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Offshoring but not to the cheapest

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  • Offshoring but not to the cheapest

    There is one reason for outsourcing abroad that is not based on cost and is closer to lead-time and planning reasons. When it comes to outsourcing laborious tasks there's hardly a place on earth that is as cheap and reliable as Asia. But many manufacturers, whether in Europe or North America turn to closer, but much pricier and less reliable destinations that are geographically closer (Mexico, Eastern Europe, North Africa etc). The prime reason for this is the delivery time from these places to the final assembly plant. Typically it is a 2-3 days period for these so called near-shores compared to the typical 40 days sea-journey from China. This gives a lot leverage for just-in-time, lowering work-in-process stock, Kanban, and overall improved lead time.

  • #2
    Re: Offshoring but not to the cheapest

    You are right on the turnaround time that it is faster for the finished products to be delivered back to the main office for commercial distribution. So the costing would depend on the computation since the nearer the outsourced labor workplace, the cheaper the cost in terms of transport. However, the quality of work will still have to be considered since particularly companies in the US and UK are very meticulous when it comes to the quality. From what I remember, Marks & Spencer of the UK have been outsourcing labor work to Thailand because it is cheaper and the Thai are also good in doing craft related to clothing and accessories.

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    • #3
      Re: Offshoring but not to the cheapest

      The garment industry in the US had set-up numerous production facilities across the Caribbean during the 1980's and the early 1990's. It's was mooted that the close proximity to the US and the lower wage cost was definitely a real advantage to the viability of the industry. However, all these companies have left the Caribbean and moved to some far away Asain countries where they are able to pay much lower wages than they would have paid in the Caribbean. This goes to show that lower operating cost could override the close proximity opportunity.

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      • #4
        Re: Offshoring but not to the cheapest

        Originally posted by explorerx7 View Post
        The garment industry in the US had set-up numerous production facilities across the Caribbean during the 1980's and the early 1990's. It's was mooted that the close proximity to the US and the lower wage cost was definitely a real advantage to the viability of the industry. However, all these companies have left the Caribbean and moved to some far away Asain countries where they are able to pay much lower wages than they would have paid in the Caribbean. This goes to show that lower operating cost could override the close proximity opportunity.
        It depends. Even inside one company or sector. Fast fashion brands for example (H&M, Zara etc) manufacture some of their products nearshore whilst others are produced in the cheapest of the cheapest (Bangladesh). I know that the some labor-intensive components of the automotive and aeronautics industry need to be produced nearshore because of lead time/just-in-time constraints even they could be manufactured for cheaper prices in Asia.

        It is true that it is hard to compete with the insanely low Asia prices. I imagine in the Caribbeans, the cost of living may be barely half or a 1/3 of that in the US, In Asia it is more like 5 to 8 times less.

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        • #5
          Re: Offshoring but not to the cheapest

          I think the metrics and QA standards aren't strict and definite in Latin American, African and European offshore firms. Asia's the only continent that supplies a lot of cheap but quality (or near-quality) labor - a rare find these days where service-oriented companies try to earn as much as they can by raising the price of their services.

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          • #6
            Re: Offshoring but not to the cheapest

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