Some American entrepreneurs or small businesses start assembling, testing, and packing their new products in-house, and then later, once the sales pick up and the production volumes are high enough, they plan to hand production over to a contract manufacturer in China.
This is quite common in the USA, but should you launch in the States first and then outsource to China, or can/should you go directly to China? Let’s look at the benefits and drawbacks of each approach.
Launching Production in the USA
You may choose to order all the components and do manufacturing, testing, packing, and shipping in the USA, or at least start there.
In-house production
It is often possible to start small production runs in your office (or in the proverbial garage?) but only for tens to about a hundred pieces of your electronic product. Inventors, entrepreneurs, and small businesses that are not experienced in bringing new products to market will benefit from ‘learning the ropes.’ They can then pass on that experience to their contract manufacturer as volumes increase. For example, you will find and fix product and assembly process issues yourself, refining them as you go along, resulting in a better final product. You will also have control over product quality and can easily document what is and isn’t acceptable in terms of defects. For your own sanity, you won’t keep this up for long and will need to find a way to increase volumes, which brings us to the next domestic option.
Using an American manufacturer
You may be able to find a domestic contract manufacturer, although bear in mind that electronic parts are still likely to be sourced from China in a great many cases (and in that case there is little risk mitigation).
Needless to say, this would usually be more expensive than manufacturing in China due to higher labor costs, but benefits would be your ease of access to the supplier, no language barrier, and the ability to oversee production far more easily than taking a long flight to China.
This video is an interesting discussion about using American manufacturers. One of the speakers arranged some manufacturing in the USA and mentioned the price is higher in most cases (not for everything, though), but also another problem which is that he found that American manufacturers can’t do everything required.
Hybrid Manufacturing
In his ‘Predictable Designs’ blog, John Teel introduces his favored concept for American manufacturers in this situation: Hybrid manufacturing.
He says:
[Hybrid manufacturing] combines domestic with offshore manufacturing.
This is going to cost less because you’re getting the benefit of having some of the more expensive parts of the product manufactured offshore, in China or Taiwan, and you’re also going to have better oversight than with offshore manufacturing.
For example, you have your Printed Circuit Board and your product enclosure manufactured in China or Taiwan (by using Taiwan, you get around the US tariffs).
But, then you do the final product assembly, testing, packaging, and shipping domestically.
So, working with a domestic manufacturer would probably be a form of hybrid manufacturing involving a Chinese supply chain at least.
John expands on the benefits of the approach:
The benefits of this hybrid strategy are you still get the lower offshore price for your components, while still having in person oversight of the final stages of your product manufacturing. Your oversight will include the product assembly, testing, and packaging.
I generally agree. I’d simply add one thing. One drawback of this approach is the risk of receiving some components that are not made to spec. It is a relatively high risk for custom-designed components, especially in the first few manufacturing batches…
Launching production in China
The alternative to the hybrid manufacturing approach of starting production domestically and then handing it over to a contract manufacturer (CM) in China is to go directly to a CM in China. This is going to work best if you find one that is professional, speaks good English, and has the experience in the type of products, equipment, and capacity that you need.
If you are less experienced in bringing new electronic products to market, you will be able to tap into their expertise. Experienced engineers on their staff can help a lot by suggesting ‘design for manufacturing’ adjustments and pointing out some design issues you missed. Better have this done before investing in tooling!
It would also be beneficial to make a couple of trips to China and do some co-development on-site, because working with your manufacturer’s facilities and team helps a lot in the pre-mass-production preparations. Giving direction and feedback from a distance is much less efficient. (Some CMs, like ourselves, are happy to have customers come and spend 1 to 3 weeks on site).
Another benefit is that you can rely on the CM for picking proven component suppliers, already knowing what it takes for your product to be compliant, etc. (Naturally, you’ll need to ensure that they will hand over the supplier list, the latest drawings, etc., by signing a manufacturing agreement with them that clarifies that you own these deliverables since that’s not a given at all in China!)
Otherwise, if you build in the US first and then switch to China, you’ll probably need to adjust your design when you hand over your product to them, and that may introduce new weaknesses in the product design that require new reliability validation, etc.
Remember the mold fabrication, too
A lot of electronic products will require a plastic injection mold. Getting it fabricated in China is likely to be far cheaper than in the USA. Don’t work with a US company that will get your tooling made in China without giving you the ability to move it at any time for no extra cost. (From what we have seen, that’s unfortunately quite common with US-based plastic suppliers.)
Conclusion: Which way to go?
While for very low volumes you may be able to start limited production in-house, and this will yield a lot of experience, this trial and error will slow you down. Go in this direction if you feel you need a lot of user feedback, you want to start selling as early as possible, and you still can’t tell if you will sell hundreds or thousands (or more) of units a month.
On the other hand, the higher your predicted production volumes, the more convenient it will be to go straight to working with the Chinese contract manufacturer. Staying close to the last design adjustments and to the manufacturing process is possible if you take the time to go there.
Finally, we are biased because obviously we don’t see the projects that are produced solely in the USA (or other countries, except for China). You need to make your own analysis of the pros and cons for your specific project.
