There are lots of reasons for outsourcing manufacturing overseas. A lot will depend on the type of manufacturing and the associated shipping costs. One of the struggles that small businesses in America face, is how to manufacture their products. While outsourcing manufacturing can have negative connotations with the public, the benefits of producing products overseas can be significant. How do you know what is right for your business?
Top Outsourcing Reasons
Lower labor and operational cost : The primary reason companies offshore is reduced labor cost. Since profit boosting is necessary in a competitive market, this serves as a great benefit.
New markets: There are many opportunities of finding a lucrative market and having a local hub to provide a whole new platform for business.
Wider knowledge base: Having your employees trained and educated to a higher standard is one of the major benefits of offshoring. This would ensure a high level of service.
Handling mundane tasks: Delegation of routine tasks like staff management can be offshored too just to reduce costs on a labor-intensive project.
Outsourcing Manufacturing Pros:
Cost Savings: This is important for companies that are labor intensive. In a competitive market when a company requires a profit boost, outsourcing the business operations can reduce cost and labor expenses.
Real Estate Cost Lowering: Reduced staffing would lead to reduction in space. Real estate costs are usually high in places where labor costs are high too. But many offshore locations can have low costs on land purchase.
Managing risk: Well planned offshore locations serve to reduce associative risks with offshoring. This is true in case of outsourcing the offshored processes as the companies would be specialist in this field.
Tax Advantage: Offshoring provides a lot of tax benefits specially for these overseas companies.
Reduced Costs: Making a product made overseas is typically less expansive than manufacturing at home. When you manufacture overseas you will be paying a predetermined fee for your product. You won’t have to worry about hourly wages and salaries, benefits, or payroll taxes. You are less likely to have strikes or contract negotiations due to unions, and you’ll never have to worry about hiring or firing workers. All of this means reduced costs and increased free time for you, your business, and your family.
Increased Capital:Since outsourcing reduces your expenses, you will have more money to spend. If this money is invested in research and development, debt reduction, or marketing it can help your business increase in sales. This ability to have more working capital is what allows businesses to keep products in stock. This is especially important while we live in a time where almost any kind of product can go viral overnight. If you don’t have the working capital to make sure that your supply can meet demand then you could end up losing out on a huge cash making opportunity.
Less Oversight is Needed:If you have your product made overseas you won’t have to worry about having employees who need to be managed, what rules the factory follows, and all the other nitty-gritty details. This can be a moral dilemma to some people though. There are many factories in other countries who make their employees work in unsafe and sometimes even inhuman working conditions. While not needing to worry about overseeing the people who manufacture your product can be a huge positive, make sure you are working with an ethical manufacturer. Otherwise, less oversight could quickly turn into a big con for your company.
Outsourcing Manufacturing Cons:
Communication issues: One major drawback of offshoring is the language barrier. Most of the countries consider English language as a common language but the understanding and depth of knowledge differs. Accent issues also come to play which makes understanding very difficult.
Cultural and social barriers: It is always difficult learning a new environment and a new culture. Also, the way people behave may be different. In some countries people talk in a straightforward manner. In other countries, workers are more reserved and rather take offense.
Time zone differences: Appropriate shift patterns need to match with the time differences between zones.
Security: Offshoring does come with security issues and hence strict protocols and safety measures need to be implemented.
Loss of Intellectual Property: Overseas loss of IP would mean multiplication of the original cost.
Higher offshore operating cost: Offshore cost of labor can be about 70% lower. But utilities like electricity may be more in some countries.
How To Manufacture: One of the struggles that small businesses face, is how to manufacture their products. While outsourcing manufacturing can have negative connotations with the public, the benefits of producing products overseas can be significant. How do you know what is right for your business? Take a look at our list of pros and cons so you can start thinking about the best choice for you and your business.
Negative Press: Some companies receive negative press when they decide to manufacture in other countries. This typically happens for one of two reasons; people sometimes feel outsourcing destroys local jobs. They also think that some overseas manufacturers are unethical and inhumane to their employees. Many outsourced manufacturing jobs in other countries overwork employees. They are working in dangerous settings, are underpaid, and sometimes even physically abused. Offshore employees sometimes put “help me” notes in the products they make. When situations like this hit the media they tend to end in boycotts, which no company wants.
Shipping Costs: Although outsourcing might be saving money, make sure to check out the shipping costs. Depending on what you are having produced you might find that the shipping charges reduce the savings. Shipping products across the ocean typically take at least 30 days. You will need to plan for this. if you end up needing more stock quickly, you won’t be able to get them the next day like you would if your manufacturing was based in the US.
