Doing it domestic: Why it makes sense to manufacture your hardware product in the US
Not all paths to hardware startup success lead through Shenzhen, China. More than ever, there are serious reasons for founders to consider US-based manufacturing.
By now, the reasons for producing in China and other countries, such as the low cost of labor and scalability, have been well documented. And today, many startup leaders may consider long, expensive trips abroad an unavoidable cost of doing business. However, in recent years, US manufacturing has quietly amassed its own advantages. We look at eight significant advantages.
1. Quality control
While China and other countries are constantly improving their ability to build at scale, their advantages can come at the risk of quality. It’s a matter of accessibility and standards. In the minimum 14 hours it takes to fly from the US mainland to China, one can fly to almost any US city, do business, and return. Therefore, it takes more work for startup leaders to keep their pulse on manufacturing teams. In addition, other countries sometimes employ safety and quality standards different from those of the US.
2. Protecting intellectual property
Along with limited control over quality, manufacturers abroad can also risk one of their most precious assets: their intellectual property. As you may know, US patents are only applicable within US territories, and therefore, different laws apply in different countries. In addition, even if a particular nation has amenable laws, founders have no control over enforcement.
3. Faster prototyping and iteration
Just as geography creates challenges with quality, it can also complicate the prototyping process by separating design and production teams in multiple ways. Even when working with the most responsive producers, the challenges of time, distance, and language can persist. Working in the US is often more manageable, especially for inventions that require tight integration between teams through multiple prototypes.
4. Supply chain resilience
Political unrest, global events like the coronavirus pandemic, and even weather patterns have exposed the vulnerabilities of traditional supply routes. Not long ago, ships waited for weeks in American harbors to be unloaded while consumers and businesses waited to get their orders filled. Still, even today, the bulk of cargo transport from Asia is ocean freight, and choosing air is an expensive alternative. For a hardware startup, nothing can disrupt a product launch more than a lack of availability.
5. Innovative manufacturing practices
Without the advantage of cheap labor, American manufacturers have learned how to operate lean and intelligent. For example, US technologies like AI, robotics, 3D printing, and advanced CNC are being used to lower production costs while maintaining or raising quality.
6. US funding opportunities
Political agencies are always looking for ways to stimulate the US economy and incentivize hiring. One recent example is the CHIPs Act, which allocates $51 billion in funding for the building of domestic semiconductor facilities. To date, the government’s investment has also spurned over $210 billion in private equity funding. As a result, hardware startups that serve the semiconductor industry also stand to gain through investment in supporting equipment.
7. Skilled workforce
The US has a highly skilled and educated workforce, which can be valuable for complex manufacturing processes requiring specialized skills. Conversely, while countries like China produce many highly educated workers, they don’t necessarily participate in the country’s manufacturing labor pool. A case in point is that a 2021 Stanford study revealed that approximately 70% of China’s labor force doesn’t have a high school education. Therefore, the cost savings of using them aren’t without risk.
8. The “Made in USA” appeal
Finally, founders would be wise not to underestimate the appeal of products made in America. Whether real or implied, the impression of better quality and more ethical manufacturing practices does hold a place in the minds of B-to-B and consumer decision-makers in the US.
The state of US manufacturing
As mentioned, foreign competition has spurred US companies to innovate. As a result, the approach toward the process is different. While companies abroad have enough inexpensive labor to create vast Henry-Ford-style assembly lines, US companies have eliminated manual tasks with software and robotics and driven out inefficiency with the tight integration of design, engineering, and production.
Further, according to a recent report published by the nonprofit Reshoring Institute, foreign direct investment and the reshoring of manufacturing have accounted for an increase in over 100k new jobs in the first quarter of 2023 alone. The same report also cites that as many as 70% of these jobs were in the computer and electrical equipment sectors. Therefore, companies are beginning to see the advantage of using American labor and are showing it through hiring.
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