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Manufacturing overseas is a great shift for many New Zealand businesses that design and sell products. Shifting production to manufacturers or a production facility overseas can help reduce costs and increase exposure to new international markets. On the other hand, it can be an intimidating decision to take manufacturing overseas, raising some considerable difficulties. 

This article will set out three common mistakes New Zealand businesses make when setting up and running manufacturing overseas. These include taking quality control for granted, cultural difficulties, and managing fluctuations in currency prices. 

Taking Quality Control for Granted

As a small or medium-sized business based around your products, maintaining the quality of those products is of paramount importance. Usually, New Zealand businesses can maintain close control of the quality of their products when they are being made in New Zealand. However, this can much harder to do when an overseas supplier manufactures your product. This is a considerable risk, and your business should not take it for granted. If an overseas supplier manufactures your product in a way that is below your standards or is somehow defective, the reputation of your business is on the line. 

There are a few ways of keeping the quality of your products under control when manufacturing shifts overseas. You can employ someone directly to review product quality or pay for quality inspections. Likewise, you can ask for reports from a dedicated quality inspector. There are independent companies that offer inspection services that can achieve this. 

There are also ways to ensure your product’s quality is a priority in your relationship with the manufacturer. You should be as specific and direct as possible when setting out the expectations of the product production. This includes specifications and other details. Likewise, be clear about what quality you require the end product to reflect. 

Encountering Cultural Differences or Relationship Difficulties

With an overseas manufacturer, you risk a miscommunication or misunderstanding emerging between your business and the manufacturer. These can occur harmlessly and be quickly resolved. However, they can also endanger the production of your product if there is a severe breakdown in the relationship. 

Being communicative, proactive and inclusive are all essential to maintaining a good relationship with the manufacturer. However, you should also be prepared for the possibility that the relationship may sour at some point. For that reason, it is vital to include specific clauses in the manufacturing agreement to protect your interests. For example, include clauses for resolving disputes and ultimately for ending the contract if necessary. 

Forgetting About Currency Fluctuations

When you are transacting between countries regularly, such as to finance a manufacturing agreement, there is often a risk of currency fluctuation to be aware of and monitor. Exchange rates float freely against each other for most currencies worldwide. This means that the monetary amounts you may have set out for the manufacturing agreement may change day-to-day or month-to-month. Sometimes, these fluctuations can leave your business with a greater outlay of money than initially anticipated to manufacture products overseas. 

While the fluctuations in exchange rates are a normal part of international commerce, there are specific steps that you can take to mitigate and protect against these risks. There are professional finance specialists experienced in helping businesses in precisely these situations. Different countries offer different kinds of risks around currency fluctuations. Hence, this is also something to consider when planning to shift your business’ manufacturing overseas. 

Key Takeaways

There is a range of mistakes that New Zealand businesses commonly make when manufacturing their products overseas. A key one is not sufficiently protecting your business’ product quality. This is a natural consequence of not being entirely informed about the production process. Other risks are common inherent issues with international business relationships, such as relationship issues, cultural differences, and foreign currency fluctuations.

If you would like more information about manufacturing overseas or if you have encountered one of the problems above, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What are the quality control risks when manufacturing overseas?

There is a range of risks, including that the manufacturer overseas does not fully appreciate the specifications or details of the product in question and the business’ expectations in terms of its quality. 

What are the relationship risks when manufacturing overseas?

It can be challenging to have a strong and trusted relationship with an overseas-based manufacturer who you may not know well. If there are language or cultural differences, this can sometimes lead to misunderstandings around the business arrangement.

What are currency fluctuations and why are they a problem when manufacturing overseas?

Foreign exchange rates float freely against each other for most currencies worldwide, which means that a certain amount of NZ dollars will not equal the same amount of a foreign currency from day to day or week to week. This can be a problem when making commercial agreements as the money or costs involved can change depending on an unpredictable factor (currency fluctuations).

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