Manufacturing overseas often makes financial sense, but you will need to be able to overcome the disadvantages that come with production in a foreign country. There are plenty of benefits if you decide it’s the right choice for your company. You will need to weigh all these factors before making your final decision about whether this is an appropriate move forward.
And you will need the right team. Either in-house or through partners, you need people who understand the pros and cons of working with overseas manufacturers. They can help you find the right contract manufacturer and help you manage the process. That is where Genie Global Group steps into picture.
If your product development journey involves the possibility of working with overseas manufacturers, reach out today, and let’s talk options. In this blog post, we’ll discuss the advantages and disadvantages of offshore manufacturing to help you decide whether it’s the right outsourcing option for your company.
Offshore Manufacturing - Advantages
Many business owners / product development teams immediately choose to do business with an overseas manufacturer. These are top five reasons why entrepreneurs, small businesses, e-commerce sellers, and product-focused companies choose an overseas partner:
- Labor Costs: The US has some of the highest labour costs in the world, making foreign countries attractive. In India, labour can be one-third to one-quarter of the cost. Depending on how much labour is needed to produce your product, these lower costs can significantly increase your profit margins.
- Cluster of Manufacturers: When researching options in India, you get a feel for the breadth and depth of companies with wide choices, from suppliers to factories to wholesalers, that could help build your product.
- Production Capacity: One of the most significant advantages of offshore manufacturing is production capacity. Offshore manufacturers can scale up quickly and produce large quantities of products in a relatively short period. You can save money with volume discounts and lower costs on raw materials, depending on your order quantity. Just make sure you can support their minimum order sizes.
- Proximity to Suppliers of Raw Materials and Components: US factories are usually far from sources of raw materials or components that go into their products. This can dramatically increase time-to-market and costs, whereas offshore manufacturers usually have relatively established supply chains and access to every type of raw material. The pandemic showed how supply chain disruptions could cripple a product’s manufacturing, especially if raw materials or components need to be imported into the US.
- Skilled manufacturing: The availability of skilled manufacturing workers in foreign countries frequently outstrips that in the US. At the start of 2022, the US manufacturing sector had unfilled positions close to a million.
Offshore Manufacturing - Disadvantages
Even with all the benefits, offshore manufacturing comes with challenges. Here are five issues every product development team should be aware of before offshoring the products:
- Higher Shipping Rates and Longer Lead Times: After your products are produced in your offshore factory, you must transport them to your target markets. This often leads to increased demand in the transportation sector, causing shipping rates to rise. In addition to paying the shipping costs, you are also required to cover tariffs and various fees. These expenses can frequently offset the economic benefits of offshore manufacturing. The time required to transport goods from overseas back into the United States to meet domestic demand can be significant. The COVID-19 pandemic underscored how vulnerable extended supply chains can be to disruptions. Furthermore, it’s essential to account for delays and shipping times caused by country-specific holidays.
- Lack of Oversight: With overseas manufacturing, the ability to conduct in-person meetings for negotiations, problem-solving, and quality control is limited. Establishing relationships becomes more difficult, particularly in countries that place a high value on face-to-face interactions. Regular travel is often costly and erodes the cost savings associated with offshore operations.
One effective solution to address this challenge is to collaborate with Genie Global group – a product development partner who can designate a local representative to manage your account. This representative will act as your on-site presence at the chosen factory, handling local supply chain management and performing quality control tasks that you would typically oversee in person. While tools like Zoom or Skype can assist in bridging the gap, having a physical presence on-site remains unparalleled.Top of Form
- Language and Cultural Barriers: When partnering with an overseas manufacturer, you are likely to encounter language and cultural differences. These differences can create hurdles in contract negotiations, pricing discussions, comprehending workflows and ethical norms, as well as respecting cultural nuances. Once more, having a local representative as part of your team ensures that nothing is lost in translation. It is advisable to collaborate with Genie Global Group that includes individuals intimately familiar with the culture, enabling them to advocate on your behalf and prioritize your best interests.
- Problems with Customer Service: Consider the scenario when an issue arises or your quality standards are not met. Imagine the potential disappointment of your customers or retailers waiting for your products. If a customer raises concerns about delays or quality issues, the responsibility falls squarely on your shoulders. When collaborating with offshore manufacturers, the onus of managing customer service lies with you. Customers are generally indifferent to whether the problem originated during the manufacturing process; they associate it with your brand, and it is your responsibility to rectify the situation.
- Safety Risks: Prioritizing the safety of workers and environmental sustainability should be a constant consideration. It’s important to recognize that not all countries uphold the same level of commitment to employee safety and environmental standards. When evaluating potential manufacturing partners, it’s essential to include criteria such as a track record of good labour practices, the implementation of safety protocols, and a commitment to environmental responsibility.
To streamline all this process, you can benefit from partnering with Genie Global Group who have established relationships with pre-screened factories. They can offer valuable guidance, directing you to the most reputable manufacturers, saving you both time and potential complications associated with engaging with manufacturers that carry higher risks than necessary.