Offshore manufacturing cuts production costs, accelerates time-to-market, and lowers delivery expenses for businesses seeking efficiency and competitive advantage.
Many businesses opt for offshore manufacturing to lower component costs while retaining New Zealand research, development, design, and short-run manufacturing.
For small businesses, maintaining control over the product is crucial when entering partnerships or contracting overseas manufacturers. Typically, companies gradually expand their overseas manufacturing involvement, starting with outsourcing and progressing towards factory ownership as the business grows.
Uncovering Manufacturing Alternatives
Considerations for Overseas Manufacturing Encompass:
Contract manufacturing
Contract manufacturing is a game-changing strategy that allows businesses to enlist the expertise of overseas firms to produce their products based on precise specifications. As a customer-supplier relationship, you maintain control over the process while leveraging the specialised capabilities of the manufacturer. Whether it’s manufacturing the entire product or specific components, you may provide moulds or detailed specifications to ensure alignment with your vision. However, safeguarding your intellectual property (IP) and rights is of utmost importance to prevent any unauthorised use or exploitation. By navigating this collaboration with care, you can unlock the immense benefits of contract manufacturing while safeguarding your valuable assets.
Licensed manufacturing
Opting for licensed manufacturing allows you to grant an overseas company the privilege of manufacturing and marketing your product within a specified territory, utilising your valuable intellectual property (IP). This strategic partnership offers compelling advantages, including reduced production and transportation costs, bolstering your ability to compete effectively in international markets.
Furthermore, offshore production and manufacturing capabilities present an opportunity to surmount import restrictions while enabling you to redirect your focus towards your core strengths, such as research and development (R&D) or design, instead of being tied down by production activities. By capitalising on these arrangements, you can enhance efficiency, breakthrough market barriers, and leverage your expertise to drive innovation and growth.
Establishing a facility, acquiring one, or engaging in a joint venture
Setting up or acquiring your manufacturing facilities abroad can incur significant expenses. It’s important to note that achieving a return on investment typically requires a substantial volume of business.
Alternatively, operating an overseas factory through a joint venture with a local company can mitigate risks to your business in New Zealand while capitalising on their invaluable local expertise. This collaborative approach empowers you to leverage their knowledge and insights, enhancing operational efficiency and market competitiveness.
Overview of importing and exporting regulations
FACT: Certain nations impose conditions on foreign-owned businesses and may enforce laws about foreign investment.
Before investing in overseas production facilities, it is crucial to seek guidance from your accountant and other trusted business advisors.
What are the potential risks linked to overseas manufacturing?
There are inherent risks associated with engaging with an offshore manufacturer, including:
- Potential loss of control over product manufacturing.
- Challenges in building and maintaining a healthy relationship with the new supplier or business partner.
- Vulnerability to intellectual property (IP) theft or misuse.
- Exposure to fluctuations in exchange rates.
To mitigate these risks, it is advisable to establish clarity regarding your quality requirements and delivery expectations, documenting them in a comprehensive manufacturing agreement. This agreement should also encompass a thorough IP clause, and confidentiality agreement, as well as provisions for governance, dispute resolution, and exit strategies.
To safeguard your business against foreign currency exchange rate fluctuations, seek guidance from a professional finance specialist who can offer valuable insights and assist in determining the best protective measures.
Protecting intellectual property
Discovering the Ideal Overseas Manufacturer
Finding the perfect manufacturer for your products plays a pivotal role in determining your success. It is crucial to identify a trustworthy company equipped with the requisite technical expertise and equipment to produce your goods to the desired quality and specifications. Additionally, they should possess sufficient capacity to meet your production requirements and demonstrate flexibility in accommodating your unique needs within their manufacturing schedule.
Consider these eight essential tips as you embark on your search:
- Understand regulations.
- Conduct thorough market research to understand the industry structure, which may differ from your expectations.
- Precisely define your specific needs and requirements.
- Research potential manufacturers diligently.
- Create a shortlist of prospective manufacturers and obtain quotes and references. If local assistance is unavailable, request references from New Zealand (or Australian) clients from the manufacturers. Follow up on these references.
- Conduct comprehensive legal background checks on the final candidates to validate provided information, including ownership, registrations, and business scope.
- Visit top candidates with a translator and local representative.
- Engage a reputable law firm for proper legal translation of final contracts. Ensure that the chosen firm possesses expertise in structuring offshore manufacturing contracts and is well-versed in the laws of the respective country.
By adhering to these guidelines, you can maximise the likelihood of finding the right manufacturer and establishing a solid foundation for your offshore manufacturing endeavours.
Managing quality
Quality control is a significant concern for companies engaged in overseas manufacturing.
To mitigate risks, options include outsourcing product inspections or employing on-site representatives to oversee quality. Independent inspection companies offer valuable services, conducting quality controls and production audits at manufacturing partner facilities. Prioritising quality control ensures product integrity and customer satisfaction.
Risks for exporters – New Zealand Trade and Enterprise
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