When entrepreneurs begin their companies, low overhead costs and sales volumes should allow for them to make their products in-house. However, as the number of products the company needs to make and then ship increases, each one of those products needs to absorb more and more of the increasing sales and administrative costs, which then leads to the necessity of outsourcing production. If this is an option you’re considering, understanding how to use a foreign supplier will assist you with the decision of whether this is the right step for your business.
Production Costs
One of the great advantages of opening a production facility, like those opened with maquiladoras in Mexico, is that the costs of manufacturing tend to go down. Labor is generally one of the highest costs when it comes to manufacturing, and labor in foreign countries can be incredibly cheap when compared to the cost of labor in the US. Lower expenses for materials, taxes, real estate, and utilities can also assist with the cost of manufacturing products outside the US.
Quality Control
When you’re making luxury goods, or anything else, to maintain your product’s quality, you may need to spend a bit more on management if you’re outsourcing production. This might include hiring a manager or two who can live near your production facility. Another option when it comes to monitoring quality is to increase your expenses for travel by regularly sending managers to your facility. Of course, this can mean a reduction in the savings you get by having a foreign production facility. If you’ve located the facility in an area where other US manufacturers have their production facilities, you may have more access to suppliers and a trained manufacturing workforce who already know the ins and outs of producing high-quality luxury goods as opposed to cheap knockoffs.
Importing and Exporting
When you make your goods outside of the country, you’ll have to deal with a host of issues and costs with importing and exporting your goods. These can include things like time delays, logistics, taxes, and customs. In spite of these issues, making your goods in another country may still be the option that’s more cost effective due to the manufacturing costs being significantly lower. Depending on where your products will be sold, making them in another country may even make shipping a bit easier than simply distributing them from a facility located in the States.
Issues with Stability
When doing business in a foreign country, even though the labor may be inexpensive, you may not be able to have the same level of stability that you’d have in the US., like with governmental policies and in the area of utilities. Political instability might rear its ugly head in the form of terrorism, a revolution, or a coup. You may also end up dealing with a culture of organized crime and bribery with precious little help from the law enforcement agencies.
Public Relations
Finally, as more and more American businesses are shipping jobs to other countries, unions and consumer groups are targeting more of them for boycotts. If the news that your products aren’t made in the US gets out, it may be reported by the media. Social media campaigns that can damage the company’s reputation could gain traction. Or perhaps some of your competitors will use the information in their advertising in an effort to take business away from you. Alternatively, if you’re opening a facility in another region or country where your products are sold, you may increase your sales from more positive public relations.
In short, as with everything else in this life, there are pros and cons to manufacturing your luxury goods in another country. Most of the time, the pros will outweigh the cons though – especially when it comes to your bottom line.