Scott Miller, founder & CEO of Dragon innovation wrote a brief primer on the state of new and rising hardware businesses. In a time when it seems like all manufacturing is being outsourced to Asia, the document emphasizes the benefits and strengths of local manufacturing, i.e. manufacturing taking place in the vicinity of design and development.

Most hardware startups start with an initial low volume run (say, up to 5k units) to test the market and iterate on the design based on customer feedback. “You have to build it to build it”, as Jim Lynch from Lego and iRobot is famous for saying. Nearby domestic manufacturing is often the best option for these companies to get started. During the initial launch when the design may not be fully baked, it’s much easier to work with a factory that is a short drive away and has a team that speaks the same language.

This isn’t to say it will never make sense to move production to another location, but especially in development stages, having instant feedback on early production runs, as well as the ability to implement new design changes, allows for fast and efficient iteration. Companies that go this route are able to iron out kinks faster than might be achievable when working with a partner or contractor overseas.

There are of course challenges to manufacturing in, say, Europe or the United States, but by forcing companies to gather a much more holistic understanding of the diverse stages of production they may actually inoculate companies against challenges down the road.

In the US, the factories tend to be less vertically integrated than in China. This means that you’ll need to spend more time stitching together your supply chain. For example, one factory may specialize in injection molding, another packaging, a third SMT and final assembly. By going through this process of putting together the supply chain, you will truly understand what it takes to build your product from scratch, which will be invaluable information for when you are ready to scale.

If every stage of production is managed by a central team, that knowledge is transportable and transferrable. If it’s all held by a foreign partner that has a medium sized factory, you are going to have trouble changing to or adding another supplier, maybe even having to start from scratch. This is a consistent message we see again and again: when developing new products, whether in New York or Shenzhen, it’ll pay to have the team in the same place.

The paper has a few more notes about the state of new hardware development — check it all out here.