For several decades manufacturing in Asia has meant lower costs and, increasingly, sophisticated capability. Sourcing products or components overseas is less daunting than many owners expect, provided it is approached properly — and considerably more painful than expected when it is not. This covers the real economics, how to find and check a supplier, the mistakes that cost the most, and the reasons a company might bring production back.
Count the Landed Cost, Not the Unit Price
The quoted price per unit is the beginning of the calculation. What matters is the landed cost — everything spent to get saleable goods into your warehouse.
- The unit price and any tooling or mold charges, which can be substantial up front.
- Freight, which varies enormously between sea and air and is far more volatile than most plans assume.
- Duties and tariffs, which depend on the product classification and the country of origin, and which can change with trade policy.
- Insurance, customs brokerage, port and handling charges.
- Inventory cost. Long lead times mean holding far more stock, which is cash sitting on a shelf and at risk of becoming obsolete.
- Quality failures — rejects, rework, and returns, which are expensive to fix once goods have crossed an ocean.
- Your own time, including travel, communication across time zones, and managing the relationship.
- Currency risk where you are not paying in your own currency.
A saving of 40% on the unit price can shrink to very little once all of this is counted, and the remaining margin has to be worth the added complexity and risk.
Finding and Checking a Supplier
- Trade shows and industry contacts remain the best source, because someone has met them.
- Sourcing platforms are a starting point, not verification. A polished listing proves nothing.
- Verify the company exists as claimed — business registration, how long it has traded, whether it is the actual factory or a trading company. A trading intermediary is not necessarily bad, but you should know which you are dealing with.
- Ask for references from customers in your own market, and contact them.
- Use an inspection firm, or visit. A factory audit before committing costs a fraction of a failed order.
- Order samples, then a small production run before anything large. Samples are frequently made with more care than production.
- Check certifications and standards your market requires, and verify them rather than accepting a document.
Getting the Agreement Right
- Write the specification in obsessive detail — materials, dimensions, tolerances, finish, packaging, labeling. Anything unstated will be decided by someone optimizing for their own cost.
- Define quality standards and the inspection process, including who inspects, where, and what happens when a batch fails.
- Agree the shipping terms explicitly using standard Incoterms, so responsibility and cost transfer at a defined point.
- Structure payment to retain leverage — a deposit with the balance against inspection or shipping documents, rather than everything up front.
- Address intellectual property directly. Enforcement varies by jurisdiction, and a supplier producing your design for someone else is a common and difficult problem.
- Have the contract reviewed by someone who knows that jurisdiction.
The Things That Actually Go Wrong
- Quality drifting after the first orders, as the supplier optimizes cost. This is the classic failure, and it is why ongoing inspection matters more than initial approval.
- Lead times that make you slow. Weeks of shipping plus production means responding to a demand change takes a quarter, not a week.
- Communication gaps. “Yes” does not always mean agreement, and a specification understood differently is discovered at the container, not the email.
- Minimum order quantities that force you to buy more than you can sell.
- Concentration. One supplier, one factory, one port — and a single disruption stops your business.
- Reputational exposure. Labor and environmental conditions in your supply chain are treated as yours, and increasingly are yours as a matter of law.
Why Some Bring It Back
The calculation has shifted in recent years. Wages in the traditional low-cost centers have risen, freight has proved volatile, tariffs have moved with politics, and the disruptions of the early 2020s made long fragile supply chains look less like efficiency and more like exposure.
Against that, closer production allows shorter lead times, smaller inventory, easier quality control, and a marketing claim customers in some categories will pay for. Increasingly the answer is neither all-overseas nor all-domestic but a deliberate split — volume production in the low-cost location, and a second source closer to home for resilience and for anything that changes quickly.
See also business risk and internal controls and how to price your products and services.