The evolution in online business has opened up new opportunities and new business models that are becoming increasingly popular. And for a reason. If you’ve been considering scaling up your business to take on global online sales, you may be wondering about the best way to source, manage and distribute products. What if you could produce and sell products “without having to invest in machinery, equipment or specialized product knowledge”? Contract manufacturing may be an option for you to grow your business.

Entrepreneurs and businesses of all sizes are leveraging the power of contract manufacturing to get their own custom products manufactured quickly and sell into global markets. Now may be the perfect time to get to know more about the many benefits of contract manufacturing for companies of any size, even for those with limited resources.

Product design, production and distribution

Contract manufacturing (CM) is a form of outsourcing between a manufacturing firm (known as contract manufacturer) and the hiring company to produce a finished product or parts. Usually, a company has two options. They can invest and purchase the machinery and factory to make the product themselves or hire an outside company (i.e. a CM) with already-established production lines to make it for them.

Contract manufacturers can handle many aspects of product development, production and distribution:

• Manufacturing and assembly of your product
• Design and engineering of your product
• Quality Control
• Management of your orders
• Management or consolidation of the supply chain
• Planning and coordinating shipping and logistics

The benefits of contract manufacturing

• Cost savings
  • Outsourcing your product to a CM means not having to waste capital on any maintenance and operational costs of tools, machinery, and equipment.
  • A CM lifts the burden of hiring, salaries, wages, HR, and benefits for the operators.
• Allocation of resources
  • The costs one can shave off can be allocated to other vital areas such as your marketing budget.
• Shorter lead time
  • Hiring a CM will allow you to leverage a CM’s existing supply chain network and expertise to provide you with faster lead times.
• Quality
  • Reputable CM’s will have quality control processes in place throughout the production process to improve your product’s production quality.
• Advanced skill sets
  • Companies can supplement their lack of manufacturing knowledge by working with a CM. A good CM will have established connections with raw material suppliers and have a better understanding of producing your product.
  • Experience can include different types of materials and properties, tooling, production lines, quality and testing required to create your product as efficiently and cost-effectively as possible.
• Engineering & development support
  • Depending on the scope and size of the CM, a CM may be able to provide you with development and engineering support to get your project off the ground.

Who needs a contract manufacturer?

While it’s true that large business partnerships seem to get all the attention, contract manufacturers can work with a business of almost any size. As long as you have a product, working with a CM is an option worth considering.

Large companies have the capital to invest in their very own production lines, so why do they often avoid this option? Simply put, setting up a factory requires a huge investment of time, money, resources and unnecessary risk. When billions of dollars are on the line, larger companies know they should be focused on activities that generate revenue.

It’s no coincidence companies like Apple, Nike, Black & Decker and are marketing powerhouses, and they allocate their resources on branding, innovation, and the constant churning of new innovative products and designs. They recognize that their core strength rests on innovating the next big thing.

Who can benefit from a contract manufacturer?

• Startups
  • Most businesses can benefit from working with a CM, including startups, which can take advantage of leveraging the resources of CMs without over-straining their own sometimes limited resources.
  • Developing an early partnership with a CM is a great resource considering they can act as an extension of your team from the development side of your business.
  • A CM can help develop and build a product more efficiently and economically and supply the extra boost that will allow you to launch your product quicker to the market.
• Companies looking to improve quality
  • Good CMs will have time-tested quality systems in place. If you have quality issues then you may want to consider switching to a CM.
• Companies looking to improve overall efficiency
  • Contract manufacturers have the resources, knowledge, and services that can improve your overall supply chain.
• Companies looking to improve their profitability
  • Factories work on economies of scale and are not set up to produce small quantities – a problematic situation for companies looking to launch a few products to test the market. For a company to achieve economies of scale, it is necessary to work with a CM who has the existing clients and vendors using the same or similar materials.
• Companies looking to scale up production
  • A company that is growing quickly will need a CM that is able to absorb higher quantities. A CM should be set up in order to scale up production during peak times or during a time of growth from the client.

The contract manufacturing process

After vetting and selecting the appropriate CM, the hiring company and CM will sign a contract to have the CM purchase and manufacture the products for the hiring company. Some of the details that should be covered in the agreement include:

• Manufacturing the product
  • The CM carries the responsibility to produce the hiring company’s product as well as coordinating any subcontractors of subcomponents and raw materials.
• Volume
  • The number of units purchased by the company from the contract manufacturer.
• Pricing
  • The price per unit based on the agreed upon volume.
• Quality
  • The quality conditions agreed upon between the company and the CM.
  • The CM supports the quality specifications established by the hiring company. The CM will utilize its quality procedures to carry out the requirements set and agreed upon between both parties.
• Lead time
  • A time mutually agreed upon to complete the order. A schedule should be included detailing the time the order is placed to the time the order is ready for shipment.

