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A common question from New Zealand businesses that sell products is if, and when, they should look to manufacture their product overseas. This can be a scary prospect for a business that has always been based in New Zealand and has no connections in other countries. However, manufacturing overseas can lead to efficiencies, distribution benefits and cost savings. It is an exciting possibility to consider. This article will cover:

  • what manufacturing overseas practically involves;
  • your different options; and
  • factors that go into whether your business should be manufacturing overseas.

What Does Manufacturing Overseas Involve?

Manufacturing overseas refers to a situation where your:

  • product;
  • select lines of products; or 
  • parts of those products

are produced by manufacturers overseas to ultimately sell either in New Zealand or in a different country. 

While the concept is simple, there are several ways you can arrange to have your business’ product manufactured overseas. It can sometimes be confusing and overwhelming. However, ultimately there are two major ways for a small or medium New Zealand business to shift production overseas. Also, there is a third way for larger businesses with more resources.

The two main ways for small businesses to manufacture overseas include:

Contract ManufacturingWhere an overseas manufacturer produces part or all of your product on your business’ behalf, to specifications and a design provided by your business. It is clear in these arrangements that the product is ultimately your business’, but a manufacturer overseas is being paid to produce it.
Licensed ManufacturingWhere an overseas manufacturer or other company is granted the right to produce your product as well as market it. In essence, your business is granting a licence to another business to use your intellectual property. These arrangements can be advantageous to New Zealand businesses who want to compete in overseas markets but do not want to undertake as many of the associated responsibilities to do so or overcome additional hurdles. 

Finally, there is another option for larger businesses: 

Setting up your own manufacturing facilities (e.g. factory) overseasA larger business can work with an overseas company in the associated country to benefit from a better understanding of the economic and regulatory requirements. This option usually involves significant cost and up-front expense, which limits smaller and medium businesses from partaking. 

Should Your Business Be Manufacturing Overseas?

Understanding the different options when manufacturing overseas is just part of the puzzle. Most product-based businesses in New Zealand typically shift to manufacturing overseas at one point or another to reduce costs and gain other efficiencies. However, it is not always clear when to take the leap. It will generally depend on the stage of your business’ growth. 

Another consideration is to maintain control of your product. Especially for smaller businesses whose key asset is intellectual property, you want to ensure you are adequately protecting your product when manufacturing it overseas. Thinking carefully about what details to include in the manufacturing agreement you sign with the overseas manufacturer is essential. Ultimately, that document will set out the terms and conditions on which your product is produced. 

Additionally, there are usually regulatory and logistical questions that come with manufacturing in another country. Getting advice on the industry regulations and other possible hurdles can help you decide whether it is the right time for your business. Many New Zealand businesses start small, with an agreement to manufacture at a lower scale with an overseas operation. With time, you can decide to ramp it up.

There is a range of professionals you can engage to get further advice. Talking to a commercial lawyer or a business advisor at the Regional Business Partner Network are two examples.

Key Takeaways

There is rarely a clear right or wrong answer to whether your business should be manufacturing overseas. Usually, given the cost savings and other efficiencies, most businesses in New Zealand that sell products will want to have that product produced overseas. However, it can be tricky to work out at what stage of your business’ development to take the overseas plunge. Understanding the different kinds of manufacturing options for a New Zealand-based business is a good starting point. You can also seek advice from commercial growth and legal experts. 

If you would like more information about manufacturing overseas and whether it is a good option for your business, contact LegalVision’s corporate lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is the advantage of manufacturing overseas?

It is usually cheaper to manufacture any product overseas. This can also open the door to other operational and commercial opportunities in other countries, with growth possibilities for your business.

Do New Zealand businesses need to set up their own manufacturing processes overseas?

No. While some larger New Zealand businesses do so, many smaller or medium businesses strike contract manufacturing and licensing agreements with manufacturers overseas instead.

Should small businesses be manufacturing overseas?

It depends on the scale of the business’ production and product growth, the nature of the product and industry, and its financial and commercial considerations. As the small business grows larger and looks to expand production, it can be a significant cost-saver to have a product manufactured overseas.

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