How to Succeed at Overseas Foreign Manufacturing
More than a decade ago, I wrote an article for a supply chain magazine, on what I and my law firm’s international manufacturing lawyers saw as the ten keys to successful overseas manufacturing. Though the magazine no longer exists, I recently rediscovered the article when a potential client told me he “still makes it required reading” at his company. I asked him to send me a copy, and what follows is an updated version of that article.
By following these ten key principles, you will significantly increase your chances of overseas manufacturing success. Here’s a brief overview of the ten keys:
- Choose the Right Manufacturer: Thorough due diligence is crucial for finding a reliable partner.
- Use Detailed Documentation: Clear, comprehensive documentation helps maintain quality.
- Maintain a Factory Presence: Regular visits or third-party QC can ensure that your standards are met.
- Conduct Regular Product Inspections: Inspections during and after production catch quality issues early.
- Approve Sample Management: An approved sample sets a clear benchmark for production.
- Implement Strong Contracts: Robust contracts protect your interests and set clear expectations.
- Clear Communication and Building Relationships: Effective communication and cultural understanding are vital.
- Plan for Potential Delays: Anticipating delays helps you manage timelines more effectively.
- Protect Your Intellectual Property: Safeguarding your IP is essential in overseas manufacturing.
- Build Long-Term Success: Investing time and effort in these areas can fuel your long-term growth and competitiveness.
1. Choose the Right Manufacturer
Choose the right manufacturer. Good manufacturers make good products and deliver them on time. Bad manufacturers do not. Do your due diligence. This is the most important thing you can do. If you choose a bad manufacturer, nearly all of the below will be a waste of your time and money.
Research thoroughly to identify potential partners with a proven track record of quality and on-time delivery. Consider factors like their experience with similar products, their financial stability, and production capacity. If possible, visit potential factories to assess their infrastructure, management style, and workforce capabilities. If you cannot visit, the next best thing is to have a trusted person do so on your behalf. Seek referrals from industry contacts and attend trade shows to broaden your options. Don’t be afraid to negotiate pricing and terms, but prioritize quality over rock-bottom costs.
2. Use Detailed Documentation
Use bilingual, detailed, factory agreed upon checklists that document your product’s specifications and the criteria for inspecting the product before shipment. This type of documentation takes time and hard work to create, but putting such processes in place is important for avoiding problems.
Your QC Checklist should outline the following:
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- Item Packaging
- Item Defect Classification (what is considered a defect and at what severity)
- Item Size and Other Specifications
- Item Functionality and How it is Checked
You should ensure that your factory agrees to each item on your checklist, and you should then memorialize this in a country-specific manufacturing contract.
3. Maintain a Factory Presence
Establishing a presence at your overseas factory demonstrates your commitment to the partnership and allows for closer production oversight. Consider partnering with a third-party quality control (QC) company or stationing your own representative at the factory on a regular basis. This physical presence ensures the factory associates your presence with your production and it will help keep them accountable for meeting your standards.
4. Conduct Regular Product Inspections
Regular product inspections, both during production (DUPRO) and before final shipment, are vital for catching and correcting quality issues early. Inspections should be conducted consistently using clearly defined criteria. Work with the factory’s QC team to review inspection results and address any identified problems promptly. This collaborative approach fosters trust and ensures consistent quality control.
5. Approve Sample Management
An approved physical sample should serve as the gold standard for your product. Maintain two copies, one at your office and one at the factory, to ensure everyone is referencing the same product specifications. Revisions are inevitable, so implement a system for version control to track modifications made to the approved sample. By consistently referencing the approved sample, you can minimize discrepancies and ensure your final product meets your expectations.
6. Use Appropriate Manufacturing Contracts
Good contracts help maintain quality and timely deliveries, and they protect your IP. Overseas manufacturers, like companies everywhere, do not like getting sued. A good contract incorporates your key requirements and sets up your foreign company supplier for liability if it fails to meet those requirements.
It is important that your contract be written for the country in which you are doing business. For example, your manufacturing contract for China needs to be very different than your manufacturing contract for Mexico or even Vietnam.
7. Communicate and Build Strong Relationships
Set expectations upfront by clearly outlining requirements, specifications, and deadlines. Maintain regular communication with your manufacturing partner to identify and address any potential issues early on. Respond promptly to inquiries and concerns to demonstrate professionalism and build trust. By prioritizing clear communication, you can ensure a smoother and more efficient manufacturing process.
A strong relationship with your overseas manufacturer goes beyond legally binding contracts. Mutual respect is paramount. Take the time to understand their culture and business practices. Simple gestures like learning a few basic phrases in their language or acknowledging cultural holidays go a long way in building rapport and fostering a successful long-term partnership.
8. Plan for Potential Delays
When working overseas, unforeseen circumstances can sometimes cause delays. Be sure to factor this into your planning. Customs inspections, holidays in the manufacturing country, or even material shortages can disrupt your timeline. Building in buffer time and establishing clear communication channels with your partner will help you navigate these situations effectively. By proactively planning for potential delays, you can minimize their impact on your overall project timeline.
9. Protect Your Intellectual Property (IP)
Having your product manufactured overseas will expose your intellectual property (IP) to new risks. The below are the basics on what you need to do to protect your IP when manufacturing overseas.
- Trademark Registration: Secure trademark registrations in the countries where you plan to manufacture and sell your products. This establishes ownership and legal protection for your brand name and logos.
- Confidentiality Agreements: Have your manufacturer (and sometimes any subcontractors) sign NNN Agreements that require they protect your proprietary information, including designs, trade secrets, and technical know-how. Western-style NNN Agreements seldom work at all and are often worse than nothing at all.
- Contractual Safeguards: Include strong IP provisions in your manufacturing contracts that prohibit your manufacturer from using your IP for unauthorized purposes, copying your designs, or selling your product to unauthorized distributors.
10. Think Long Term
Following these ten key principles will increase your chances of success in overseas manufacturing. By investing time and effort upfront, you should be able to establish reliable and mutually beneficial manufacturing partnerships.
