The development of globalization has made offshoring a predominant factor in many large companies such that it is an irreversible trend. Offshoring can increase a company's domestic employment while also improving the quality of its worker's skills. Offshoring manufacturing activities in China, for instance, comes with the benefit of low cost of labor and manufacturing. In other words, companies can save money on materials and labor by manufacturing overseas. Even with the lower cost of production, the quality of the product produced through this approach is often better than domestically-obtained one. This has contributed to the annual increase in manufacturing wages in a country like China.
Regarding international business, most companies consider the use of a third party to meet a part of their manufacturing needs. A company who plans to source materials overseas should be aware of the possible challenges that may arise during the process.
The first challenge is the location of choice. Some clients end up signing contracts with some manufacturers in offshore locations without appropriate understanding the risks that are associated with each location: skill availability, geopolitical issues, local labor competition, wage inflation, legal and intellectual property-related issues, attrition or currency fluctuation.
Also, it is possible to end up in the hands of the wrong supplier. For an adequate understanding of a manufacturers capabilities and differentiation, it is essential to evaluate their performance continually over a sustained period and establish an excellent working relationship with them.
Controlling cost overruns may pose a serious challenge. Many companies fail to control cost overruns as a result of their inability to realize anticipated cost benefits. Perceived or anticipated cost overruns is essential as most business cases are not built by a complete assessment of direct and indirect elements contribute to costs but simply by the wage cost arbitrage.
Data security is an essential factor for offshoring. It entails giving access to some classified customer data and information to offshore suppliers or manufacturers, and any fissure in data security could heavily impact both your business and customers.
Another barrier to a successful outsourcing experience is the language and cultural differences. For instance, there may be some language barriers between the country where outsourcing projects are sent and the country outsourcing. These disparities tend to impact on the ability of some offshore teams in fully understanding the nuances of a project and its effective execution.
Though the benefits of offshoring are numerous, they can be overwhelmed by the daunting challenges if not managed appropriately. However, they can be overcome through proper planning and due diligence. You only require to work with a team of professionals who are versed with offshoring. They will help you address each of the challenges one after the other - you will get a good location, the right supplier, effective control of cost overruns, data safety, elimination of language and cultural disparities, among others.