still means you are dealing with a different culture with different business practices. Speaking Spanish will definitely be advantageous. But turn around time can be much shorter and there are significant cost savings, assuming manufacturing costs and quality is appropriate.
Lastly, there are advantages to manufacturing overseas, principally in China. China has tens of thousands of factories that manufacture just about every product conceivable. These companies have established deep business expertise on manufacturing and have many relationships with other manufacturers. They are very good a manufacturing for a low cost.
In the next post, we’ll dig in for a bit more detail on overseas manufacturing: T – Three Partners in your Overseas Manufacturing Team.