In the course of our work, we meet a lot of aspiring social enterprises committed to developing a product to help disadvantaged people meet their needs. These organizations are always energetic, aspiring, and inspirational. They have a vision for how to help people improve their quality of life and a sincere desire to see their products into the hands of those who can benefit from them. Their enthusiasm is infectious and I am almost universally excited at the prospect of working with them – until they tell me that they want to produce their product locally in-country.
There are a number of reasons people want to make their product using locally available skills and materials. Many of these reasons are very compelling, particularly to a person motivated by positive social impact:
• Producing products locally allows one to employ local artisans, providing employment opportunities, building skills, and contributing to the regional economy.
• Local fabrication enables one to avoid excessive import taxes and cumbersome customs, lowering the price of the product.
• Sourcing components locally allows one to support the local economy while ensuring that the end product can be easily repaired and serviced using available skills and materials.
• Operating locally frees one from the necessity of managing complicated and costly supply chains that span the globe, decreasing the size, complexity, and cost of the organization, and decreasing the cost of the product.
Unfortunately, the reality awaiting these organizations in-country will inevitably lead them to reconsider their initial intention. Why? One basic fact: most developing countries around the world simply do not have the manufacturing capacity required to make products of any complexity.
In contrast, factories in China can, and already do, make everything. From iPods to wheelbarrows, the Chinese mega-factories can make virtually anything. With their currently operating factories, contract manufacturers in China already have all the required tools, infrastructure, and experience in-place and ready to make products. Alternatively, if an organization wants to make a product in a developing country, they need the expertise and capital required to build factories, infrastructure, and supply chains all their own – a costly, difficult, and time-consuming proposition.
This is not to say that enhancing the local economy, avoiding import taxes, ensuring ease of maintenance, and simplifying the complexity of an organization are not excellent goals; it simply means that a more nuanced understanding of the global economy, and what is currently possible, is required. Organizations working to develop a product need to think deeply about how to best leverage the manufacturing juggernaut that is China while also looking at local opportunities for innovation.
This is why, when organizations tell me that they want to make their product locally, my inclination is to tell them to come back to me once they’ve realized that they will be making their product in China – at least to start.
Now clearly this isn’t an absolute rule: if you are intending to train people to make clay stoves or mud bricks – then I’m totally wrong. Or, if making plastic buckets or other less complex products is your aim, then you could possibly build a factory or hire an existing one in-country (or the on the same continent) to make your product. Alternatively, and most promising, you could import all the components from China and assemble them in-country. But if you have a product of any complexity, if it requires specialized manufacturing procedures or advanced assembly, and you don’t have the capital to build your own factory – you will have to start in China and go from there.
To explore this further, the following are what China has and developing countries struggle with – if an organization wants to make its own products in-country it has to develop and manage all these various, complex pieces themselves instead of conveniently hiring a Chinese manufacturer that will take care of all of it on their own (a very appealing proposition, especially to a small start-up).
Efficiently producing a product requires reliable infrastructure: electricity, water, roads, rail, etc.
Many raw materials are processed in China, meaning that steel, copper, plastics, etc. cost less in China than anywhere else in the world due to import tariffs and transportation.
Raw materials and components are required to make products and they must arrive at the factory efficiently, timely, and reliably.
Factories, or advanced workshops, are required to efficiently make products in large volumes. They manage inventories, quality control, tools, personnel and all the thousand-and-one things it takes to make a product.
Assembling products require built space (i.e. big buildings) to maintain inventories, set up tools, assemble and test products, and package items for shipping.
Managing inventories can be complex, requiring logistics expertise, efficient communications, and timely delivery of components.
Tools & Assembly Lines
Products require tools, machines, reliable power, replacement parts, and efficient assembly lines if they are to manufacture products in large volumes at a reasonable cost.
Parts fabrication, product assembly, assembly line planning, inventory logistics, quality control, and equipment maintenance all depend on having trained personnel, with the necessary skills, on-hand.
Testing products to ensure quality requires specialized equipment, optimized testing plans and procedures, and trained personnel.
Clearly the manufacture of products is an elaborate undertaking and organizations attempting to start from scratch in-country can easily be overwhelmed by the effort of setting up their own fabrication infrastructure.
As in most aspects of our life, building local capacity will be an incremental process but if our aim as impact-driven organizations is to help people improve their lives, then simply assuming that everything will always be made in China, and shipped abroad, is a bit fatalistic. Instead, embracing the manufacturing powerhouse that is China while looking to intelligently build local capabilities is the surest way to ensure that a product succeeds and social-impact is maximized.
Nevertheless, this begs the question: how? I don’t have any easy answers, but I suspect it begins with the following:
• Train local maintenance and repair service people to build local skills.
• Incorporate simple, locally fabricated components or add-ons wherever possible to support existing industry.
• Build in-country assembly and packaging warehouses (for simpler products) in order to expand local infrastructure.
• Design products so that they can be customized locally by trained technicians, provide skilled local jobs.
I look forward to the day when factories in less developed countries churn out the products their citizens need, but in the mean time, I am eager to hear your ideas for how to build local capacity while acknowledging the fact that virtually everything I own, here in the US, was also made in China…