A CM can manage the supply chain for your products

• Managing the order
  • The CM will bear the burden from the day the order is placed to track, manage, and provide the hiring company with project updates.
• Orchestrating the supply chain
  • The CM will be responsible for coordinating the production and final assembly of the project along with all the vendors.
• Logistics
  • The CM may be contracted to take on the distribution and shipping plan and coordinate the logistics for the hiring company. This includes arranging everything from the freight of the product to the nearest port, warehousing, and shipping delivering the goods to end customers.

Entrusting the drawn-out process of manufacturing to a CM helps free up the hiring company’s resources and budgeting. This means more resources can be allocated to the most crucial part of any business – sales and marketing.

Weigh the risks, but consider the benefits too

The decision to hire a contract manufacturer may seem a little daunting as it transfers responsibility away from the company, however, the rewards can outweigh the risks, if it’s done correctly.

Carefully vet and perform due diligence on all possible contract manufacturers prior to making the switch. Perhaps most importantly, the best results come from forming a relationship based on trust and a long-term approach.

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Alibaba, China’s e-commerce giant, is synonymous with delivering affordable products with little uniqueness, leading to a market saturated with products that offer little innovation and low margins.

Offering low product costs might be tempting, but it may not be the best choice when brands are operating in a fast-paced, dynamic consumer market and consumer behavior is steadily shifting towards personalization and customization.

Stay ahead of the pack with product evolution

To stay ahead of the fray, many consumer goods companies know they need to do things differently. One of the best ways is by creating new products. Here are a few reasons why:

1.  Allows you to differentiate yourself from the competition
   • Only you can sell that product.
2. Higher margins
   • You can charge a premium because your product is unique to your brand.
3. Keeps your company and brand alive
   • Launching new products is the lifeblood of any consumer goods company.
   • Avoid succumbing to your competitors by delivering upgraded or better performance products that can compete more effectively in the market.
4. Market opportunity, value, and customer loyalty
   • New products provide consumer goods companies the opportunity to offer more value to new or existing customers while opening new market opportunities.
   • Developing new product lines help increase customer loyalty. Adding new products or iterations of existing products allows companies to sell more to existing customers.

Successful product development is a multi-step process that requires a product development plan and expertise ranging from market experts to engineers and manufacturing professionals.

6 major steps are required to bring your product idea to life

Step 1: Product design and engineering

Product engineering is the first and most critical step in the development process. A product will only be as good as it is functional. This step sets the course for the following phases. Contracting the work to a product design company, industrial engineer or contract manufacturer is suggested to stay lean. The critical elements of your search should include:

• Have they designed similar products before?
• Is their lead time acceptable?
• Can they make the prototype or does a different company do that?
• Are they reasonably priced?

Step 2: Proof of concept

Proof of Concept (PoC) checks the functional aspects of your product and ensures your product works as intended. Testing will be performed to emulate the product’s function in the real world.

Step 3: Product design and renderings

Renderings can be made before engineering to give a general idea of the product’s look. The design can be modified if it is not functional. Typically, product design begins after the functional elements of the product have been tested.

Step 4: Golden sample

The golden sample serves as the final sample to assess mass production and will be an exact copy in terms of material, finish, colour, and function to what will be produced during mass production.

A golden sample allows you to confirm the costs of your product, along with packaging and shipping. With costs in hand, you may refine your pricing strategy by marketing to distributors and retailers, crowdfunding your campaign, or creating marketing materials to start driving awareness and hype for your product. The feedback you gather should give you a ballpark on the number of units to produce.

You may use the samples for marketing purposes, however, don’t forget to provide your supplier with samples as well. These samples will be critical to develop and record product quality.

Step 5: Tooling

If you are developing a new product, you will likely need to invest in your tooling. You may speak with suppliers about tooling amortization and factoring tooling into your price. You may also ask if they offer an investment program.

Depending on the raw materials needed, tooling may be required to ensure product consistency. The main cost contributors to tooling are:

1. Production line
   • Plastic injection molding and die-cast are the two highest investments.
   • Other processes may require tooling but are not as expensive.
2. Type of steel used.
   • Different types of steel may affect the number of slots a tool may have, which can affect the overall life-expectancy of a tool.

