Setting Up a New Factory? Ask These Questions First. (Podcast with Renaud Anjoran)

This post is based on Episode 332 of the China Manufacturing Decoded podcast, featuring MTG CEO David Collins III in conversation with Renaud Anjoran. Watch the full episode on YouTube.

More companies are setting up new factories right now than at any point in the last decade. COVID exposed the fragility of concentrated supply chains. Tariffs shifted the math on where to manufacture. And reshoring momentum — with the ISM PMI at its highest since 2022 and no sign of reduced geopolitical uncertainty — is making new capacity a strategic priority.

But setting up a factory is not just finding cheaper land, cheaper labor, or moving production away from China. In a recent conversation on the China Manufacturing Decoded podcast, we discussed what companies get wrong about factory setup — and the questions they should be asking before they commit. 

Watch the Full Episode

Why Companies Are Moving — and Why They Shouldn't Rush

The drivers behind new factory setup are real: supply chain risk reduction, tariff avoidance, customer proximity, and capacity expansion. But the urgency that makes companies want to move fast is often the same urgency that leads to expensive mistakes. Every new client, regardless of where they plan to move manufacturing, struggles with the competing needs of speed and proper planning — and most opt for speed. 

We've seen companies commit to a location before understanding their capacity requirements, sign leases on buildings that don't fit their process flow, and invest in automation that doesn't match their product mix. The cost of undoing these decisions is always higher than the cost of spending an extra month planning.

Five Questions to Ask Before Setting Up a New Factory

1. What is your specific goal?

This sounds obvious but most companies can't articulate it precisely. Are you trying to reduce supply chain risk? Get closer to customers? Lower costs? Increase capacity? Each goal leads to a different location, a different scale, and a different timeline.

"We need to get out of China" is not a goal. "We need to produce 500,000 units annually within 18 months at a landed cost below $12/unit for the North American market" — that's a goal you can plan against. You may find that the goal is not possible; however, it may be worth the relocation anyway to hedge risks. 

2. What is your target capacity — and how will it scale?

Build for where you'll be in 3-5 years, not where you are today. A factory designed for current volume with no room to grow will need to be expanded or replaced just as it hits its stride. But over-building creates carrying costs that drag on margins.

The answer is usually a phased approach: start with the capacity you need in year one, design the layout and infrastructure to support year five, and plan the expansion triggers in advance. 

MTG is helping a client with this process now. They leased a building that was big enough to produce the current product and will have sufficient space and capacity to produce other products. Implementing lean techniques has helped increase the capacity in the same space. 

3. What is your pricing strategy — and does the location support it?

Your factory location determines a significant portion of your cost structure — labor, logistics, utilities, taxes, and regulatory compliance. Before choosing a location, model the full landed cost for your top products and compare it to your target margin.

A location that's 20% cheaper on labor but adds three weeks of lead time and 15% freight cost may not be cheaper at all. True landed cost includes everything — not just the line items that are easy to measure. 

Shocking how many companies do not take this into account. We had a client in China where the factory moved from Shenzhen to Beihai for cheaper land and labor. However, their suppliers were further away and the company had difficulty finding enough qualified workers. 

I served in Afghanistan with the US government. The company had very low costs on land and labor and no taxes but no one would think that is a good place to build a factory. 

4. What should you automate — and what shouldn't you?

Automation is not a default answer. It depends on your volume, product mix, process complexity, and workforce availability. High-volume, low-mix production benefits most from automation. High-mix, low-volume operations often do better with flexible manual processes and skilled operators.

We helped a sports equipment manufacturer redesign their operation for a China-to-Mexico relocation. The result was a reduction from 1,200 employees to 350 — but the greatest gains came from increasing OEE with existing equipment and improving the factory layout and process flow, not from automation alone.

5. Where will the workforce come from?

This is the question companies most frequently underestimate. Every new factory needs operators, technicians, quality engineers, and supervisors — and the labor market in your chosen location may not have them ready.

Research the local workforce before committing to a site. How many CNC operators are available? What's the average manufacturing wage? Are there training programs nearby? What's the turnover rate in the region? The answers to these questions can make or break your timeline. Many companies have struggled with this problem in Mexico as the strong labor market means that workers will quickly leave for a better opportunity somewhere else. 

Don't Let Labor Cost Drive the Decision

One of the most common mistakes in factory setup is choosing a location primarily because of low labor costs. Labor is one factor in a complex equation that includes logistics, supplier proximity, infrastructure quality, regulatory environment, workforce skill level, and intellectual property protection.

We've seen companies move production to a low-cost country only to discover that quality issues, training time, management overhead, and logistics complexity wiped out the labor savings entirely. The total cost of operating in a location matters — not just the hourly rate. 

What Companies Underestimate

In our experience helping manufacturers set up operations in Mexico, Poland, China, Vietnam, and North America, these are the areas most consistently underestimated:

• Timeline. A realistic factory setup takes 12-24 months from decision to production. Companies routinely plan for 6-9 months and end up behind schedule. 
• Equipment lead times. Specialty machinery can take 6-12 months to deliver. If you haven't ordered equipment before signing the lease, you'll be paying rent on an empty building.
• Supplier qualification. Finding and qualifying local suppliers for components and raw materials takes months. Running parallel production with existing sources during transition is essential.
• Cultural and management adaptation. Managing operations in a new country requires understanding local business practices, labor regulations, and communication styles. What works in Ohio doesn't automatically work in Monterrey or Ho Chi Minh City.
• The cost of doing it twice. Getting the layout wrong, choosing the wrong equipment, or underestimating capacity requirements means rework at a factory scale — and that's exponentially more expensive than spending more time on planning upfront.

How MTG Can Help

Manufacturing Transformation Group has been setting up and relocating factories since 2012 — across China, Mexico, Vietnam, Poland, and North America. We recently completed a factory site selection in China in just 3 weeks, saving the client over $100,000. We've relocated production lines from China to Mexico, from Thailand to Mexico, and from single-source to multi-site operations.

Whether you're in the planning stage or already committed to a location, we can help you avoid the mistakes that turn a strategic investment into an expensive lesson.