More and more companies are realizing the draw of manufacturing overseas, often in low cost countries. Keeping costs down throughout the manufacturing process allows them to increase profit margins, and many low cost countries offer a wide selection of experienced potential suppliers and advanced manufacturing facilities.
What are some of the main reasons so many companies are choosing to manufacture overseas? To find out, let’s explore five advantages of doing just that.
1. Low Labor Costs
The low labor costs associated with manufacturing overseas might be the most obvious advantage, and the most important. By manufacturing in countries like China, India, Vietnam, Bangladesh, and the Philippines, companies gain access to a low cost labor market that can save them a lot of money.
There are many reasons for the low cost of labor in these countries. Foremost among them are lower salary expectations for workers, a lower cost of living for workers, and favorable exchange rates when it comes to the country’s currency. Even though workers are paid less than they would be in a developed country, proponents of low cost country sourcing argue that manufacturing overseas brings opportunities to workers that most need them.
2. Advanced Manufacturing Infrastructure
Because countries like China have become manufacturing meccas over the years, they’ve developed world-class manufacturing facilities and infrastructure that allows them to meet the manufacturing needs for many companies quickly and efficiently.
India has also developed top-of-the-line manufacturing facilities.
Particularly for certain industries, India has carved out a niche as a world-leading manufacturer. Some of these industries include automobile manufacturing, pharmaceuticals manufacturing, and textiles. The country is representing an increasingly appealing option for companies looking to manufacture overseas, especially considering that its labor costs can be even lower than China in many cases.
Many low cost countries, including India, China, Vietnam, and the Philippines invest in infrastructure to make the manufacturing process easier and attract foreign companies to base their manufacturing operations there. That means many of these companies represent a strategic advantage for firms looking to streamline their manufacturing and procurement processes.
3. Favorable Regulations
Manufacturing overseas often means that companies can take advantage of favorable regulatory environments. Much like investing in manufacturing infrastructure, many low cost countries try to make their laws and regulations as beneficial as possible for companies that choose to manufacture there.
Changing or reducing regulations and minimizing red tape allows these countries’ governments to attract more businesses that choose to manufacture there and thus creates more opportunities for its citizens.
Many companies that are frustrated with the stiff and bureaucratic regulatory environment found in many developed countries choose to manufacture overseas to make their procurement process more streamlined and inexpensive.
Navigating regulations abroad is being made even easier by the fact that there are an increasing number of companies providing strategic sourcing and procurement consulting services. These services allow manufacturers to outsource much of the legwork to procurement professionals that have a great handle on dealing with foreign regulations.
4. Tax Incentives
Some companies can take advantage of lucrative tax incentives when choosing to manufacture overseas. As part of their plan to encourage businesses to manufacture in their country, many low-cost countries initiate favorable tax codes for foreign companies.
By manufacturing overseas, companies can take advantage of tax benefits which apply to foreign investments. That’s because choosing to manufacture overseas represents an investment in the manufacturing country’s people and economy.
The American tax code has also continued to become more favorable to companies manufacturing abroad in recent years.
5. A Globalized Presence
As the process of globalization continues to run its course, the world continues to become flatter and smaller. Companies can gain access to foreign markets with increasing ease, and creating a global and international brand is more appealing than ever.
Many countries like India and China that are positioned as top candidates to become a manufacturing hub for many companies, also have an up-and-coming middle class, as well as their fair share of wealthy consumers. Choosing to manufacture overseas in India or China could be a way to get a foothold in the country in the hopes of one day marketing to their consumers.
Developing a global presence could expand the opportunity to sell products to markets in neighboring countries as well. Some companies are even adapting their globalized presence to better respond to recent world events, as explored in this case study from the Washington Post.
Finally, manufacturing in a foreign country can increase the brand awareness of the company in that part of the world. It’s often a strong strategic move that can position a company to keep growing and expanding.
For more information on manufacturing overseas, contact us.