Plan your lead times, including those for tooling. In general, plastic injection molding and die-cast tools take roughly 30 days to complete.

Step 6: Production

The first round of production will likely be longer due to tooling and raw materials testing, known as the pilot run. A small percentage of the first Purchase Order (PO) is made to ensure the production runs smoothly. The first production run is shipped to the customer for final approval. Once approved, mass production may begin.

Consider the services of a professional contract manufacturer

Making the choice to go into developing a new product might seem complex, and for good reason. There are many aspects to quality product development. The good news is that there are professional contract manufacturers who can partner with you on product development and guide you through the processes of launching and scaling up production of your product.

The post Why global traders should develop their own products appeared first on Trade Ready.

Exporters will never have a perfect product. Their products will always be at the mercy of competitive pressures, changing market preferences and emerging new technologies. Success depends on understanding and anticipating change through continual improvement. Developing products for new international markets is a continual process.

Staying competitive and increasing sales in international trade means investing in new product development and product adaptation. This investment ensures products meet the regulations, needs and expectations of the new markets, better positioning the venture for success.

New product development for foreign markets

In international trade, product development refers to the creation of new products specifically designed for foreign markets. Product adaptation refers to the redesign or modification of an existing product to meet the needs of one or more overseas markets. This includes any customization required for the consumer.

The steps to develop a new product and those to adapt an existing product are fundamentally the same, with only slight differences. Although product adaptation can be simpler since an elemental design already exists, adaptations must also be designed, employing the same rigour and strategies used when designing or developing a new product.

Product development and adaptation is the continual process of bringing goods to the marketplace as products move through their life cycle, such as replacing discontinued products with new or adapted products.

Different types of products can serve different purposes:

• Innovative products are a means to enter an existing market
• Additions to existing product lines supplement and expand options for consumers
• Improvements or revisions to an existing product line can improve market share and re-engage past consumers
• Repositioning products allows companies to target new markets
• Product development and adaptation can be used to reduce production costs and sometimes reduce prices for consumers when a similar product can meet the same needs at a lower cost

Using market research to make the right decisions for your products

Organizations selling products internationally to multiple markets need to know exactly where the product they sell is in the product life cycle, for each market. This knowledge, combined with research on competitors’ products, current regulations and market demand, helps to determine whether they need to adapt a current product or develop a new product before entering a new target market.

In many cases, products need to be changed before they can be introduced into new markets. Depending on the life cycle stage, this may involve marginal changes to product labelling or packaging, or involve alterations to design and functionality.

For example, infant car seats have reached the maturity period in North America, but the pioneer period in China. A French manufacturer looking to expand into the U.S. may need to adapt its product based on regulatory differences, as well as on competitors’ products, trends and consumer preferences. It may need to considerably differentiate its product to break into the competitive American market, and perhaps even look at developing a new, cutting-edge car seat.

To establish sales in China, the manufacturer would also explore whether regulations would require adapting its seat, but would face far less competition and lack consumer feedback. It may wish to conduct surveys or focus groups, and it may need to change its packaging to outline how car seats reduce injury and death.

When introducing a product into a foreign market, an organization can choose from several options:

• Sell the product as is, with no modifications or changes
• Create modified versions of the existing product, each one aimed at a different market. For example, modifying products for safety and functional requirements like power requirements that need to change from 110 volts to 220 volts
• Incorporating locally induced differences into product offerings, known as “glocalization”
• Create new products for different markets
• Modify the services accompanying the product to better accommodate market requirements

The mode of product introduction will depend on the information gathered about the target market as well as market intelligence findings.

Want to learn more about how to establish a competitive advantage with the best design options for adapting products? Check out the FITTskills Products & Services for a Global Market online course.

When is product adaptation necessary?

Occasionally, modifications to products or processes might not be necessary. The company might be able to export the same product and use the same processes as it does for its domestic market, as in cases where the company:

• Deals with customers who want a product because it is the same in all worldwide markets, such as jeans, records, photographic equipment
• Supplies generic components for export without modification, such as tires or computer chips
• Produces a unique product that is sold based on its status or foreign appeal such as brand-name luxury items
• Produces a product that is sold exclusively on a commodity or price basis, such as iron ore or wheat

In other cases, intelligence gathered with research will indicate that a product is unsuitable for a market and cannot be modified to make it suitable.

