Advantages and Disadvantages of Offshoring a Product

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Companies are always on the lookout for new ways to reduce costs and maximize profits. One method that has gained considerable popularity in recent years is offshoring, which refers to the sourcing of products, parts and labor from foreign countries. Although it is an effective way of reducing costs, it has also generated a considerable amount of controversy in all levels of American society.

Offshoring As a Cost-Saving Measure

The biggest reason why so many American companies are flocking to offshore their products and services is that it is a cost-saving measure. Since lower overhead costs lead to larger profits, it’s easy to see why offshoring is so popular. Other countries often have lower labor rates and require fewer benefits, so companies do not have to spend as much money on labor. Other cost savings through offshoring are realized through lower taxes, different environmental and safety standards, more lax work rules and labor laws, and lower equipment costs.

Swiftness and Expertise with Offshoring

Another advantage to offshoring products is that labor can be outsourced to professionals who are experts in their field at a lower cost. In fact, many of these professionals are better at their chosen professions than those who can be found within the offshoring organization. Important tasks can be completed quickly and more efficiently than they would be with on-site employees. This, in turn, also allows the offshoring organization to focus on other matters and possibly expand its business.

Appraisal and Financing Limitations

Offshoring a product can save a company money and provide some measure of privacy usually not available in the United States, but the very fact that a major part of a company’s process is being performed in other countries makes it difficult for owners, financial partners and investors to determine the full value of the company. The product is quite simply out of reach, a fact that can cause lenders to become reluctant to approve financial assistance for the company.

Environmental and Political Disruptions

Another issue that arises when offshoring a product is that companies are at the mercy of political and environmental disruptions. Large chains that rely on products being shipped to American stores from around the world are often out of luck if a major storm system hits the offshored facility or its shipping lines. Political issues and occasionally-limiting labor laws can also cause problems. The very practice of offshoring products takes these problems out of a company’s hands.