We’ve worked with some customers who started to do the final assembly of their products themselves in their countries. Later, they decided to move all of this to China.
What are the pros and cons of such an approach? And is how painful is it to move manufacturing offshore once it is done domestically?
Starting with domestic final assembly
Businesses sometimes like to handle the final assembly of their products because they retain control over the process and product and have some flexibility.
Pros of this approach
- Obviously, decisions are made faster. You can discuss issues with the purchasers, the engineers, etc. and make progress. Maybe you can simply drop by from time to time, rather than plan for an intercontinental trip.
- It is great for validating your product design because you can keep making changes to the design as soon as user feedback comes in, while at the same time being paid for any products that are shipped out. All being well, this would be a profitable approach.
- It may be cheaper, all things considered, if you do things ‘in your garage’, as long as the volumes are in the tens or hundreds of units a month.
- Keeping assembly in-house is also good for intellectual property (IP) protection. This limits how many links in the supply chain know what the complete product looks like, and some businesses even flash the firmware for their electronic devices themselves (the jig to do this is probably inexpensive).
Note: people’s concerns about IP are sometimes overstated during the early days of a new product project, because it probably won’t attract the wrong kind of attention until it becomes very popular and clearly sells in good quantities, or undergoes a high-profile online launch with plenty of social media presence, ads, crowdfunding, etc. IP protection is a large topic, so please read this long guide for further details: IP Protection in China when Developing Your New Product [Importer’s Guide]
Cons of this approach
Assembling ‘at home’ has a few notable disadvantages over doing so in Asia via a contract manufacturer or other similar supplier:
- As volumes increase, keeping production in your country will cost you a lot of margin. At one point, usually when you see you will need to make thousands of units a month, the economics clearly push you to outsource production to a low cost country.
- You have the pressure of setting up your supply chain alone. Regardless of your location, if you’re producing a fairly typical electro-mechanical product it probably includes some critical components from China.
If that’s the case, a Chinese contract manufacturer would have the edge on finding the right local component suppliers there, and may well have a mature list of trusted suppliers in place already. Working with them doesn’t have to be risky, either, and it is often possible to negotiate important terms such as having an “open BOM”, and being able to “pull out your tooling at any time.” - If you start assembling products in your country, but then later switch this to an Asian manufacturer, no doubt providing a lower unit cost, your supply chain may need to be totally redeveloped. Plastic parts, commonly used by a lot of businesses in their products, are specifically an issue here. Things can get nasty, so read this blog post for further information.
- As your manufacturer starts to produce in larger quantities it may be that your entire manufacturing process needs to be re-engineered. While in a way this is shows that you’re making progress towards producing in large batches and selling more products, it still means that industrializing the product may take 2 to 3 months longer than you planned for and can be a little disappointing.
All in all, a conclusion is that switching from domestic to offshore manufacturing is possible, and in some cases it is the best approach, however it does not happen at the push of a button. Domestic production should only stop once there is clear validation that the (typically China-based) manufacturer is ready to go.
P.S. Related content…
In CM + PCBA Factory vs. EMS Supplier in Shenzhen, China, we explain the advantages and challenges of working with either an Electronic Manufacturing Supplier (EMS) or a Contract Manufacturer (CM) and PCBA supplier when outsourcing product assembly in Asia. For businesses assembling products locally in small quantities, this insight helps when scaling to Asia.
EMS suppliers typically offer a one-stop solution, but are often unsuitable for smaller projects. A CM partnering with a PCBA supplier is more flexible and realistic, providing better control over quality, customization, and supplier transparency. This model often suits businesses growing into larger production.
