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Once you have designed a product, a manufacturer can help turn it into a tangible item and get your business started. When deciding which manufacturer fits your product and business plans, it is crucial to consider the differences between engaging an overseas or a local manufacturer. Engaging an overseas manufacturer will have different advantages, disadvantages and risks. This article will outline six crucial factors you should take into account when engaging an overseas manufacturer.

1. Competitive Pricing

There are plenty of manufacturers overseas, and many of them offer their services at a competitive price. This is especially true in countries where labour costs and overheads are low. However, cheaper is not always better. You should do your due diligence before engaging an overseas manufacturer based on their competitive prices alone.

Although overseas manufacturers may have lower costs, other factors may affect both the overall price you pay and your business.

For example, your costs may increase due to: 

  • import duties;
  • taxes; and
  • freight costs. 

Costs can also add up in the event of: 

  • delays;
  • shipping issues; or
  • goods lost in transit.

Unexpected delays may not only skew your budget but also make it difficult to stick to time frames.

2. Quality of Goods

Overseas manufacturers may have access to: 

  • technology;
  • research; 
  • specialised knowledge; 
  • capabilities; or 
  • raw materials that are unavailable within Australia. 

Therefore, their products may be of better quality than if they had manufactured them in Australia. To ensure the quality of products from overseas manufacturers, you should request pictures and samples of the goods. Better yet, visit the manufacturer onsite to verify quality. 

Engaging an overseas manufacturer without first verifying their production quality may be detrimental to your business and brand.

Implications of a quality issue from an international manufacturer can be much more severe than domestic sources. Time differences and distance barriers may mean quality issues take months to rectify. You should ensure that your manufacturer has quality management systems in place. Verifying the systems and quality of your goods may be easier with domestic manufacturers and regular onsite visits. 

By requiring domestic manufacturers to have appropriate licences and permits in place, Australian laws ensure the quality of goods domestic manufacturers produce. 

For example, if you want to sell food products, your manufacturer must meet food safety standards. If they do not, you will not be able to sell your products.

3. Production Scale and Speed

Overseas manufacturers are typically much larger than domestic ones. 

For example, China’s ever-increasing production capabilities prove that they are well established to mass produce for businesses all over the world.

If you plan on placing large product orders, an overseas manufacturer will likely be able to meet production targets without any problems. Larger factory space with more equipment and a larger labour force also mean that overseas manufacturers may be able to turn around orders quicker than those domestically.

While overseas manufacturers may have scale and speed on their side, it is also important to consider any delays that could arise due to communication issues.

For example, if there is a language barrier, your performance targets could get lost in translation and lead to a miscommunication regarding when they need to complete the products.

4. Shipping and Importing Goods

When engaging an overseas manufacturer, it is important to note that shipping and delivery time frames are likely to be longer than if you were working with someone in Australia. You also must ensure that you and the manufacturer are at an agreement on what will happen if something went wrong with the shipping process. 

For example, if your goods are damaged in transit, it is crucial to be clear about who is responsible for the damaged goods. Here, you must outline whether your manufacturer will offer you compensation or replace the goods.

The Australian Border Force enforces various rules and regulations when clearing goods to come through customs. So, when engaging an overseas manufacturer, it is crucial you first consider whether or not you can import your goods into Australia. While you do not need a general licence to import goods into Australia, you may need permits when importing specific goods that might be restricted.

For example, you are not able to import erasers resembling food in scent or appearance into Australia. Here, you will need to request to import these erasers.

5. Australian Consumer Law and Warranties

The Australian Consumer Law (ACL), is a key piece of law which protects the rights of consumers. Under the ACL, both you and your manufacturer must comply with a set of guarantees, including that the goods:

  • are of acceptable quality;
  • match your advertisements; and
  • are fit for the purpose you told it would be fit for.

If you engage an overseas manufacturer, they will not automatically take on any warranties or have obligations under Australian laws. Therefore, if your products do not comply with the ACL due to your manufacturer’s wrongdoing, you might be held responsible for this. Their overseas presence will also make it more difficult for you to claim compensation from them if you had to pay out customers due to their wrongdoing. So, your manufacturer must guarantee that they can assist with resolving issues with goods that do not meet the requirements under the ACL. 

6. Dispute Resolution

The best way to resolve a dispute is to avoid it in the first place. Therefore, it is crucial that you clearly set out with the manufacturer what will happen if you get into a dispute. You can set this out by:

  • having a written manufacturing agreement detailing the terms you have agreed upon; and
  • keeping a paper trail of communication between your business and the manufacturer.

Typically, a manufacturing agreement will specify the relevant laws or jurisdiction that applies to the agreement and engagement. It will also specify the steps to follow to resolve a dispute. 

However, even if you have a manufacturing agreement in place, it may be difficult to enforce it with an overseas manufacturer. 

For example, if your manufacturer fails to abide by the agreement, an Australian court judgement is difficult to enforce against your manufacturer located in another country. 

Therefore, if you are concerned that you might run into a dispute with a manufacturer, you may wish to engage one located within Australia instead.

Key Takeaways

When deciding between engaging either a domestic or overseas manufacturer, you should seek to understand their offerings and how they can fit your business’ needs. You should consider which will offer the best price for the best quality. Further, you need to ensure that you have a manufacturing agreement in place that will help minimise the risk of any disputes down the line. If you need assistance drafting your manufacturing agreement, contact LegalVision’s contracts lawyers on 1300 544 755 or fill out the form on this page. 

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