The globalization of markets and the rapid advancement of technology have reshaped the way businesses operate and make strategic decisions. One such pivotal choice that companies often grapple with is whether to shift their manufacturing operations offshore. This decision holds profound implications for a company’s cost structure, operational efficiency, market reach, and overall competitive position. In this discourse, we delve into the multifaceted considerations that guide companies towards the momentous step of manufacturing offshore. Through this blog, we aim to shed light on the various factors that should be weighed to make an informed decision, drawing insights from industry practices and real-world instances.
The choice to take manufacturing offshore is not one that can be made lightly; rather, it demands a comprehensive assessment of the company’s current circumstances, strategic goals, and the evolving dynamics of the global business landscape. As evidenced by Research and Markets’ 2022 sector report, the global contract manufacturing market was valued at USD 246.51 Billion in 2022, with a projected growth to USD 512.74 Billion by 2030, representing a Compound Annual Growth Rate (CAGR) of 9.58% from 2023 to 2030. Furthermore, Deloitte’s Global Outsourcing Survey revealed that 50% of surveyed companies outsourced their manufacturing and supply chain procurement. Notably, Foxconn (Hon Hai Precision Industry), renowned as Apple’s outsourced iPhone manufacturer, stands as the world’s largest contract manufacturer, boasting a market capitalization of $48.5 billion as of June 2023.
These industry insights underscore the complexity of the decision-making process regarding offshore manufacturing. While cost reduction remains a central driver, the interplay of market trends, outsourcing prevalence, and the exemplification set by giants like Foxconn all shape the landscape in which companies navigate this critical choice. Beyond cost considerations, companies must weigh their core competencies, production capacity, service quality, alignment with business needs, access to specialized knowledge, and adaptability to varying business environments. Below we will be tackling reasons why you should take your manufacturing offshore.
Manufacturing Offshore As Cost Cutting Tool
According to a 2016 Global Outsourcing Survey conducted by Deloitte, businesses often turn to offshore manufacturing primarily to address overhead costs. This trend highlights the significant role of offshoring in the realm of cost reduction. In fact, the survey indicated that 59% of the participating businesses leveraged offshoring as a strategic tool to curtail expenses. However, it is important to emphasize that offshore manufacturing entails more than a mere pursuit of financial savings.
While cost reduction is undoubtedly a pivotal driver, it should not be the exclusive focus. Approaching offshoring solely with cost-cutting ambitions can yield unfavourable consequences, potentially leading to compromised quality as production costs take precedence over product execution.
Manufacturing Offshore Enable Focus on Core Business
In the same vein as the cost-cutting benefits identified in the 2016 Global Outsourcing Survey by Deloitte, another profound advantage of offshore manufacturing emerges—enabling companies to concentrate on their core business functions. The survey revealed that 57% of respondents recognized outsourcing, including offshore manufacturing, as a pivotal means of redirecting their attention and resources towards their fundamental operations. This phenomenon is underpinned by various factors that unshackle companies from the burden of intricate manufacturing processes, allowing them to channel their expertise and efforts into refining their core competencies and expanding their market presence.
When a company leverages the proficiency of an offshore manufacturing partner, it not only mitigates the need to develop in-house manufacturing capabilities but also gains access to the partner’s industry insights and best practices. This symbiotic relationship allows companies to leverage their partner’s manufacturing prowess while concentrating their internal efforts on innovation, branding, and customer engagement. An example that exemplifies this dynamic is Microsoft’s Xbox gaming console. Microsoft collaborates with multiple offshore manufacturers to produce its consoles, enabling the company to focus on game development, online services, and ecosystem growth.
Manufacturing Offshore Solves Capacity Issues
A critical challenge that companies often grapple with is the management of production capacity to meet varying demand levels. Addressing this issue requires not only strategic foresight but also the flexibility to adapt to market fluctuations. In light of this, offshore manufacturing emerges as a potent solution, as highlighted by the perspective of 47% of companies surveyed in relation to its capacity-enhancing benefits.
One factor that contributes to offshore manufacturing’s capacity-solving prowess is the scalability it offers. Companies that manufacture their products in-house may find it challenging to swiftly adjust production levels in response to changing market dynamics. Offshore manufacturing partners, on the other hand, often possess the infrastructure and expertise to rapidly scale production up or down based on demand.
Enhance Service Quality and Manage Business Environment
Amidst the diverse motivations driving companies towards offshore manufacturing, the imperatives of service quality enhancement and effective business environment management stand out. The insights gleaned from the surveyed landscape illuminate this, with 31% of businesses attributing their choice of offshoring to the aspiration of raising service quality, while an additional 17% recognize its potential to disrupt their conventional business norms. This interplay between service quality elevation and adaptive business environment management is proving to be a pivotal advantage, empowering companies to not only elevate their operational standards but also drive transformative change.
Access to Intellectual Capital and Drive Broader Transformational Change
In the intricate tapestry of offshore manufacturing’s benefits, two compelling dimensions emerge—access to intellectual capital and the potential to instigate broader transformational change. The insights gleaned from surveyed companies underscore these facets, with 28% citing access to intellectual capital as a driving force for offshoring, while an additional 17% recognize its potential to be a catalyst for driving transformative shifts within their business paradigms. These dual advantages encapsulate the profound impact that offshore manufacturing can have on companies’ growth trajectories and innovative capacities.
Access to intellectual capital is a key driver of offshoring for companies seeking specialized knowledge and expertise. In knowledge-intensive industries such as pharmaceuticals, companies are outsourcing manufacturing to tap into the expertise of offshore partners. This allows them to leverage advanced research and development capabilities, navigating complex regulatory landscapes, and ensuring compliance with stringent quality standards.
Furthermore, the dynamic landscape of business necessitates periodic transformational changes to stay relevant and competitive. Offshore manufacturing can serve as a conduit for such transformations by providing access to diverse skill sets, novel perspectives, and innovative technologies. Companies that embrace offshore manufacturing as a means to drive broader change often position themselves to disrupt established norms and seize new opportunities.
Conclusion
It is clear that with some research, offshoring can help businesses turn around. It is therefore not a question of why but when, “When is the best time to go offshore”. The best time to offshore is when you find a reliable partner who has a proven expertise in the domain of your requirement. Globally certain geographies are becoming hubs of specialised services and technologies. There are a number of factors that influence this. By embracing the opportunities that offshore manufacturing provides, companies can navigate the complexities of cost-efficiency, capacity management, service quality enhancement, and transformative change. Our solutions are tailored to offer you a strategic edge, aligning with industry trends and fostering innovation. With careful consideration and the right partner, the path to offshore manufacturing becomes clear— Considering going Offshore? We look forward to working with you.
