The decision to take the leap into overseas manufacturing should come only after a comprehensive plan is in place, taking into account an entry and exit plan. Be flexible and patient in your approach, as international economic pressures are diverse and ever changing.
Before going abroad.
Before considering an overseas manufacturing plan, I highly recommend a working prototype be created domestically. While many overseas factories will offer prototyping services, the translation requirements can be demanding, and the final prototype may come only after several revisions (and costs) have occurred. I found greater peace of mind at this stage of development hiring a local engineer to do the prototype work. He was within easy reach of phone call, and the final prototype was near market ready when it arrived. The verbal communication was seamless; and though possibly more costly; it arrived quickly (with very few revisions). Conversely, you may spend less initially on overseas prototype development, but may find yourself spending more and more (in time and money) until the final version is ready to ship (which will take additional time and money). In the early stages of product development, I was very anxious. I wanted to keep my idea close at hand, and I wanted a tangible product to present to manufacturers. In addition to the patent pending status, I felt more secure having that physical item in my possession. Not only was it a great process, but also I felt more at ease with the process under closer supervision.
Once you’ve got a working prototype (and the blueprints), it’s time to gauge the market’s reaction. You can’t assume your product will sell at the price you envision. It’s up to the market to decide. An effective way to gauge consumer demand is to attend a tradeshow. In this way, you can gauge the consumer response and also gauge retailer interest. This is a great place to ask, “how much would you pay for it?” and “what sort of improvements would you recommend?” It’s okay to attend these tradeshows without an immediate interest in making immediate sales. The feedback you’ll receive is incredibly valuable. Even with a rough prototype, it’s worth the money to get it in front of people. In our case, we were lucky enough to get interest from an international retailer who wanted to negotiate a licensing deal. This was a big win, in that we were able to (given their resources) get the product in front of international focus groups for testing. The testing revealed some very valuable results – the accepted and marketable retail price point.
Now that you’re armed with this information, you can research costs. It may be that the whole idea should end here. If the costs don’t allow for margins, why go on? If they do, GREAT NEWS! You may very well have a viable product.
So why go overseas? Early on, I saw overseas production as a last resort. I really wanted to keep my finger on the pulse while the product gained ground. What I learned from international focus group testing; however, showed me the product had as much value internationally as it has here domestically! So, in this case, the point of origin was given additional consideration (and logistics related to same). I researched probably a dozen domestic manufacturers before researching overseas manufacturing facilities. What I found was discouraging. I couldn’t get the costs to a point where the product would be profitable her in the U.S. It was really as simple as that – I could not make money with production here in the states. In addition, not unlike overseas manufacturing, many U.S. factories required minimum run requirements. Short run production, while available, would have made production even more expensive.
Realizing there were no viable options here in the U.S., I reached out to a Chinese manufacturer that I’d been introduced to via a tradeshow. It’s not advisable to find an overseas manufacturer via an Internet search by the way. You might find gold, or you might find a nightmarish scenario involving IP theft and unsafe treatment of employees. I’m happy to say we found gold with Shangreen Technologies, LTD. The General Manager is fluent in English, and is himself a highly trained Engineer. The costs allowed for use to create the product while achieving a marketable retail price point.
With my estimated unit costs in hand (I say estimated as this will change somewhat), and a minimum run requirement from the factory, I was able to research the shipping costs. It was much easier than I anticipated. Freight forwarders are hungry for business, and they are VERY service friendly. They’re detailed in their cost estimates, and they’ll walk you through the entire process. In our case, we partnered with Expeditors of Washington.
Additional factors that should be considered in your cost analysis include factory capabilities (find a factory that’s expert in manufacturing products in your material), and finding a factory that can do it all. You might save a bit of money farming out different components of your product to different factories, but you may find yourself somewhat lost in the end (when you’re packaging the product). I value having a factory that can build each and every component, and package it in its final packaging.
Finding a Trustworthy Overseas Partner.
We’ve touched briefly on the subject of trust, but it deserves a deeper level of understanding. As an Inventor, you’re no doubt concerned about being “ripped off”. A simple online search will uncover any number of horror stories related to IP theft.
It’s important to do your research. Don’t let a well written and personalized e-mail from a factory Manager be an indication of trust. If you’re able, visit the factory. Early on, I thought the expense was well out of range. Looking back on it now; though, the expense is somewhat nominal in the long run when taking into account your product’s future. I recognize that physically visiting an overseas Manufacturer may not be for everyone. There are other, less financially exhaustive ways to find a trustworthy overseas partner. Getting a personal recommendation from a likeminded U.S. Inventor is key in my opinion. These people share the same concerns as you, and it’s likely they’ve got some actual history to go on along with their recommendation. A great place to find these connectors is tradeshows, or even local think tanks (sponsored by local Chambers of Commerce). If you can’t find a personal connection, consider an international manufacturing agent. These companies act as intermediaries and work on your behalf to find a right fit manufacturer. I personally didn’t go this route. While these companies will suggest you, as a product developer, should focus your time on product development (vs. working directly with the manufacturer), I think product development involves fostering a good working relationship with your manufacturer. There are key communications that will take place along the way, and I highly suggest you, as the business developer get involved first hand. Too many layers can confuse the message in my opinion (which can already be confusing when going overseas).
Lastly, do your best to genuinely foster the relationship. Remember that other cultures are unique, as is their way of doing business. Don’t approach the relationship with a demanding attitude, interested only in your final results. Spend the time getting to know your overseas partner. While it may sound cliché, the old saying “you get more bees with honey…” is absolutely true when doing business overseas.