In some markets, companies have no choice but to adapt a product before exporting it. Climate and geography are perhaps the most fundamental factors – for example, cereal must be sold in foil packaging in humid climates. Adaptation may also be necessary due to legal requirements, tariff structures, taxation or other types of government regulations that affect components, raw materials, technical specifications, product standards, quality control, brand protection, testing and approval procedures. For example:

• Perfumes sold in the Middle East cannot contain alcohol
• Germany’s beer purity regulations forbid the sale of beer containing anything but water, hops, malt and yeast
• Fertilizer formulas must be adjusted to match soil conditions in the importing country

Some product-market mismatches might be eliminated over time. For example, many Asian countries do not commonly use milk or milk products, but this could change with the right product and marketing approach. However, such an attempt would likely require a lot of time and investment and would have no guarantee of success.

Research and the resulting product adaptation processes are not a one-time project. Applying market intelligence should be a process of continual improvement.

The relationship between market research findings and production operations is crucial for maximizing product life cycles and to build upon product platforms, enabling the successful development of products for new and existing markets.

The post Why exporters will never have a perfect product and what to do about it appeared first on Trade Ready.

Much of the traditional approach to pricing starts with costs and then sets prices in some relationship to those costs. Penetration pricing is pitched low relative to costs. Price skimming seeks to recoup costs quickly.

A recent revision to this approach is value-based pricing, which turns the problem around. It starts by looking at price from the customer’s point of view. What would a satisfied customer be prepared to pay for a product? The company’s challenge becomes delivering the product at this price and still making a profit.

In other words, it must seek to reduce its costs to meet the market’s expectations on price while still making enough of a profit to make the transaction worthwhile.

Putting the focus on the customer

The value-based approach puts the customer at the centre of all pricing considerations. The costs incurred by the company are less important as a starting point than the value perceived by the customer as perception will govern how much a customer is willing to pay.

Market research can tell the company exactly what customers value. And an international marketing and promotional campaign can be an important tool in helping customers recognize value in the products or services offered.

Enhancing the marketing effort really means enhancing the value that the customer perceives in the product or service offered. Since the customer determines value, the customer is where companies should start when considering ways to enhance value.

And value means more than just price. Market research should have already provided some ideas about the characteristics of target customers, what they buy and why they buy it.

Much, of course, depends on the nature of the product or service offered.

What perceived value do customers see?

Knowing what characteristics enhance the customer’s perception of value is key to determining value. Many other factors come into play in any decision to buy, and their influence may be hard to predict.

For example, will current fashion trends or social consciousness influence the decision to buy a fur coat? Different levels of development will certainly affect perceived value: a car that appeals to the mid-range market in North America is an unattainable luxury in less developed countries. Religion, social taboos and cultural preferences will also affect perceived value.

Once the exporter understands what motivates customers and what they value, the next step is to deliver it. In some cases, enhancing value means actually changing the product to give it new features or a different design. In other cases, companies can enhance perceived value by changing how a product is sold rather than what is sold.

(Sourced from FITTskills International Marketing—Online course: Learn how to sell your products and services globally. Register now!)

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Regulations affecting media use
In most countries, media advertising is highly regulated. This is particularly true in North America, where strict standards and censorship are prevalent. These regulations are strongest for products that may have risks associated with health or other social acceptance connotations, such as the promotion of tobacco or alcohol products.

Product contents, safety standards or other such required notices or labelling must be adhered to. In addition, product claims or competitor comparisons may also be restricted depending upon the market regulations.

In short, a company needs to thoroughly research the media content and other related regulations prior to launching any promotional campaign in a specific jurisdiction.

Labelling requirements
Regulations for labelling vary greatly from country to country. For example, in Canada, labels must be bilingual and follow strict guidelines laid down by the federal government. In some countries, as many as five different languages are printed on labels and packages. The exporter will find that, in many countries, superlatives like “the best” or “the most effective” are banned, as are direct comparisons with competitors’ products.

Often, labels must display the word “imported” and the country of origin. Some countries, like France for example, are sensitive to labels on products that falsely imply from their design and name that they are made in France. Shipments will be confiscated if labels are illegally used.

The labelling of ingredients in processed food products can also present some problems, especially if the product contains artificial ingredients. They may require a complete chemical breakdown to make sure none are restricted in that particular country. This applies to items like food dye.

The Standards Council of Canada has a database that contains information on international standards for packaging and labelling. A Canadian trade representative can also help gather information on specific standards in a particular sector. Regulations often change, so the exporter must keep abreast of them.

Trade communities and blocs such as the European Community (EC) often have established uniform standards for products within their borders. However, this does not apply to labelling for imports, and this can lead to non-tariff barriers. For instance, if labelling is done in Canada, a German importer is legally obligated to inform the foreign supplier of all labelling requirements. The importer must supply a sample with the German translation to avoid errors.

