Should you outsource production or manufacture it domestically? While one option may be cheaper than the other, you should compare the pros and cons of each option. Keeping costs down is important but the cost of a product is not everything. With the recent pandemic, we have seen many companies that use domestic manufacturing have a leg up on companies that outsource. Domestic manufacturing can improve quality, efficiency, and branding. Companies that produce products domestically may have more flexibility to alter products for the better. Some companies may have to start by outsourcing internationally until the company is large enough and profitable enough to support domestic manufacturing. Outsourcing usually requires less investment which can be helpful for companies that are tight on cash. Whether you use domestic manufacturing or international outsourcing, there are financing options available. After you determine which option is best for your business you can move onto uncovering financing. For now, let’s learn more about outsourcing internationally versus domestic manufacturing.
Pros & Cons of domestic manufacturing
Partnering with a domestic manufacturer can allow businesses to be closer to their product. In addition, consumers may look up to your company for supporting the local economy and creating jobs. While it may cost more to use a domestic manufacturer, it may add value to your product. Companies that manufacture products in the United States must abide by labor standards, thus creating better work environments. Domestic manufacturing is usually preferred by companies with specialized products that need to be delivered reliably. However, outsourcing to a foriegn manufacturer can reduce costs by as much as 80%. Here are some of the benefits and drawbacks of domestic manufacturing.
#1. Intellectual property right protection
Domestic manufacturing helps protect your product. Domestic manufacturers are required to maintain strict intellectual property right protections.
#2. Faster turnaround
Products can be produced and delivered faster using a domestic manufacturer. Avoiding customs and overseas shipping can save businesses a lot of hassle.
#3. Better communication and relationships
Domestic manufacturers should share the same first language. This can improve communication and decrease the risk of error due to miscommunication. In addition, if you need to address anything you should have easy access to meet face to face with a domestic manufacturer.
#4. Higher labor standards
Domestic manufacturers usually have higher standards that are enforced to create better and safer working environments for employees.
#5. Increased product and brand value
In most cases, consumers have a higher perceived value for American made products. Customers are likely to pay more for American-made products and be more brand loyal.
#6. Flexible payment options
Most American manufacturers offer flexible payment or financing plans.
#7. Reduced shipping costs
Shipping products domestically is cheaper and easier than shipping products overseas. Products shipped overseas may incur customs fees in addition to basic shipping fees.
#1. Higher product cost
In most cases, it’s more expensive to produce products domestically. While the higher product costs may be considered a con, many of the factors that cause increased costs are listed on the pro list. When determining whether to produce domestically or internationally you should take into account all costs. Domestic manufacturing may have higher product costs but it may have much lower shipping costs.
#2. Limited production
Domestic manufacturers may not be able to produce high volume orders. Domestic manufacturers typically have higher overhead costs than internal manufacturers resulting in limited production capacity.
Pros & cons of international outsourcing
In order to make good business decisions you need to be well educated on available options. Therefore, as a business owner you have to consider a cheaper way to produce products, which is usually international outsourcing. International outsourcing can be very tempting when you compare numbers. However, there are many other components you should consider such as shipping and customs fees. You should also consider any quality differences between domestically produced products and internationally produced products. If you are able to find a trusted international manufacturer you should be able to successfully outsource products. Unfortunately, this is easier said than done. Here are some of the pros and cons of international outsourcing.
#1. Reduced costs
International outsourcing can be significantly cheaper than domestic manufacturing. This is one of the major reasons that companies choose international manufacturing.
#2. Find manufacturers online
As international outsourcing is necessary for many businesses, more and more platforms are becoming available to help connect international manufacturers and domestic businesses. This allows businesses to source international manufacturers without traveling initially. However, navigating your way through language barriers can be exhausting and a bit concerning at times.
#3. More options available
For some types of products you may find more international manufacturers that can assist. International manufacturers can produce high and low end products.
#1. Communication barriers
Communication with international manufacturers can be challenging. In addition, you may have different standards as to what is acceptable. If you are going to use an international manufacturer you should take some time to learn more about their culture. This can help you know what to expect when working with them.
#2. Higher shipping costs
While your product cost may be cheaper with an international manufacturer, your shipping costs will most likely be much higher. In addition, you may incur other fees for bringing products overseas. You should calculate all fees into your total product estimate before making any decisions.
#3. Less control
It may be difficult to visit international manufacturers regularly making it difficult to know how the facilities are being run. Are your products being made in an ecological wasteland? If you partner with an international manufacturer, you should hire a third party or personally make trips to the facilities. This can eliminate any potential negative press.
#4. More risk for a stolen idea
International manufacturers do not have to follow the U.S. intellectual property laws. While it’s uncommon for ideas to be stolen, it’s more likely to happen when using an international manufacturer.
Grow your business with Kickfurther
Inventory can tie up a large portion of cash flow whether it’s produced internationally or domestically. However, without a highly demanded quality product, your business will likely experience failure. As a startup or small business you may have tunnel vision on numbers as you try to cover all expenses with a tight budget. You may be reluctant to turn to financing but it may be necessary. Businesses that need affordable inventory financing should visit Kickfurther. Kickfurther takes a unique approach to crowdfunding that allows supporters to purchase inventory on consignment. Businesses can secure the inventory financing they need at a price they can afford without giving up equity in the company. Kickfurther was founded by Sean De Clercq, an entrepreneur who was once in your shoes. After becoming frustrated by the lack of affordable options for inventory financing, he launched Kickfurther in 20154.
Whether you decide to outsource internationally or manufacture domestically, you may need inventory financing. Some domestic manufacturers may be able to provide financing options. However, most international manufacturers do not provide any type of financing. Kickfurther fully supports the success of small businesses by helping them secure affordable inventory financing. With 800+ deals funded and a 99.5% success rate, there’s no doubt that Kickfurther can help your business get the inventory financing it needs. To get started, small businesses can create proposals including a time frame for producing goods, a specified rate of return, and a schedule for repayment. Kickfurther creates a community for business owners, fans, and supporters. When inventory sells, supporters get their money back. Business and supporters share a common goal with us which leverages success.