However, the initiative faced staffing and supply problems early on, leading Apple to continue offshoring the rest of its products. Australia is also experiencing the effects of skill shortage in the automotive industry. According to a recent labour market research survey for automotive trades, vacancies attracted an average of 0. The number of applicants per vacancy has been reported to be the lowest since while the proportion of jobs filled is the equal lowest since Reasons for this included applicants rejecting offers of employment, location issues, working conditions, and the lack of willingness to do the job.
Through offshoring, companies discovered that they could hire a team of highly qualified staff in low-cost countries who are motivated and ready to take on tasks that are frequently rejected by local employees. Offshoring remains to be a viable business strategy for many different reasons. However, like any other strategy, it is also prone to abuse and should not be used solely for cutting costs. Offshoring should not be seen as a replacement for your staff but instead, use it to augment your current team for further growth of your business.
Diversify Offshore Staffing Solutions has a very hands-on approach in helping its clients in analysing what roles they can effectively offshore and will collaborate with you to ensure a smooth offshoring implementation with your current operations, feel free to contact us today. In this article, we will be discussing some of the reasons why companies decide to offshore: 1.
Cost Businesses are constantly seeking different ways on how to gain a stable source of revenue while at the same time sustain their day-to-day operations to stay competitive or even survive. Restrictive Regulation One other concern that companies have to deal with are restrictive local regulations that hinder them from reaching long term business goals. To Stay Competitive In this interconnected world, businesses are now competing in a global stage wherein innovation is becoming a significant factor in determining the success of a company, and the constant demand for efficient customer service makes it more challenging for companies across different industries to stay relevant.
This makes scheduling a technical, customer, or training visit much less expensive and more logistically simple. In contrast to this, China has a very large time difference from the United States and requires a significant travel time to reach it. Because of this, any visits to oversee production or monitor operations require extensive planning, expense and time.
For many companies, this aspect makes Mexico a much more attractive manufacturing offshore location. In addition to considering the ease of entry and management, it is important to consider the potential shipping costs and considerations in each country.
Shipping items from China often takes several weeks by boat and within two days by air. However, shipping items from China by air can be quite costly and is generally not the best option economically. Additionally, duties can sometimes be significant depending upon the governing tariff code.
On the other hand, shipping from Mexico often takes only one day, does not require ocean freight and is much cheaper to ship. Offshoring your manufacturing operations may seem like a daunting endeavor at first but choosing to move manufacturing operations offshore carries with it several vital benefits that can be transformative for your business.
Running any business requires consideration to be given to the best options available and a constant mindfulness of changes to the market and economic environment. The passage of the North American Free Trade Agreement and the rise of Maquiladoras in Mexico have given way to a new era of manufacturing and an innovative approach to running a business. Below are a few of the most common benefits of offshoring manufacturing operations to Mexico. When analyzing your business model and attempting to find the most efficient means by which to increase your cost savings and profit, offshoring is a huge boost in the right direction.
Manufacturing in Mexico offers a significant cost savings to businesses. While labor is the primary cost savings in Mexico, there could be other areas where companies can save, such as real estate, freight and raw materials.
The availability and skill-set of the workforce is a tremendous consideration for businesses when selecting a country to offshore manufacturing operations. In Mexico, the demographics of the community and the workforce make it an ideal choice for companies looking to offshore manufacturing operations.
The median age of the population in Mexico is mid-twenties, making it roughly a decade younger than the equivalent workforce in the United States. The available labor force in Mexico is also extremely vast at approximately forty-seven million in the total labor force.
Though age and availability of the labor force are important factors to consider, the single most important factor businesses must consider is whether or not the workforce is capable of maintaining the quality of the product. Fortunately, as the Maquiladora program has expanded and become increasingly utilized for sophisticated manufacturing, the workforce in Mexico has become increasingly skilled and qualified.
When companies offshore their manufacturing operations to Mexico, they not only experience a tremendous cost savings, but there is typically not a decline in the quality of the product because of the skilled, available workforce in Mexico. Offshoring manufacturing can be an extremely beneficial financial choice, particularly when the country in which you offshore manufacturing is close by.
For United States based companies in particular, offshoring manufacturing in Mexico is an extremely favorable choice due to the close proximity of Mexico to the United States. This easily traveled distance, and the ease of entry to Mexico, make it simple to exercise oversight over the manufacturing operations, attend in-person meetings with management and personnel and establish a strong connection throughout the company.
In addition to these management benefits, the close proximity of Mexico to the United States provides a sharp decrease in shipping costs and lead times. While shipping from China may take weeks and cost a significant amount of money, shipping from Mexico is often a much cheaper and faster option. This means businesses can deploy just-in-time production strategies and distribute to their customers much faster, which cannot be duplicated in Asia.
Mexico possesses an abundance of natural gas, which provides it with a significant advantage when analyzing energy costs. Cost to manufacture goods is always a major factor in profitability. If a product can be made for less, you have a better opportunity to get the margins you need to turn a profit.
The attributes included bureaucracy, cheap manufacturing costs, corruption, a favorable tax environment, and transparent government practices. When it comes to cheap manufacturing costs , the following countries made the top 10 list:. The U. While this report is now dated, the reasons cited as being deterrents for domestic manufacturing still hold true to a large extent.
The only other country with a higher corporate tax rate at the time was Japan. Fortunately, the federal statutory corporate tax rate in the U. It will be interesting to see what happens when the TCJA expires at the end of The primary benefit of offshore manufacturing is the reduction of operating expenses.
Many offshore countries have lower labor costs than the U. Without having to pay for overseas freight, you can often find comparable prices in nearby countries. Offshore manufacturers may also have access to less expensive raw materials because many raw materials come from overseas. This can reduce costs, as well as speed time to delivery. Keep in mind that parts required for certain products, such as those used in technology, often come from overseas suppliers.
By partnering with an offshore manufacturer near those suppliers, you do not have to wait to receive those parts or pay for expensive transport costs. Another factor to consider is the availability of a specialized and skilled workforce. Many countries have impressive depth and breadth of talent, including designers and engineers, as well as unique machinery designed for certain products. Unlike the U. You can save money, even while receiving high-quality products.
Often, the biggest issue comes with sourcing the right offshore manufacturing partner. For instance, how do you vet an overseas manufacturer, particularly if you have never worked with them before? You need to know that they can efficiently and effectively produce your product, but you also need to negotiate fair pricing and attractive terms.
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