Companies across the globe seek ways to gain a competitive advantage through any means possible. Outsourcing enables firms to reduce their expenditures on manufacturing and business operations by leveraging the local economies of other countries. Such opportunistic tendencies may be seen as a trend, although they can bring substantial benefits for organizations that accommodate all essential factors in their decision-making (Oshri et al., 2022). Medium-sized companies must assess their customer base, financial performance, potential barriers, and operational obstacles for such cases.
There are numerous factors that must be assessed by a firm in order to conclude the possibility of outsourcing entire product lines. The U.S. economy may be less open for economies of scale production, yet there are risks related to outsourcing manufacturing that may force a firm to remain region-locked (Oshri et al., 2022). The following qualitative and quantitative aspects must be considered by a medium-sized company in the U.S.:
- the availability of a skilled yet inexpensive workforce;
- the existence of a suitable infrastructure abroad;
- the possibility of knock-offs;
- a company’s business strategy, such as economies of scale;
- a firm’s customer base sentiments toward outsourcing;
- employees’ openness to organizational changes and restructures;
- the complexity of manufacturing processes;
- additional tax burdens (Oshri et al., 2022).
The inclusion of these factors is defined by their impact on a firm’s performance. Quantitative aspects include precise data, such as expenditures on opening a new offshore location and costs of operating in a different country, while qualitative elements consist of less tangible concepts, such as people’s attitudes (Oshri et al., 2022). A company’s industry plays a vital role in its intentions to produce products abroad. Depending on the type of its products, an organization can experience complaints from both customers and employees, lower the quality of its products, and create a negative brand image (Skowronski et al., 2020). The possibility of copyright or patent infringement also must be considered, as the financial losses from bootleg duplicates can consume a significant amount of resources. For a medium-sized business, financial issues may be less impactful than qualitative ones since they are less predictable (Oshri et al., 2022). These risks may turn a firm’s profit down for an extended period.
A company’s decision must be based on a comparison of outsourcing versus local production since there are similarities and differences between these decisions for investments. Investments in foreign and in-house manufacturing facilities require scalable capabilities and an extensive local infrastructure (Oshri et al., 2022). Taxation also has a significant part in both cases, as either country may present unfavorable conditions for manufacturing in a specific industry. However, the quality of products, which stems from the available workforce, differs greatly, and outsourced goods may lose their appeal to customers due to being lower grade. Moreover, production within the United States’ borders may be more costly, while foreign facilities may provide cheaper services.
In conclusion, there is a multitude of qualitative and quantitative factors that affect a firm’s decision to transfer its manufacturing processes abroad, such as expenditures on infrastructure and workers and the loss of local support. A medium-sized company may possess enough resources to utilize this approach, although it may not withstand the damage to its brand. There are similarities between investments made in-house and offshore, such as taxation policies and local industry development challenges. However, the availability of high-end technologies and a workforce can lead to one’s turn to remaining in the United States, while cost optimization is easier to achieve abroad.
References
Oshri, I., Kotlarsky, J., & Willcocks, L. P. (2022). The handbook of global outsourcing and offshoring (4th ed.). Springer.
Skowronski, K., Benton, W. C., & Hill, J. A. (2020). Perceived supplier opportunism in outsourcing relationships in emerging economies. Journal of Operations Management, 66(7), 989-1023. Web.