Many products nowadays are manufactured overseas. If you have a product that you are looking to have manufactured, there are a few things to think about before you start decide whether to work with a domestic or foreign manufacturer.

Are Costs Higher? – United States businesses many times use foreign manufacturers because the cost of manufacturing a product in other countries is usually lower than the cost of manufacturing it in the US. Nevertheless, it is important to be aware of the additional costs of using a foreign manufacturer versus having the product produced domestically. Two additional costs of using an foreign manufacturer are shipping and bank fees. Shipping costs are obviously much higher when doing business with another country. As for bank fees, many foreign businesses will only accept payments via bank transfer. The fees for making bank transfers vary from bank to bank so look into what these will be ahead of time.

Are Laws More Complex? – Imports from foreign countries to the United States are regulated by the U.S. Customs and Border Protection agency. The regulations administered by this agency are highly complex and detailed, and it is very important for anyone interested in dealing with a manufacturer in another country to determine exactly which regulations apply to the product or products being imported. Duties on imports are also additional costs of importing products.

How Can I Protect Myself? – Because most, if not all, of your correspondence with a foreign manufacturer is done from a distance, it is also important for you to safeguard against the risks associated with dealing with a potentially unreliable company. For this reason, it is strongly advised to use only reputable companies that have demonstrated reliable service in the past. If a company steals your money or fails to deliver on an order, it will be far more difficult for you to take legal action against the company than it would be if you were dealing domestically. There are many resources to be found online that can help you determine whether the foreign manufacturer you are considering has shown themselves to be reliable.

I worked in the electronics industry in various management positions expanding over 35 years. The last 20 years things have changed, for the worst. Government regulations and taxes have forced manufacturing to move out of this country.

In the early seventies, design and manufacturing of anything electronics was done in the USA. I worked for a manufacturer of hand-held calculators as an electronics designer. This company was based in New Jersey and it manufactured everything in New Jersey. Sears was their largest customer.

In mid-seventies, while working for another company, we set up a manufacturing plant in Mexico, across the border in Nogales. Many American companies did the same. Some of them are still operating there today. The same happened in Canada. The business environment was helpful and friendly, and of course the manufacturing cost was lower than in the USA.

By mid-nineties, the Mexican government started imposing all sorts of restrictions and regulations. A large number of companies shut down and left. The same happened in Canada.

Note: I had a customer in Canada who was doing a failure analysis of our products. I had to go and validate the failures and document it. I was told: “Do not bring even a screwdriver with you from USA to Canada. The customs will turn you back”. Canada was trying to protect their jobs.

In the mid-eighties I was working for an electronics company in Southern California. This company was a pioneer in communication electronic devices. It had a factory already and it needed to expand. The company invested in equipment and buildings.

By the time everything was installed and functioning, the manufacturing facility was not compliant anymore under the fast changing air quality regulations in the state of California. The new regulations forced the company to sell its facilities and move its manufacturing to Singapore and Malaysia. The company is still in business today but there is no manufacturing in this country.

Recently I was doing some consulting work for an industrial representative, representing a circuit board manufacturer in Southern California. (Circuit boards are the electronic components going into everything: cars, airplanes, refrigerators, washing machines, dryers, televisions, you name it. Everything we use.) It is impossible to open a facility like this in Southern California today due to stringent air standards. The company was a very small prototype facility. Circuit board manufacturing requires the use of certain chemicals for soldering and cleaning. There was a permanent government inspector sitting in a government owned van monitoring the air quality around this facility (every day, 8 hours/day).

Made In China Is A Misnomer

The term “Made” implies creation, design and manufacturing of a certain item. That is not what is happening with products labeled “Made in China” .

I worked for a very large electronics Taiwanese company. The company had engineering and manufacturing facilities in Taiwan. At the time, this company was the 4th largest Taiwanese company trading on the Taipei exchange, 4 billion USD. It supplied a key component required by every computer. Their top customers were Compaq, Dell, IBM and Hewlett Packard.

In the mid-nineties, the Communist China opened for business big time. It was a strategic move on China’s part. Make the country business friendly and everybody will come. And they did.

Here is the story:

The Chinese government, in the nineties, started building manufacturing facilities (concrete walls, no equipment) along the southern border, close to Hong Kong. Hong Kong was a big port and easily accessible from mainland.

Foreign manufacturing companies were provided, by the Chinese Government, manufacturing space and labor. Every factory had a built-in dormitory for workers.

Business tax liabilities to the Chinese government were forfeited for the first three years.

Business operators would bring in and install the equipment necessary, bring in part kits, and within days the Chinese government would deliver anywhere from 200 to 300 laborers to the designated facilities at pennies per hour per laborer.

If the business was slow, or it had to deal with cancellations, the operators would close down the facility for a period of time, and the Chinese government handled the labor force, transparent to the business. The government would just find new jobs for the workers and moved them practically over night. There was no obligation on operator’s side and no liability.

My employer had a pilot plant and used three independent contractors which maintained mirror manufacturing facilities as a back-up, or assigned to a specific account. This was a very large manufacturing operation. Shipping hundreds of thousands of assembled computer subsystems to the USA and Europe per month was not unusual. The Chinese government provided low level labor only. All managers and engineers were foreigners from the country of origin running the plants.

Nothing was designed in China, the material, components or parts had to be imported, management and quality control was performed by the foreign operators and the bulk of the profits were also kept by the foreign operators.

While working for this company, we had an office in Huston Texas, where Compaq computer was based. The company was interested in opening a small support and manufacturing facility in Mexico, across the border from Brownsville, TX. Mexican government made this venture quite unattractive. They demanded a minimum wage, six months severance, and many other benefits for the workers. Compared with China, it was not worth it. They would rather communicate through FAX machine and air ship product to Huston from China. It was cheaper.

Special Remarks

From an engineering aspect, our product was very simple to design. However, manufacturing it, was a different story. It could not be automated. The product contained more than 300 components, and most of them had to be assembled by hand. The quality expected by their customers was very high. This $20 dollar product required 350 manual workers. The material accounted for 75% of the cost. Labor accounted for 10%. Overhead and profit shared the remaining 10%.

Competitive Issues

When every business has equal access to this kind of environment, there is no choice, but to join in. If they don’t, they will be out of business in no time.

I am sure, by now, the labor cost is probably higher. It is all relative. USA is not even trying to entice the lost manufacturing to come back. It is the new paradigm, Service Economy. We will see how long the service economy will be able to feed the society.