What is Offshoring?
Offshoring, or outsourcing as it is also known, is the relocation, by a company, of a business process from one country to another—typically an operational process, such as manufacturing, to a country where wage and operating costs are lower and is the opposite of reshoring. This typically happens for manual factory processes where labour costs are the main expenditure for the business.
Why are companies Offshoring?
A usual rationale for offshoring is that by moving low-skilled manufacturing jobs overseas, then higher skilled research and development jobs can be kept locally therefore keeping innovation and technology at its best, however this is often not the case. Most companies use offshoring as an excuse to save money by outsourcing their manufacturing operations to countries where wages, and often working conditions and standards are lower than in their domestic market. Employees in lower skilled roles can often find their jobs being replaced by cheaper foreign labour in order to improve shareholder profitability.
How are customers affected?
Through offshoring customers often suffer from increased lead times and manufacturers’ inability to respond quickly to customers’ demands. There can also be problems with product quality as manufacturing standards are not always maintained when offshoring. This is often due to time and budget constraints where product testing is often not as thorough in so as reduce costs further.
How can businesses be affected?
By transferring knowledge overseas, outside of your control, numerous businesses who have already offshored have issues reported from copyright and trade secrets theft to supply chain disruptions and overseas local bureaucracy issues. However, the most important issue which is becoming increasingly prominent is the rights and working conditions of overseas workers and the subsequent negative press reports and bad image for companies falling foul of this. Whilst most companies have little or no control over these conditions directly, ultimately they chose which factory or company to partner with overseas and ethically should check on working conditions before committing to going into business. All of these problems can damage brand reputation, affect customer loyalty and ultimately reduce profits which can turn a cost reduction exercise into a damage limitation exercise.
Offshoring value for money miscalculation
The actual value of offshoring, or Total Cost of Ownership as defined by Harry Moser, is often calculated incorrectly by businesses. The true cost to the business of offshoring must take into account all values associated with offshoring and numerous businesses make offshoring decisions based on cost alone which can lead to a 20-30% miscalculation of actual offshoring costs by not allowing for other factors. Many businesses find once they have already committed to offshoring that it is actually more costly to the business to manufacture overseas.
When is the right time to stop offshoring?
In short, now. Businesses can visit www.reshorenow.org and use their Total Cost of Ownership estimator to find out the real offshoring cost to their business. Through low cost collaborative robotic solutions manufacturers can optimise their current workforce without the need for offshoring and keep their current standards and brand reputation intact. Smart, collaborative robots are actually helping to reverse the offshoring trend and bring jobs back to domestic markets. Typical ROI can be in as little as 12 months and with intuitive software such as Intera 3 robots can be redeployed across tasks with virtually zero downtime.
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