Breaking It Down: How Does a Company Decide Where to Outsource Services

Published On: August 7, 2022

Decades ago, outsourcing took the business world by storm, and its popularity has only continued to increase. Today, 68% of U.S. companies outsource to other countries in order to cut costs and free up more time for core business functions.

With more businesses looking to follow suit, and with so many pros and cons to outsourcing overseas, many might be wondering how to go about choosing the right international location. We break it down for you.

THE WHY

Cost Savings

Perhaps the biggest reason companies decide to outsource production processes is to lower costs. Labor is often the most expensive cost, but outsourcing minimizes these expenses by eliminating the need hire, train, and pay an internal team. Oftentimes, companies decide to outsource under a maquiladora program in Mexico, meaning they find a third-party provider to handle everything from human resources and to overall management.

Skills Gaps & Product Quality

For many companies, outsourcing boils down to a need to fill in gaps. After all, not everyone can find the specialized skills they need in a single location. A manufacturer, for example, might outsource to a country where highly-skilled production labor is more readily available.

Outsourcing to fill in skills gaps also leads to higher product quality since companies are, theoretically, outsourcing to experts at a given task. Plus, with onshore teams freed up from day-to-day production tasks, businesses are able to focus more on improvement and innovation initiatives.

THE HOW

You know the benefits, but how can you actually narrow down where to outsource? Here are some of the top factors to consider.

Location & time zones

Are you going to outsource to state-side companies or look internationally? In most cases, companies looking to experience the full value of outsourcing look abroad, but that means they also must consider whether to go overseas or take advantage of the benefits of nearshoring.

There’s a lot to consider when weighing the pros and cons of different countries, but, whether you’re outsourcing your customer service or entire production, one of the biggest considerations to keep in mind is proximity to target markets. Many countries with lower-cost labor are far away from North American markets. This not only increases shipping times (and costs), but it’s also not ideal for companies wanting high levels of collaboration and connection between themselves and their outsourcing partner.

Language

From Mexico to China, the world’s manufacturing hotspots aren’t English-speaking countries. When deciding on a foreign service provider, you’ll need to consider how you’ll cross any language barriers. Ideally, the company is made up of bilingual employees. At the least, you want to ensure you can freely communicate with the people with whom you’ll be collaborating the most.

Entry barriers

Whether your executive team needs to make on-site visits or you need to import raw materials, you want to select a location that allows for easy entry. Mexico, for instance, has more free trade agreements than any other country, which means companies can ship different materials and goods at lower costs. Plus, the country’s proximity to the U.S. and robust transportation infrastructure mean your company can maintain effective oversight of all business processes.

Available resources

You don’t want to end up outsourcing in a location that can’t fully support your needs. Ensure the location has what’s necessary to support your business function, which could include everything from available labor to different types of infrastructure (such as transportation, internet, and more).

Cultural differences

Cultural differences can lead to costly misunderstandings. However, you can’t expect your home team or the outsourced team to instantly adapt to a different business culture, so consider how big of a cultural gap you’re willing to work with and how you’ll address any differences.

Tax incentives

Many countries offer tax incentives to overseas businesses. These incentives could significantly reduce expenses for your company, but make sure you’re not compromising on your needs for the sake of a tax break.

Political considerations

Is there any serious political instability? What is the coutry’s relationship with the United States? Is there any chance you could you face future political sanctions? China, for example, may offer manufacturers many benefits, but more and more companies are leaving the country due to rising tensions between the U.S. and China.

WHAT’S NEXT

Every day, more and more companies are deciding to take advantage of Mexico’s manufacturing and production service capabilities. If you’re ready to follow suit, we’re ready to help. As Mexico manufacturing experts specializing in outsourced administrative and compliance management services, we ensure you experience all of the benefits of outsourcing to Mexico—without many of the risks associated with doing business in a foreign country. Contact NAPS today to learn more.

Sources:

Ultimate Outsourcing Statistics and Reports in 2021” 

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