Colour and graphics
Colour and graphics are used in packaging and labelling to convey an impression of the contents. They help purchasers distinguish a particular brand from its competition. A consumer product may be on a shelf with dozens of similar product lines, competing for limited space and customer attention. It is vital that colour and graphics complement the product and communicate its benefits clearly. In many cases, photographs are effectively used in place of illustrations.

Packing requirements
The material must be appropriate for the foreign market and sensitive to the buyers’ culture or additional costs can result.

One important consideration is whether to change design concepts and re-use artwork on packaging and promotional material when exporting. Several multinational companies, such as Microsoft, McDonald’s and Disney use universality in packaging, trademarks and advertising. This approach has been very successful for products with global recognition. Other companies prepare market-specific design work. A product package in Japan is scrutinized as carefully as the product itself. The Japanese have a tradition of gift-wrapping and always equate the exterior package with the quality of the contents. This may mean extra time and money spent to conform to the expectations of this market.

Many European countries have created tough legislation for recycled packaging. North American consumers are also becoming more environmentally conscious, and excess packaging or “filler” can create a negative image of wastefulness around the product. Consumers may also become suspicious if they think they are paying more for the packaging than they are for the product itself.

The package must be aesthetically appealing and practical (e.g., re-sealable, tamper proof). Marketing research will determine the needs of the customer and reveal what the established brands have done to fill these needs. They have usually set a standard for size and shapes.

The package must also be acceptable to the retailer and conform to the allowable shelf space for the product category. The package must travel well, be of quality materials and be designed to withstand shipping and handling.

Mass marketed products now require an accurate bar or UPC code that can be read by computers. Case lots need to be of a reasonable size to prevent storage problems. Generally, allotted shelf space, called “facings,” reflects sales performance. The retailers will need to be provided with conclusive market research to persuade them to feature the product with optimum facings.

(Sourced from FITTskills International Marketing, 6th ed.)

Learn about this and more from FITTskills International Marketing course—now available online!

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Business economist Michael Porter identified the following five forces of competition, which can be used to analyze an industry or market and formulate a competitive strategy:

1. The threat of new entrants or barriers to entry. The threat of new companies entering a market adds to the level of competition. Existing competitors and governments will often take action to inhibit the entrance of new competitors. These actions act as market entry barriers.
2. Intensity of rivalry among existing competitors in the market. Competitors in a market will always be attempting to gain a competitive advantage. The effect of competition is often to reduce profits. Markets with few competitors will experience less rivalry. High fixed costs, high exit costs, and slow market growth all increase the level of rivalry between competitors in the market.
3. The threat posed by substitute products. Substitute products are those products that can replace a product but are not a direct competitor. For example, plastic bottles can be substituted for aluminum cans. A drastic reduction in the price of plastic bottles will create competitive pressures on the aluminum can industry. When a product has many potential substitutes in a market, its competitiveness is reduced.
4. The bargaining power of buyers. When buyers in a market are powerful, they can determine the price paid for supplies. This will increase the level of competition among suppliers. Buyers are powerful when there are few of them or when they are powerful enough to purchase suppliers.
5. The bargaining power of suppliers. If suppliers in a market are powerful, then they can exert pressures on buyers. These pressures will include high prices that will make buyer companies less competitive. Suppliers are powerful in markets when they are concentrated or integrated or when there are significant costs associated with switching suppliers. Suppliers are weak when there are many of them competing against each other.

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Although a successful patent application will grant the registrant some very strong intellectual property rights, it’s important to consider whether a patent application is justified. The following are some relevant considerations:

Cost: Patent applications are very costly. For example, in Canada, a patent application generally costs at least C$25,000 from start to finish. However, since patents often involve complex technical issues, the cost could increase greatly depending on the subject of the invention or process.

Time: The patent application process is long and it involves detailed examination and re-examination of the invention and process involved, in addition to comparison to all known patents, inventions and processes in the public domain. Accordingly, a patent application ranges from two to five years.

Fast pace of technology: By the time the patent is granted, the invention or process might be outdated (especially in computer or high-tech industries).

Public disclosure: For a patented invention or process, the plans and key information will be on public record. This information could potentially be used by anyone to copy a design and infringe on a patent or to develop slightly modified designs that accomplish a similar result but legally circumvent that which has been patented.

Clearly, the prospective patent applicant has to carefully weigh the above considerations against the benefits that a patent offers. Therefore, some businesses choose not to obtain a patent in order to keep their key information and plans a trade secret.

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