Outsourcing Production

Imagine that you have invented a new type of backpack for students to carry their books and such on campus. As part of your business plan, you have decided to “outsource” the actual manufacturing of the backpack. Do some research to determine which country you would outsource to and how you would locate a company in your chosen country to manufacture your backpack. 

What type of arrangement would you likely enter into with this company? How much information, in your opinion, should you include in your business plan about the company and your arrangement with them?

I would be cautious about retaining my intellectual property because the backpack is novel to the market. For this reason, I would disqualify China, as the nation has a history of not recognizing IP law from other nations' businesses. It would be detrimental to my business if a less expensive knockoff were available shortly after I entered the market.  

Reviewing other nations, I would likely choose India to manufacture my product. India is known as a top outsourcing hub for business across the globe. Beyond being able to capture cost savings on labor, the nation is rich with talent and has the second-largest English-speaking population in the world. Only speaking English fluently, I look to find a manufacturer who can mitigate any communication barrier. 

Various online marketplaces organize manufacturing RFQs, such as IndiaMART, Global Sources, All.biz, and Gembah. However, I would be looking to create a partnership with my manufacturer. The route I would take is to attend the India International Trade Fair, organized by the India Trade Promotion Organisation, a government of India enterprise. At the fair, I would interview (and subsequently be interviewed by) manufacturers and identify which business partner has the capabilities needed, offers a turnaround time and price that makes sense, and whom I feel most comfortable conducting business with. 

To shed more light on the statement of a "business partner (having) the capabilities needed," my aim would be that the manufacturer can build the entire product and its packaging without having to loop in a second or third manufacturer. This minimizes the need for several manufacturers to organize between themselves and mitigates potential risks relating to backorders for my customers. I assume this manufacturer exists, and the best way to locate them is by attending the IITF where there will be 7,850 exhibitors.  

I would look to enter a contract manufacturing and packaging agreement. I would seek legal help to write the agreement, emphasizing retaining my intellectual property. Additionally, while at the IITF, I would direct questions to potential manufacturers, asking them how they would keep my IP safe. Further, I would have to hire someone local to the manufacturer to monitor my product's development and IP safety. A lot goes into outsourcing your manufacturing. I would do as much of it stateside to mitigate production-related issues and risks. 

I will capture all of this thought and effort I have put into the outsourcing plan within my business plan. I aim to ensure that potential investors recognize that I understand the complexity of outsourcing manufacturing.

Posted 10/4/23