Don’t forget to have the manufacturing representative sign a Non –Disclosure Agreement that you provide. An executed NDA, while less effective in protecting confidentiality overseas, shows a sign of good faith. If the manufacturer refuses to sign, you may want to think twice about doing business with them.
Collaboration is key when developing a product overseas, especially if you yourself aren’t an Engineer. You’ll likely be dealing with highly intelligent and well educated Engineers on the other end that, when given the room to be creative, can guide you toward more cost effective and streamlined solutions in the manufacturing process. This is NOT to say they’re not profit motivated. Of course it’s in their interest to send you through any number of design and sampling stages. It’s more business for them! Remember to keep an open mind and allow for the “blue sky” idea to mature into reality. This will require the assistance of others. You can better control the direction while allowing others to drive.
Design and Sampling.
The design and sampling process can be exhaustive, and even frustrating. When you’ve finally agreed to move forward with a set of blue prints to the actual mold making, you’re making a giant leap of faith. Cutting molds can be very costly, and margins for error slim. If you’re like me, you’ll want the first round of sampling to produce the anticipated results. I can guarantee you this won’t happen. You’re translating an idea, to blueprints, to what’s in effect, another round of prototypes. These “prototypes” however, will more closely resemble what the product will look like on the shelf. When our first round of sampling arrived, I was FURIOUS! I thought I’d been had. Nothing worked as I’d wanted it to, and I was about to throw in the towel. I sent a somewhat nasty letter to my manufacturing partner, and was actually humbled by his response. Don’t expect for your manufacturer to be a miracle worker and get it absolutely right the first time. Evaluate that first round, and suggest improvements going into the next round. It took us a several rounds of sampling to get to market a product we were satisfied with.
The expenses associated with designing, mold making, and sampling a product can be steep. While every product is different, be prepared to have several thousand dollars set aside for design and sampling fees.
Molds can be a tricky subject. Anytime some one else has possession of something of value to you, it becomes a subject of concern. “Are they using my molds to make additional product I don’t know about?” “Is it actually made of stainless steel, or recycled bike parts?” “Will I ever get my molds back?” These are all questions that have come to my mind on occasion. The answer? You may never know. Again, deciding to have your product produced overseas involves a dramatic leap of faith. You’ve got to have trust in your manufacturer, and you should do your best to ensure ownership is documented. One thing I’d suggest is to have your manufacturer send you photos of the molds creation at different stages of development. This will outline some key points such as facility cleanliness, quality of machinery, and molding execution. It may not be practicable to be there in person, but do your best to be involved as much as you can remotely. I also recommend you require your manufacturer to provide you with a written title to you’re your property. You’ve paid for it after all. In the least, have it written on their company letterhead, include photos of each and every part, and have it signed by a leading executive. Fighting for property overseas can be tricky. Cover your bases and get as much as you can in writing. Cost details, minimum run requirements, NDA’s, and titles of ownership should be written out and archived.
For me, Freight Forwarding is a fun and intricate learning experience. You’ll learn about inco terms and you’ll get a crash course in Customs clearances. Meet with your Freight Forwarders often! There are significant costs involved, and you’ll need to create a budget around them early on to create a comprehensive “landed” cost of your product. Though the costs will change (sometimes significantly), you’ll need some cost estimates in place to find a comfortable margin. I chose Expeditors of Washington and had a very enjoyable experience. I found them to be experts at what they do, and they were always available.
Yikes! One of those things you don’t think will happen to you. I’m here to tell you from experience, they do happen. And when (if) they do, you’ve got to have a plan to recover. Ours was one of the most stressful experiences of my life. A container landed, and we immediately began selling product. Feedback came in pretty quickly. A main part of the Sun Station (the threaded top) wasn’t working properly! Strangely, I reflect back on the experience with fondness. Our Customers were genuinely patient, and we didn’t see a single return. We sent them each (at no cost) the replacement parts they needed. Each was sent out with a personalized thank you card. This, friends, was exhausting in both time and finance. It was the right thing to do; however, and it created some real brand advocates. The point of the story here: Quality Control, Quality Control, and more Quality Control! Don’t assume the final product is shelf ready the first time. Once they’ve landed, take the time to go through a random sampling of product yourself, and field test them. I know you’ll be eager to get your first sale. Take the time though, to remedy any manufacturing defects before they get to your customers. In our case, our Manufacturer was understanding, and sent us the replacement parts at no cost to us. What they didn’t pay for was the shipping expense we took on to get the parts to our customers. If you’re like me, finding excess cash sitting around to remedy any unforeseen issues is hard to come by (especially amidst patent expenses). Do your best to (a) implement some of your own quality control measures, and (b) set aside a reserve fund to cover any unforeseen expenses.
When you decide to bring a product to market, finding the most cost effective solution (without compromising quality) should be a primary objective of yours. Economies are forever evolving. Be flexible and know that the life of your product may require you to relocate your molds to another manufacturer from time to time. China; for instance, is still a cost effective country to have your products produced. Wage inflation and heavier government controls are negatively affecting China’s competitiveness however, pointing to viable manufacturing alternatives in places such as Mexico, Vietnam, and Thailand.
In closing, take your time when deciding on overseas manufacturing. Do your homework, and try your best to put contingency plans in place. You can count on unforeseen obstacles taking place. Get beyond them, and you’ll be a better person for it, having a wealth of wisdom to combat that next round of obstacles (when they undoubtedly come around).