Outsource manufacturing is a top strategy for U.S. businesses in the 21st century. Outsourcing has made it possible for even small, local businesses to create consumer products at a reasonable cost without having to build the manufacturing and distribution infrastructure themselves. When deciding whether to outsource your product’s manufacturing, you must consider the opportunity cost and if your business has the communications and distribution infrastructure to handle overseas production. Most of any business’ operational tasks can be outsourced; however, in some industries, the practice is more commonplace than others.
Software and Hi-Tech
The U.S. is the leading producer of consumer technologies, software and tech products. However, manufacturing these products in the U.S. would come at such a high cost to consumers (due to the lack of industrial labor and high cost of raw materials) that it is not feasible to do so domestically. Therefore, most of the tech products sold in the Western world are actually manufactured in China and India.
Apple, Inc. who takes the third spot in America’s Fortune 500, has a long-standing relationship with Foxconn, one of China’s largest contract manufacturing companies for electronics. Foxconn is the largest contract manufacturer of electronics, and China’s leading private employer, with over 1 million employees currently. Apple is not Foxconn’s only major U.S. customer; they are also the primary manufacturer for Dell, Google, Microsoft, Sony, and HP, among others.
Pharmaceutical manufacturing is also a major American industry that relies on overseas manufacturing to make products affordable to consumers. Pharmaceutical companies typically divide their efforts into two areas: drug discovery and manufacturing. Drug discovery, the formulation and testing of new pharmaceuticals, is commonly outsourced to countries with lower labor and raw material costs, and manufacturing outsourced to lower the cost of both new and generic drugs.
Outsourcing in this industry is expected to become a $43.7 billion dollar industry by 2026. America’s top pharmaceutical producer, Johnson & Johnson, is not shy to advocate for outsource manufacturing, as both a business advantage and a benefit to consumers.
Julia Santos, a representative of global business optimisation for Johnson & Johnson, explains, “One-hundred percent of Johnson & Johnson products employ outsourcing in one way or another… It enables Johnson & Johnson to focus on its core competencies and maintain its cost competitiveness, and benefit from the latest advancements in technology throughout its product cycles.”
While retailers are considered the end of the distribution chain, rather than a producer of goods, they can gain benefits from outsource manufacturing just as much as other companies. Retailers with their own brand of consumer goods often outsource manufacturing to create cheaper alternatives to the products they stock. This is both a cost benefit to consumers and a money-making tool to boost profit margins for the stores.
Walmart is a great example of outsource manufacturing success for retail. Sam’s Club and Walmart-brand (the “Great Value” brand) products are primarily outsourced to China where they can be made at much lower costs than other brands. This cost savings helps the company’s bottom line, and some of the savings is passed onto the consumer who can buy essentials for less at Walmart stores. Walmart has over a thousand manufacturing plants and contract manufacturers overseas that make this possible.
Any product that can be formulated in the U.S. can likely be manufactured overseas for a fraction of the cost. Most products found in retail stores are manufactured overseas with cost savings benefits for both producer, retailer and consumer. Outsource manufacturing can reduce your operating costs, improve your bottom line, and help you bring products to market faster.