Rising labor costs, trade tensions, and geopolitical concerns are all pushing manufacturers out of China. The rising cost of labor in China's booming economy has made the country less competitive for manufacturing. Even more so, the current trade disputes between China and the US have exacerbated the uncertainty of doing business in China, leading many businesses to go elsewhere.
The choice to withdraw from China may have far-reaching consequences for businesses. Although it offers potential savings, it also necessitates costly investments in new supply chains, transportation, and infrastructure. Moreover, there is the possibility of being shut out of China, a huge consumer market for many different products and services.
When looking to outsource some of your production, how do you choose the ideal location to do so?
Benefits of Local Outsourcing Production
✔ More Flexibility: Local suppliers are more reactive and can deliver products quicker, which makes it easier to scale up and meet demand.
✔ Greater Control: Face-to-face visits allow for addressing concerns and ensuring products meet standards with less chance of things getting lost in translation.
✔ Reduced Supply Chain Costs: When you localize the supply chain, you can cut expenses associated with logistics, which will have a positive impact on your bottom line.
✔ More Revenue: Local sourcing can attract new customers, and integrating it into marketing efforts can be a unique selling proposition.
✔ Good for the Community: Local sourcing can increase the local economy and contribute to the community through fundraising and sponsored activities.
✔ Helps the Environment: Local sourcing reduces emissions and energy usage, which contributes to green manufacturing and building consumer confidence.
✔ Ability to Launch Products Faster: Working with companies in the same time zone helps with easier communication, faster problem resolution, and meeting consumer demands..
The collaboration between IBM and the City of Markham in Ontario, Canada, is one of the case studies that bolster the premise for local outsourcing production. The city of Markham, Ontario, Canada, selected IBM Canada in 2017 to upgrade its IT systems and launch smart city projects.
The City of Markham benefited from IBM Canada's multifaceted offerings, including cloud computing, data analytics, and cybersecurity, which in turn increased the city's operational efficiency and improved the quality of life for its citizens.
The City of Markham could access the knowledge base of a global technology corporation by selecting a local outsourcing production partner. In doing so, it was also able to contribute to the development of the local economy and provide locals with employment possibilities.
Reasons to Consider Overseas Outsourcing Production
✔ Cost Reduction: Cost savings of around 15% are achieved through cheaper labor and materials, improved efficiency, and increased service offerings that drive earnings.
✔ Specialized Expertise: Access to specialized expertise at lower rates and with less competition, resulting in lower hiring costs and potentially better business outcomes.
✔ Round-the-Clock Uptime: Overseas outsourcing offers companies a more feasible way to offer round-the-clock uptime by capitalizing on workers in different time zones.
✔ Improved Focus on Core Tasks: Offshoring has the potential to free up resources that can be redirected to focus on core business operations, ultimately increasing profits.
✔ Greater Scalability: Overseas outsourcing can give companies greater production capacity and resources, which allows them to scale up or down more easily as needed.
✔ Reduced Regulatory Burden: Some countries have less stringent regulatory requirements than others, which eventually helps simplify the production process for companies.
✔ Enhanced Risk Management: Diversifying production across various locations helps mitigate supply chain disruption risks due to political instability, natural disasters, etc.
Nike's outsourcing production approach refers to one of the case studies that demonstrate the advantages of outsourcing production in other countries. Nike, which is best known for manufacturing sports footwear and apparel, has sent its manufacturing elsewhere for decades.
Since the 1980s, Nike has been known for its practice of outsourcing production to several countries like China, Vietnam, and Indonesia. Indeed, the company has increased its profits by taking advantage of the cheaper labor expenses in these locations.
Not only that, but by outsourcing production overseas, Nike has gained access to a bigger pool of both trained and unskilled workers, allowing them to keep up with consumer demand. Furthermore, Nike has benefited from the knowledge and experience of its international suppliers, which has allowed the company to raise the bar on product quality.
How to Decide Where to Outsource?
Local outsourcing production is often beneficial when the products are bulky, heavy, or perishable, and the transportation costs would be prohibitively expensive. Apart from that, local outsourcing production can be advantageous when businesses want to maintain control over the quality and production process and communicate better with suppliers.
In contrast, overseas outsourcing can be cost-effective when the labor cost is significantly lower in a foreign country. Overseas outsourcing production can also be beneficial when the business needs access to specialized skills or resources that are not available locally. However, overseas outsourcing may also pose challenges related to quality control, cultural differences, language barriers, and logistics, which businesses should consider before deciding. When you add in global politics, tensions, and trade wars things can become much more intricate
Do you still have any queries regarding outsourcing production? Contact us immediately.