How do I decide whether to manufacture domestically or abroad in a country like China?

The factors that drive the decision on whether to manufacture your product in the United States or overseas in countries like China, India, or Vietnam, are different for every company. At a high level, this decision should be driven by your company strategy within your industry. Unfortunately, executives and entrepreneurs often make their decisions based on the latest business fad or trend of the day, rather than on their specific situation.

Because of the situational and company-specific factors that must go into this decision, there is no one-size-fits-all approach. Developing countries like China, India, and Vietnam offer access to cheaper labor, and in the case of China, solid infrastructure, and one of the largest manufacturing bases in the world. By sourcing in a place like China, a company has an instant ability to lower their COGS (or cost of goods sold) in comparison to the U.S.. In addition, tooling and mold costs will likely be significantly cheaper as well. These result in overall hard cost reductions of anywhere from 30%-90%. In some cases, the cost reductions can be quite astounding.

Although manufacturing in the United States generally does not offer as cheap of hard costs as, say…a country like China, the United States has a number of benefits that can also be highly valuable. Manufacturing lead times are a great deal shorter and many feel they are able to achieve higher quality production. From a strategic standpoint, these advantages can be important for companies that must respond quickly to demand fluctuations (a shorter lead time allows a company to wait longer until they start production, so they can begin to actually see what the demand is and not order as much inventory), or companies that make products that have massive liability potential and must have exceptionally low quality defects, such as medical products.

It’s important for a company, particularly a start-up venture, to assess its own industry and positioning, to make a sound decision on whether to begin sourcing activities in a country like China or the U.S.