A major advantage of outsourcing manufacturing is that companies can have a huge tax break and save a lot of money when investing in foreign factories. The Foreign Tax Credit is where the taxes paid to the manufacturing company is removed from domestic taxes.
Another unique advantage of manufacturing overseas is that workers are often skilled in the necessary requirements for factories, unlike the U.S. This because factories are a huge part of the workforce in these foreign areas and it’s required that these skills (like running and fixing machines) be known.
Outsourcing manufacturing is also ideal in the sense that there are often fewer regulations which means that it won’t take as long to produce items and payments can be cheaper.
This cost-efficient choice, however, comes at a price. While it might be cheaper, the quality isn’t always the best.
Because costs are so low factories have a huge demand from many different companies and only have a short time schedule to complete all of the demands. This can greatly impact the quality because the factories are working to produce as much as they can per day.
Also, you need to typically place a large order for foreign manufacturers. This can make trying to create only a small amount of products impossible and can be very discouraging to smaller businesses.
Another major disadvantage is that you need to put up about 30% of the payment beforehand. If you’re not able to do so, your product more than likely won’t be manufactured.
Communication can also be a problem as many overseas manufacturers speak little to no English which can make trying to express your ideas and concerns difficult.
Is Outsourcing Ethical or Unethical?
This is a question that many often ask, and it’s an important one to consider. While you might be spending less money and making more for your company, workers in foreign factories often aren’t working in pristine conditions.
Outsourcing jobs to foreign manufacturers can also have a major impact on the local environment, something that can negatively affect the local people. Because there are fewer regulations with these factories, shortcuts are often taken which can lead to excessive pollution and destruction of the native environment, especially in the form of smog.
For instance, China has closed over 80,000 of its factories due to recent safety inspections finding that factories were exceeding the allowed pollution emission rates. These factories leave behind a thick and yellow-colored smoke throughout the cities, which is sometimes so thick that it completely blocks the sky and sun from being seen.
However, outsourcing can also help to create jobs for people who would otherwise not have one. Many countries that do foreign manufacturing are able to help local people earn money to support their families, something that would be very difficult for them to do without the outsourcing work. Many factories overseas tend to be in developing countries and just a few U.S. dollars can make a huge impact on them.
Often outsourcing can be seen as being both ethical and unethical. However, outsourcing leans a little more toward the unethical side because workers and the environment are usually taken advantage of. If you decide to outsource a project it’s best to research the manufacturer carefully and come up with some conditions that are ethical to ensure that workers are treated fairly.
Ideally though, it’s good to invest domestically because there are rules to help prevent workers being taken advantage of.