Chinese manufacturing. It's like the Sirens beaconing in Greek myth. "Come to me. Manufacturing is cheap. Come to me..." I've been coaching a stage 0 entrepreneur. In my book stage 0 means you don't have a product in the market. He was VERY excited to get a manufacturing quote from China. "It'll only cost $29.95 there!" He was practically beaming through the phone. "And if I order 100,000 units they'll create the tooling for free!"
There was this loud screeching in my head like a needle jerked off a record. "That would mean you'd have over $3 million to invest in the business. What would you even care about the free tooling? You have zero investment dollars raised now and you have all the risk of first time manufacturing."
And here was the key question, "Do you have a US manufacturing quote?"
Answer, "Well, no. I tried but the manufacturer said there wasn't enough engineering details to complete a quote."
So here is someone who has never built a product before with a brand new product concept and he's looking to Asia before anything else. The US vendor said there is not enough information to complete the quote but somehow the Asian vendor came up with a price... "Come sailor, turn your ship upon the rocks." It's the Siren song at work.
My Experience in Asia
We were a specialty powered RFID technology company. Everything was custom and an end-to-end solution, RFID devices, network attached data devices and software (both desktop and cloud). We had done successful US production but the company wanted to reduce the estimated cost of production for a new, never before produced product. So the decision was Singapore.
The partner was a local Singapore division of a multi-billion dollar manufacturer in Asia called Venture. One of our largest investors and a global business power brand recommended them. Best of all, from the boards view, the company would offer us credit terms. So even though this was a product just coming out of R&D, it was going to be low volume production, we didn't have tooling and all our engineering was outsourced and based in the US - we were going to Asia.
Have you ever had working prototypes but first articles of electronics production that were dead as rocks?
Have you ever had working prototypes but first articles of electronics production that were dead as rocks? I have. It's not fun at all and when you are 12,000 miles away with a 13 hour time zone difference there is only one thing to do. Get on a plane. Electronics didn't work, casing didn't seal, cosmetic blemishes were rampant on exterior parts, our tooling was scattered around 3 different Asian nations and I was dealing with 1 a.m. conference calls with a dozen people on the phone with 6 different dialectic accents when they spoke English. We had calls just about every night for 9 months.
We eventually got product. It took 6 months longer than it would have taken in the US. The cost saving? I believe the overall direct and indirect costs savings were zero. We had to air ship product because the manufacturing schedule was so far behind and the vendor couldn't live up to the quoted price because we had to keep buying parts from the spot market. You see no one wants to produce parts and have them sit on a shelf so you either get in a 6 to 9 month queue for production or you pay a premium on the spot market.
The 6 months of extra time to market was a real killer. The sales people were out mouth piecing the new product for a long time. Who wants to buy the old product with the promise of the new one "right around the corner".
Knowing what I now know would I have done this again? Absolutely not. The lessons I'd learned with software development a decade earlier came to play in tangible goods manufacturing. Am I saying you should never manufacture in Asia? Of course not, but for most new and small companies trying to bring a new product to market the risks far outweigh the potential, and it's only benefit, lower "total costs of manufacturing". Notice I didn't write price. A price is only one part of the cost to do business in a far away land.
Here's some of the dangers to consider...
Cultural Differences Affect Success
Asian cultures have a tendency to have everyone shake their heads "yes" to the customer. It really doesn't matter what you ask. They say yes. Price is about the only thing they'll dig in about. Culturally there is a rigid pecking order and customers stand at the top. Does it mean they'll be able to competently do the "yes" - not at all.
Asian businesses tend to have many, many people involved in a project. Think of this as IBM in the 1970s. They fill the conference rooms and conference calls. Are they important or relevant to your project? For half of them this will be a guess or a definite no. They tend to have title inflation and detailed titles. I am a "business manager for testing level 3". Whatever that means.
Prepare to be strung along. Any business can do this in any nation. But if you manufacture overseas the manufacturer is going to use a bunch of little vendors. Even if you're contract manufacturer is a "straight shooter" most of their vendors will not be. A deadline is not a deadline until the part or effort is completed. I have not found this to be the case in the US for the most part. It's too competitive in the US. If you don't follow through, you're out of business in pretty short order.
I became fluent in Chinglish
Jokingly everyone refers to the strong Chinese accents in Asia as "Chinglish". But it's not just Chinglish you'll be speaking with persons from different provinces, countries and non-Chinese cultures. This is going to create many communication challenges. It took 3 months of conference calls for my ear to pick up on the potpourri of dialects. Then I didn't notice it until others from the US would get on the calls and I'd end up translating what was said in Asia. It was kind of ironic. I became fluent in "Chinglish".
Be prepared to play the largest leading role in your effort you've ever had. Asian culture is not big on creative collaboration. When there is a decision it is up to you to get all the information and decide the action - period. They will not accept the accountability of even offering anything but the most conservative options. You will need to ask more questions than you'll normally ask in US vendor relationships. I found it to be about 2 to 3 times the effort involvement to get adequate information to make a management decision. It was always me making the decisions and I'm not a micro-manager kind of personality.
Cost of Distance
There is a much higher burden on your team to meet Asian time zone differences. Asian vendors will say they will hold a call on your time zone but in manufacturing so many people are involved on their side that you'll have to schedule calls based on when Asia does business. This is no big deal for a month or so but after 6 to 9 months it's a big drag and tends to burn people out.
Shipping and customs is not a trivial cost or effort to manage. If you can tolerate 6 to 8 weeks to get something shipped through customs and into your warehouse then you'll probably do fine on this front. But if you need things faster you're only option is air freight and an expeditor service to bring things through customs quickly to the US. This is very expensive. We found it to be as much as 30% of the cost of the product just to ship this way. We had small products so we got away with this on the cheap end.
Ever Use a Squat Pot Before? You Will.
You and members of your team will be going to Asia several times and it's not the tourist spots. Also remember that tooling can be in a completely different country and they'll be in run down industrial areas. Ever use a squat pot? You will. And you'll be awakened to all sorts of other third world "niceties". Asian travel is very expensive not just in direct cost for you but contract vendors, like engineers, are going to charge a lot for the inconvenience of going out there. If they'll go at all.
The big issues are complicated by distance. When a very important milestone is missed, and it will be, the most effective thing is to be in the vendor's face. Shame is a powerful tool in Asian culture. Distance is much less effective for pressuring your vendor. A day flight (out to the vendor and back home in one day) in the US for a one hour "pound the table meeting" is feasible. A one day flight, each way, to Asia for a one hour meeting? Yeah, you'll be thinking about that one for awhile before you pull the trigger.
Asian manufacturing can be an excellent investment and return for larger companies or more established product lines but why, oh why, would you risk your product and potentially your company in the early stages to try to save a few bucks.