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Bringing Your Product to Market 4.10. Manufacturers

4.10. Manufacturers

In addition to licensing, you can also outsource manufacturing. In an outsource relationship, you retain full rights over your product or intellectual property and market it yourself or outsource the marketing. You engage a manufacturer to make the product for you at an agreed-on fee. You benefit from enjoying a larger slice of the revenue pie if your idea takes off; however, you have to do more work and the downside is much larger.

Outsourcing requires careful due diligence, negotiation, and sharp-eyed management of the outsource relationship monitoring quality and timeliness. Most manufacturing outsource relationships fail because of lack of diligence and communication―your manufacturer must clearly understand your quality and scheduling expectations. If you offshore manufacturing―largely because you can get manufactured products for pennies on the dollar―then you have an additional communications obstacle. Every outsource relationship I’ve been involved with in China has been a major headache because of the communication problem; the only time I’ve seen it work is when a manager on this end was fluent in both Chinese and English.

In a licensing deal, if your idea doesn’t fly on the market, you have no downside. However, your upside is limited to the royalties in the contract. In an outsource deal, your upside is unlimited, but you stand to lose a lot if the idea doesn’t work. Your outsource manufacturer still must get paid if your product fails.

The place to start, of course, is with manufacturer directories. We have provided some of the best Internet resources for tracking down manufacturers, but you should also check the LIMA directories―if you’re a member―for possible outsource partners.

4.10.1. Thomas Register of American Manufacturers

http://www.thomasnet.com

The Thomas Register is one of the oldest and most respected directories of American businesses. For many, many years they printed a large catalog of American manufacturers available at a pretty steep price; about ten years ago, they began distributing a CD-ROM version, also at a very steep price. ThomasNet has been around now for almost eight years; it’s essentially the Thomas Register available online for free.

You can search manufacturers by product category, company name, or brand name. You get back full contact information, Web site, and, in some cases, a catalog of products manufactured by that company.

4.10.2. Harris InfoSource

http://www.harrisinfo.com

Harris InfoSource is a fee-based American business directory that will allow you to use the directory for a free seven-day trial period. Unlike the Thomas Register, Harris will give you names of executives and their contact information. The price for using InfoSource is very, very steep, so you may only want to use it for the free trial period. The cheapest subscription is $2,696 (listing companies only with 250+ employees); the most expensive ranges around $14,000 (listing all companies with one or more employees) for one year of access. Wow!

4.10.3. Hoover’s Online

http://www.hoovers.com

Hoover’s is the oldest and one of the most respected online business databases. In addition to contact information, business overview, and executive information, Hoover’s also gives you financials and histories of the company. Like Harris, you subscribe for a fee; pricing varies on the plan (Pro, Plus, or Premium) and the number of people from your company that will be accessing the site. Hoover’s also offers a basic look-up service for free at http://www.hoovers.com/free.

4.10.4. OneSource

http://www.onesource.com

OneSource happens to be my favorite business look-up engine and database, combining the benefits of a thorough database with reasonable pricing. For the US and Canada, the database includes information on 14 million companies and 3 million executives; it is much less robust for European (except UK) and Asian businesses. Fees are based on the size of your company and number of users.

4.10.5. Industry Search Online

http://industrysearch.com

Industry Search is an online manufacturing and industrial news site. The site is totally devoted to news articles and updates—it is not a directory like Thomas Register—but you use it to get an idea about what your target manufacturers are up to. It’s also a great place to familiarize yourself with manufacturers you may want to approach. You browse news articles by category or by using their search engine.

4.10.6. TradeEasy

http://www.tradeeasy.com

TradeEasy is the largest online directory of Chinese manufacturers; however, it requires a membership (free) to search the database and contact manufacturers.

There is a very good chance that you’ll end up off-shoring your manufacturing work to China, particularly if your product is relatively easy to manufacture, making communication less important. Chinese manufacturers make products for pennies on the dollar in comparison with American or European manufacturers and the quality is often excellent. I have seen entrepreneurs hand Chinese manufacturers a product and watched them perfectly match it for unbelievably low prices: throw-away plastic cameras for ten cents or designer tee-shirts for twenty-two cents (compared to $2.50 for an American-manufactured tee-shirt).

However, off-shoring to China is not an easy matter. The communications barriers can be considerable, and I’ve seen many a relationship go sour unless one of the parties on this end was also fluent in Chinese. You also have to negotiate import/export laws; there are fees and limits on products imported to the U.S. from China. You wouldn’t want to set up an outsource relationship with a Chinese manufacturer only to find out that, when it comes time to ship your product, that China is officially over the import quota and all your product will sit and rot on the dock.

Finding a reliable outsource directory is difficult, but TradeEasy is the most-trafficked and reliable of those directories.

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One Response to “Bringing Your Product to Market 4.10. Manufacturers”

  1. Great piece. As an outsourced storage and fulfillment provider, we regularly work with entrepreneurs who have faced these same issues. We’ve also seen one common mistake that first-time manufacturers routinely make: not considering what the storage and fulfillment ramifications might be for a potential product until after they’ve already designed and manufactured it. For instance, there are significantly more variables for the wholesale shipper to consider than for manufacturers who are selling B2C. Packaging (e.g. should I use pallets vs. containers?) and labeling are other examples of other often-overlooked matters by first-time product makers, all of which greatly effect the bottom line.

    Not thinking about these issues ahead of time can be a painful lesson. For any of your readers who would like to learn more, we’ve posted some “lessons learned” at our blog:

    http://www.shipwire.com/help/considerations-for-product-design-and-packaging

    Nate Gilmore
    Shipwire Outsourced Product Fulfillment

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