Manufacturing offshore can reduce the cost of production, help get your product to market faster, and reduce delivery costs.
For most businesses, it makes sense to manufacture overseas to reduce component costs while keeping research and development, and design and short-run manufacturing, in New Zealand.
For most small businesses, the trick to manufacturing overseas is to find a way to contract the job or go into a partnership with an overseas manufacturer without losing control of your product. It’s common for companies to gradually increase their commitment to overseas manufacturing and move from outsourcing through to ownership of a factory as the business grows.
Your approach to manufacturing overseas could include:
This involves using an overseas firm to manufacture all or part of your product under contract, to your specifications. Your relationship with the manufacturer is essentially customer and supplier. In many cases, you might supply a mould or detailed manufacturing specifications, but you’ll need to take care to protect your intellectual property (IP) and rights from exploitation.
Manufacturing under licence includes giving an overseas company the right to both manufacture and market your product in a defined territory, using your IP. The advantages of lower production and transportation costs can increase your ability to compete in overseas markets.
Offshore production and manufacturing capability may also enable you to overcome import restrictions and focus on your strengths, such as R&D or design, rather than production.
Setting up or buying your own manufacturing facilities overseas can be extremely expensive. Be aware that you’ll need to have a large volume of business to make a return on your investment.
Running an overseas factory as a joint venture with a local company can reduce the risk to your business in New Zealand and allows you to take advantage of local knowledge.
Make sure you get advice from your accountant and other business advisers before you invest in overseas production facilities.
There are always risks involved when entering into an agreement with an offshore manufacturer.
To reduce these risks, you should be clear about your quality requirements and delivery expectations and set these down in a manufacturing agreement. Include a comprehensive IP clause and confidentiality agreement, as well as governance, dispute resolution and exit provisions in the manufacturing agreement.
Consult a professional finance specialist to decide how best to protect your business against foreign currency exchange rate fluctuations.
Finding the right manufacturer for your products can be crucial to your success. You’ll need to find a reliable company with the right technological know-how and equipment to produce your product to the required quality and specifications. They’ll also need enough capacity to meet your production needs and be flexible enough to work your needs into their manufacturing schedule.
Here are eight top tips you should follow:
A big issue facing companies considering overseas manufacturing is quality control.
You can outsource quality inspections for your products or employ someone to be on site to oversee quality. Independent inspection companies can visit your manufacturing partner’s plant and do quality controls and production audits.
Risks for exporters (external link) — New Zealand Trade and Enterprise
A manufacturing agreement sets out the terms and conditions on which your selected overseas manufacturer will produce your products. You agreement should include:
It is important to get advice from experts and specialists who understand the options, know your company, and understand the market.
There are a number of options for finding experts and specialists to advise you.