Question

a. When would it be a good idea to outsource your manufacturing to a foreign Country? b. When would it be an absolutely bad time to outsource your manufacturing to a foreign Country. What I am looking for here is what situations at a company might cause you to consider going offshore? Provide some concrete examples to strengthen the questions (500-800 words)

Answer 1

If your company produces a product, determining how and where to complete manufacturing operations is very important. While many businesses can thrive by manufacturing domestically, outsourcing may prove to be a better option.

Politically, this is always a tough issue, but as a business owner, you have to do what’s in your best interests. Outsourcing offers great benefits, the foremost being that it’s cheaper to manufacture items and ship them across the sea. As you probably already know, producing products in the U.S. costs drastically more than doing so in other countries. This reason alone is why many businesses choose to outsource overseas.

If your contemplating manufacturing options here are five reasons why outsourcing overseas may be the best option.

Labor Costs

In the U.S. those that work in manufacturing are paid very well, due largely to union protections. For example, “The United States ranks 14th in the world in wages and compensation for manufacturing workers, according to new data released by the Department of Labor’s Bureau of Labor Statistics… In other countries around the world, people are paid far less.” (Source: The Atlantic Cities)

In comparison, Huffington Post writer Bonnie Kavoussi explains, “The average hourly wage for Chinese manufacturing workers is less than a tenth that of their average U.S. counterparts, according to the Bureau of Labor Statistics.” This labor savings could cut the overall labor expense budgets significantly.

At the same time, it’s important to make sure you are socially responsible and not taking advantage of workers who are forced to work in horrible conditions and for terribly long hours. Make sure to investigate outsourcing companies where your products are manufactured to ensure they operate to code.

Overhead Costs

Similar to the labor cost savings, entrepreneurs also benefit from significant overhead cost savings that come with outsourcing manufacturing. Renting or owning manufacturing space in the U.S. is very expensive. Beyond rental costs, other costs such as insurance, utilities, and maintenance can be cheaper in other countries. However, keep in mind that while overhead might be diminished, you’ll have to ship products back to your home country. So, make sure the diminished labor and overhead costs make this a viable option.

Ease to Establish

It can be far easier to establish manufacturing operations abroad. Establishing a licensed manufacturing facility domestically is a challenging process. When outsourcing, companies can handle all of the set up for you. This can include site selection, build out, and licensing. Many developing countries are entirely dependent on manufacturing, and this is what enables costs savings when establishing a manufacturing plant in other regions.

Core Focus

Another reason that outsourcing could make sense for your manufacturing needs is that it allows you to focus on what you do best. When manufacturing is done locally, many business owners find themselves spending a lot of time overseeing operations. When it is done abroad, you are forced to rely on others (which in turn allows you to focus on core competencies). While not having a direct route to the manufacturing plant may be problematic and scary for some, not having the added stress of a plant so close to home is a big draw for others.

Proximity to Resources

More often than not, other countries may have a closer proximity to additional resources you need. Depending on what you produce, key resources and inventory you need may not be in abundant (or cost-effective) supply here. If there is better access to resources in another country, outsourcing could make sense. Meanwhile it may help reduce the cost of ancillary shipping costs (i.e., supplies, etc.)

In conclusion, choosing where to host your manufacturing operation is an important choice for all businesses. While many can succeed manufacturing products domestically, there are good reasons why outsourcing overseas is a viable and popular option.