Offshore Manufacturing: 5 Key Considerations

By
Sarah Leung
June 30, 2015

In a post we published recently on mid-market manufacturing trends, we discussed how “reshoring” and “nearshoring” are becoming more and more prevalent as trends in the wholesale world. Offshoring, however, continues to be a significant strategy for many businesses; in a manufacturing survey conducted by The Keystone Group, it was reported that 56% of survey respondents expected more companies to continue offshoring in the future. But while offshoring and outsourcing have been widely accepted as effective cost-cutting strategies in the past, there are several important considerations to take into account before deciding to move your production abroad. Here are a few trends, realities, and details to think about before moving forward.

Offshore Manufacturing Considerations

1. Companies are shortening their supply chains.

In a volatile economy in which both demand and fuel costs are constantly fluctuating, manufacturing products in Southeast Asia for sale in the United States might not make the most sense. In response to this logic, companies are beginning to shorten their supply chains to become more agile and flexible in the face of market changes, reducing cost and risk.

2. Production volume is key.

Think about your production volume. Offshore manufacturing is generally more suitable for high volume production, while local manufacturing is more accommodating for smaller quantities. If you’re looking to produce a small amount of product, an overseas factory may prioritize a bigger order over yours.

3. Offshore manufacturing requires more oversight.

Maintaining a good relationship with an overseas manufacturer is incredibly important to getting the correct products delivered on time. It will require constant oversight, travel, extensive product sourcing expertise, and a deep understanding of local custom and culture. Production schedules can easily be derailed by inexperience, contract gaps, and a lack of proper vendor management. It’s also important to note that delivery from these manufacturers can be delayed for months, whether it’s due to a long, complex approvals process or busy production times.

4. Intellectual property is constantly at risk.

Knockoff goods and imitations are constantly flowing out of factories in Asia. The protection of intellectual property remains a huge challenge for brands manufacturing goods abroad.

5. You must be able to think beyond labor costs. 

Low labor costs are often the primary reason for companies to look abroad. However, there are other cost factors to consider, including transportation and shipping, supply chain risk, and workforce skills. It’s also often the case that costs rise more quickly in countries with a less established manufacturing sector. Be sure to clearly outline your company’s objectives and needs, the costs along the entire supply chain, as well as the risks and opportunities of each location to make this long-term strategic decision. Do you have experiences to share about sourcing products from abroad or bringing production back to your home country? Any other factors to think about when considering offshore manufacturing? Let us know in the comments.