Don’t get ripped off when offshoring production.
Countless executives complain that factories abroad deliver the wrong products, defective materials, items not made to specification, and shipments delivered late. There are horror stories of knockoffs and counterfeit pieces. “We hired a firm to make our nail clippers, and now the factory is selling nail clippers directly to our clients!”
Here are eleven strategies to employ to prevent this from happening to you.
- Ask yourself: why did you think this would be easy? This may sound psychological, but it’s a fair question. If making a product is difficult at home, why would it be easy somewhere thousands of miles away, in a different language, culture, currency and legal system? Managing factory workers is tough in any country, and much harder in unfamiliar ones.
- Protect your home base. If you’re worried about an overseas factory selling your designs to your own retailers, you’ve picked outsourcing as a solution before solving key branding, positioning, and customer-service needs. Market power at home is your best protection against a less expensive knockoff.
- Live there for a while. If you’re seriously considering manufacturing abroad, invest the time to live in-country. Get to know the rhythm, the communication styles, and your factory.
- Don’t use a one-country approach. Tying political and currency risk to a single supplier is a bad idea. Firms with a better production mix across several countries face far less disruption when one supplier or one country hits trouble.
- Train your production management. If your team knows how to manage manufacturing at home, train them properly on managing overseas factories, workers, and processes — and be prepared to send a good production manager abroad for at least a year.
- Don’t rush into a deal. Many firms meet a factory or a representative and quickly hand over production. Beyond checking references and doing background checks, allow plenty of time for relationship-building. Speaking in the long term signals you understand how business is actually done there.
- Re-introduction matters. Being reintroduced to partners you already know is a classic way of doing business in many cultures. It signals that someone else is in the mix, watching and keeping everyone honest. The higher the introducer’s status, the fewer problems you’ll encounter.
- Use legal enforcement on your brokers. There’s very little you can do locally if an overseas factory decides to cut corners. But if the products head for your home market, legal protection can help — funds held in guarantee, delayed payments, trademark and copyright protection.
- Use a pilot project to test the relationship. The Chinese have a saying: “a small boat turns back faster.” A few pilot projects work the bugs out of your processes and communications before you commit to volume.
- Keep some part of production to yourself. An overseas partner can manufacture most of a product — but keep one part of the process elsewhere: a coating, a finish, branding, art, or logos.
- Make it someone else’s problem. These strategies are about controlling manufacturing, and that means spending real time and money. Consider whether it’s possible to hire a domestic firm, hand it your specifications, and let it deal with these headaches instead. Your cost per unit goes up. The real cost is in not understanding your own production — decide whether that trade-off matters to you.
A firm needs to commit to outsourcing, or forget it. Analyze the true costs of each path before you choose.