New designers sometimes reach out to Law On The Runway asking whether they should manufacture locally or overseas. While this often more of a business question than a legal question, but we can certainly help you balance the factors of this decision, with a legal perspective. Here’s a few questions we recommend that you answer while coming to the decision of where to manufacture.
1. What Language Barriers Will You Face?
When working with manufacturers aboard, you must have a technical command of the language to negotiate business terms and to articulate the construction of your goods. If you are unable to fulfill this bilingual goal, you must then diligently research if the manufacturer you are working with has the command of one of your primary languages. Remember, this more than conversational command, make sure that both parties can articulate the details of your industry and business terms proficiently in a language that both can understand.
2. How Will You Provide Quality Control?
Local manufacturing and abroad manufacturing similarly lead to anxiety over quality control. With both, you must consider how you are going to efficiently review your products after manufacturing and work with the manufacturer to correct deficiencies and errors. Can you budget in multiple trips to visit the factory? Could you find and pay a representative within the country to oversee the manufacturing for you? How will you handle disputes, should they arise, between you and the manufacturer over the quality?
3. Will You Face Quotas?
Occasionally the United States or a foreign entity will place quota restrictions on fabrics or apparel. Sometimes the quotas are origin specific, such as this current quota on cotton and man-made Chilean fiber apparel: http://1.usa.gov/1lxJJQa
Quotas can also be applied to an entire category of textile, regardless of country of origin. This is an example of a current quota on Worsted Wool: http://1.usa.gov/1inHWbL
For small production, quotas are unlikely to be a big barrier, but it is equally important to also think about how quotas will affect your business as you grow.
4. Who is Responsible for Damage to Goods in Transit?
When manufacturing overseas, you’ll need to consider the time period when goods are being transported from the manufacturer to you.
F.O.B in a contract typically refers to “Free On Board.” You and the manufacturer must decide if its Free On Board Destination or Free On Board Origin. If you decide, F.O.B. Destination, the manufacturer is responsible for the goods until they reach the agreed on shipping destination. If you agree on F.O.B Origin, you are responsible for any loss or damage to the goods once they are in transit.
5. Do You Need a Customs Broker for Invoices and Customs-Required Documentation?
A customs broker can help you create and provide the appropriate documents for importation of goods. They can also assist you in understanding what taxes, duties, and tariffs must be paid. The CBP (Customs Border Patrol) lists the documents which are required for entry of goods.
“Within 15 calendar days of the date that a shipment arrives at a U.S. port of entry, entry documents must be filed at a location specified by the port director. These documents are:
6. Can you comply with the Customs Modernization or “Mod” Act?
The Mod Act works within the North American Free Trade Agreement (NAFTA). Because the goal of this Act was to make the process of importing and exporting more efficient, the Act strongly relies on the importer taking responsibility and steps to ensure compliance with NAFTA. The Mod Act centers around two concepts “informed compliance” and “shared responsibility.”
This document provides a great checklist for complying with the “Mod” Act: http://1.usa.gov/MXNqzu
7. Do You Need to Comply with Section 333 of the Uruguay Round Implementation Act, in Conjunction with the Mod Act?
This section of the act, “authorizes the Secretary of the Treasury to publish a list of foreign producers, manufacturers, suppliers, sellers, exporters, or other foreign persons who have been found to have violated 19 U.S.C. 1592 by using certain false, fraudulent or counterfeit documentation, labeling, or prohibited transshipment practices in connection with textiles and apparel products.”
When working with a manufacturer abroad, it is important to check this list, and if you are intending to work with an entity on this list, you must then complete this checklist:
8. Social Concerns & Environmental Impacts
Aside from the cost, timing, and coordination concerns, it is important to consider the way your decisions will reflect the perceived ethical consciousness of your company and brand. Look carefully into how employees are treated within the manufacturing facilities that you are working with. Additionally, consider the environmental impact of both the manufacturing processes being used by the facility and and the environmental impact of shipping your goods overseas.