We often get the question, “Should I manufacture in the US or China?” While every product and team is different, there are general guidelines to help figure out what makes the most sense.
Guest post from Scott N. Miller, co-founder and CEO at Dragon Innovation:
Manufacturing in China
First, I’ll cover the current landscape of China. It’s well known that labor costs are significantly lower than in the US, but often what is not considered is the expert domain knowledge coupled with a local, robust and highly concentrated supply chain. The infrastructure, from the manufacturing to transportation, is second to none. On the negative side, China is far away, and also has potential language and cultural barriers.
China may be a good fit if your product:
- Is COGS (Cost of Goods Sold) sensitive
- Requires significant manual labor to manufacture and assemble
- Is built in high production volumes (>10,000 units)
- Uses existing manufacturing technology (i.e. injection molding)
- Is tolerant to supply chain and logistics lead times due to the distance
- Can benefit from low or no cost Design for Manufacturing Assembly (DFMA) & Non-recurring Engineering (NRE)
- Has “physically” protectable IP
Keep in mind that the labor rate continues to increase approximately 20% every year. Hopefully, the US and China will maintain a friendly political relationship, and tariffs will not be a growing issue.
Manufacturing in the US
On the other side of the coin, the US may be a good fit for manufacturing if your product:
- Can be manufactured and assembled through automation
- Is sensitive to shipping time and expenses (i.e. it needs to be delivered shortly after the order and the forecast is not well known, or the product is very large, such that shipping would be expensive).
- Requires low volumes (<10,000 units)
- Has difficult-to-protect IP, such as a fully mechanical product with no software.
- Requires non-standard capital equipment, such as a laser welder.
- Is part of a government contract regulated under ITAR.
There are some exciting initiatives in the US to expand manufacturing. Stay tuned!
Questions? Feedback or additions? Let us know!
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