Offshore manufacturing has become a taboo word in US and European societies as it has often meant the closing down of domestic facilities. Simply put, offshore manufacturing is the outsourcing of components or company factories to foreign countries, such as China, Thailand, India, Latin America, and Mexico, where labor and raw materials cost much less than they do in most parts of Europe and North America. Many manufacturers realize this and a lot of times they won’t hesitate in moving their production site to another nation if it means more profit for them. What was once considered to be a home grown product will now have to be manufactured some place else and imported in.
However, not all companies will close down their own facilities and move away, many of them will open offshore manufacturing sites in addition to keeping their domestic operations. This is often the case for very successful companies who sell their products all over the world. It doesn’t make sense for Coca Cola and General Motors, etc. to manufacture all of their products in North America and ship them all over the world, it makes more sense and more money to manufacture the product abroad, where it will be sold.
Offshore manufacturing generally consists of items such as automobile parts, electronics, household appliances, motors, aerospace equipment, clothing, sporting goods, toys, and other small products. In many instances the materials will be made in North America and Europe and then assembled in offshore manufacturing facilities.
To be competitive in today’s global market, many companies have to look to other sources for offloading work. Countries such as India have a highly skilled workforce with excellent English speaking skills and perhaps some of the top engineers in the world. On top of this, the labor costs may be as low as one tenth of US labor costs and equal savings can be realized in raw materials. A docile and eager workforce, healthy encouragement from local government bodies, liberal concessions in tax and land, weigh heavily in deciding upon offshore manufacturing.
While the bottom lines do weigh heavily in favor of outsourcing, other factors must also be carefully considered such as:
- How well will the new offshore company integrate with the existing corporate culture?
- The logistics that are involved in transporting the finished products.
- The intellectual property rights.
- Will the confidential clauses that are signed be honored?
- How will government changes reflect on the success of the venture?
- How much training is involved and will staff have to be onsite?
- The tax situation in the country.
- Will the proper quality and workmanship be put into the product?