Why do I have to manufacture my invention in China?
There are factories in the US, why can't I just manufacture here? Then I won't have to deal with import duties and other hassles.
This seems logical, but the principal problem is simply one of cost. US labor costs are much higher than those in China and other countries – even after import costs and duties are factored in. Let me share my story as someone who manufactured and imported my product from China for over 8 years and all of this will make more sense.
My Experience with Manufacturing in China
My initial cost to manufacture in China had been just over $5 for the wallet and all packaging. This gave me an almost 5X mark up so I could retail them for $25 – good profitability. But, even in China, there is inflation and over 7 years my cost of manufacture grew own over 20% to about $6.50. Even though I was able to raise my retail prices some, my margins were squeezed and my profitability suffered.
So, I considered again manufacturing in the US. I reasoned that if I could get a cost of $7 or less, US manufacturing would be competitive with my Chinese costs and I would avoid the importing hassles – my order turn around from China was about 4 months.
After much research, I located one US company, Dark Leathers, that used primarily exotic leather for high end customers. Initial discussions were promising, but their best price was $12 – just for the leather wallet – the plastic inserts would be extra as would packaging. My final cost would be over $14, completely unworkable for me.
The gentleman at Dark Leathers told me that their typical customers paid $80 – $150 for ostrich and other exotic leathers. That was the only way they could manage to pay their workers good wages, by selling to luxury buyers.
You simply cannot pay employees $30/hour to produce a $30 wallet – the math does not work.
This is the simplest explanation as to why almost all consumer products sold in the US are manufactured in China.
Live and Die by COGS
What matters most of all in the big picture is your cost of good sold (COGS) and your mark up to retail. You must have a COGS that will allow you to maintain at least a 4X mark up from your cost to retail price.
Another factor, often unappreciated, is that Chinese manufacturers are masters of supply chain and logistics.
US manufacturers tended to treat inserts and packaging for my finished wallet product as one-off additional items. Chinese manufacturers had no issues sourcing and combining plastic inserts and boxes to easily produce a finished product at a competitive price.
The bottom line is you must do what is right for your business.
There are clear reasons why t-shirts are manufactured in Bangladesh and athletic shoes in Viet Nam: superior COGS allow the companies to profit in a highly-competitive marketplace. For a FREE cheat sheet of resources I used for importing for over 8 years, click here.