Companies are always pursuing profits. Whether it is analyzing the supply chain flow, implementing new processes for standards for continuous improvement, or considering offshoring. But, what is offshoring? All investors and company owners should be more than acquainted with this term; if you want to be familiar with it, let’s talk about it.
Offshoring is a term used in business. It comes from offshore, which by definition means “from the shore”, “at a distance from the shore” and “outside the country”.
Offshoring is a practice performed by companies: they relocate factories from one country to another to carry out the same processes or services. It’s as simple as that, but the intention is not just simply a change of environment; there are important reasons for a company to do this. Let’s see what these reasons are.
Why do companies choose offshoring?
Despite all the costs of installing a new company, hiring new personnel, and starting from the bottom in a foreign city, relocating implies fewer costs. This is because offshoring doesn’t mean just moving to any other country, you move to a cheaper country. For example, if an American company moves to Mexico, the costs of construction, services, transportation, and labor will be less expensive, and that will result in profit.
Also, speaking of Mexico, when factories are part of the maquiladora program, they don’t pay taxes or tariffs, decreasing, even more, the manufacturing costs.
Even when a company chooses a “cheaper country” to start production, it doesn’t mean that they’ll get a cheap result. Countries like Mexico are known for their outstanding job; skilled workers with experience and effort provide the necessary elements to create a good quality product and meet international standards.
Offshoring means you will decide how much time and resources you want to invest in the foreign company. That is, there are different types of operating models for manufacturing, and companies can choose to have direct ownership, or subcontractors to join another company.
In the end, it all comes down to the reduction of costs, and that’s reason enough to consider offshoring. At Tijuana EDC, we advise companies when they decide offshoring is the best option for them.