Offshore manufacturing, or "offshoring” as it has also come to be known as, is a practice that is becoming increasing popular in the manufacturing industry. Offshore manufacturing refers to moving part of the manufacturing process to another country.
Offshoring is very popular due to the potential savings it presents to the company. There can be substantial savings realized in labour costs, materials costs and productivity by relying on offshore manufacturing. Products can be partially or fully manufactured in another country. In some instances they are only assembled in another country and then imported into the country where it is to be sold.
There are two different types of offshore manufacturing:
- Offshore Production
- Offshore Servicing
It only makes financial sense to transfer parts of the manufacturing process offshore if there is a substantial advantage that is gained by doing so. This advantage is almost always related to a reduction in operating costs.
Offshore manufacturing is often used interchangeably with the term outsourcing, but the terms are different and describe very different processes. Outsourcing refers to transferring part of the manufacturing process to another external company while offshoring refers to a different country regardless of whether it is the same company or not.
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The Global Model
The offshore manufacturing model usually offers such significant savings over domestic production that it is hard for domestic manufacturing to compete. The offshore manufacturing companies that the manufacturing is contracted to are usually so specialized that the products are produced faster and more efficiently than they can be if done in-house. As it stands right now, very few products are fully manufactured and assembled in North America.
There is a negative social stigma that can accompany offshore manufacturing due to the belief that it can take away from domestic jobs and lower the economy. If planned and executed correctly, offshore manufacturing can actually increase the number of jobs domestically by increasing the company's revenue and budget.