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Am I Ready to Manufacture in China? Get it Right!
By Aaron Wong
Why is it that so many people want to manufacture and produce their products overseas? Increasing globalized world economies along with intensified competition between products makes the need to cut costs even more of a necessity. The most effective way of cutting costs is to make it in a country with the manufacturing infrastructure that breeds low cost labor. The most well known countries with the economic infrastructure and stability mostly reside in Asia, particularly China.
Experience has shown that many who go to China to produce products indeed can make their products cheaper. Almost everyone I meet will always tell me they have some idea that they would like to make in China. When I first started in this business, I would get excited and chase every opportunity presented to me. However, I soon learned for some, these ideas were exactly that, just an idea. I would try to spend hours of my own time to help them search out the perfect factory for them to find out they were nowhere close to being prepared to make their products overseas.
After long contemplation and study of past and current small to medium-sized companies, including startups, who have been successful in manufacturing their products overseas, I have come up with 4 requirements all of these successful companies share.
1. Can provide a working prototype, sample, or industrial drawings
2. Have performed a SWOT Analysis on their product and business with favorable results
3. Possess a business plan with proper research to support their findings
4. Have or will acquire enough capital (money) to manufacture, ship, and distribute their product
1. Working Prototype/Sample/Industrial Drawings
A sample is the model or original on which something is made or produced. Another common name is prototype. Therefore, a working sample is a model or original that works the way you expect it to work, look like you expect it to look, and feel the way you expect it to feel.
By providing a working sample to your factory, this will allow them to know exactly what you are trying to make. The phrase "a picture's worth a thousand words" can't be further from the truth here.
If you don't have a working sample, consider the following suggestions:
• Hire Someone To Make One. There are plenty of design firms out there you can hire to make professional prototypes to your exact specifications. However, this option can be very expensive.
• Buy Your Competitor's Product. If you don't have a large development budget, then consider buying a competitor's product. If you are creating a totally new product, then purchase something that is similar to what you are trying to make. From these products, you can instruct the factory of the changes you want made to the product to make it your own. Beware of any patents on these products.
• Get Creative With Your Resources. If even purchasing a product is out of your budget, then consider getting creative with what you have around you to make your sample. It's amazing what can be accomplished with duct tape!
2. SWOT Analysis
A SWOT Analysis is a business tool to analyze a company and product's Strengths, Weaknesses, Opportunities, and Threats. It is extremely important you make an honest assessment of both your company and products to find out where you really fit within the whole pie. Performing an accurate SWOT Analysis will not only help you better position your business and product to find where your competition is not focused on, but to also find out where you really need to improve.
At the end of this article is a sample SWOT Analysis worksheet with questions to get you thinking about each section of the analysis.
3. Business Plan
Anyone who has taken any business class at any college or university is probably familiar with the concept of a business plan. The "formal" business plan as they say at school will end up being 20+ pages and will probably never be read after it is written. In my opinion, those type of plans are just a waste of time and useless.
I created what I call the "real" business plan which is one-page and 10 questions to help you analyze your business and create an initial plan that is practical and easy to read.
4. Acquired Capital (Money)
This last requirement is obvious and does not need much explanation. You can have your prototype or sample, have a favorable SWOT Analysis, and have a killer business plan, but without the money to make your product there is no point in pursuing your "idea" any further. It will always be just another idea, until either you have the money to make it or someone else thinks of the idea and makes it before you do.
The actual cost benefit of manufacturing your products overseas is seen only if you are willing to order larger volumes. When I say larger, I don't mean tens or hundreds of thousands of units. You will need to order a couple of thousand in order to begin seeing the benefits. Each factory will have their minimum order quantity (MOQ) you will need to order.
There are many ways to get the money you need to make your product. This includes:
1. Family, Friends, and Fools. This is a popular saying among investors who will always tell you the best place to start raising money is with your friends, family, and fools (anyone else who will give you money).
2. Bank Loans. This is an option if you don't want to give away pieces of your company for cash. There are many reasonable bank loan options out there, but make sure you do your research on the different loans and also make sure you can make the monthly payments on the loans.
3. Angel Investors. These individuals are different from venture capitalists in that these are typically individuals who are investing their own money on you. Angels usually invest in projects under $1 million. There are angel investors who look to invest in products in hopes of getting a quick return on their investment.
Conclusion
Overall, these 4 requirements cannot be without the other. It will seem that one is more important than the other, such as the money; however, they are equally important if you really want to succeed in manufacturing your product and selling it successfully. What's the point in having the money to make your product if you have no solid plan in place to sell or distribute your product? Or, without a prototype/sample/industrial drawing a SWOT Analysis or business plan is not going to make your product into a reality.
I have seen too many times individuals or companies who did not meet all 4 requirements and failed to successfully benefit from manufacturing their products overseas. Before you decide to pursue your "idea' of manufacturing your product overseas, take your time to make sure you meet these 4 requirements, so the same things does not happen to you.
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Aaron Wong is the Founder of AQI (Arrow Quality International), the first and leading Chinese Bridge consulting firm. Aaron is an extremely fluent speaker of Mandarin Chinese, and proficient in Cantonese Chinese (so he claims). He has over 7 years in the translation industry in positions of freelance translator and contract Federal Government linguist. Aaron has been involved in many business ventures that include selling his family cherries when he was 10 to a computer business when he was 13 to sending English teachers to China and Taiwan to teach English at 24. He graduated from the University of Utah in 2 years with a dual Bachelor's degree in Chinese and Asian Studies; and received his Masters in Management with an emphasis in business management from Colorado Technical University with a 4.0 GPA. Aaron received his MBA from the University of Utah in the spring of 2007. He also currently serves as the Secretary of the Board of Directors for the Lehi Area Chamber of Commerce, a volunteer Business Counselor for SCORE, a Student Mentor for the University of Utah SMART Start program, and has been recognized as a Top 40 Under 40 Professional by BusinessQ magazine. Find out more at http://www.arrowquality.com
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