Domestic vs International Manufacturing: Pros and Cons
Manufacturing
America began outsourcing manufacturing jobs in the steel, textile, and electronics industries in the 1970s.
The argument then, as well as now, for relocating manufacturing was that it provided stockholders with maximized profits thanks to cheaper overhead costs.
And by the 1990s, the cost to manufacture internationally proved enticing for a wider range of industries.
The dot.com era made it possible for businesses to hire remote workers from all over the world to design websites, work as consultants, and as customer service agents.
Today, we see many businesses trying to find the balance between domestic and international production. So, what are the pros and cons of each?
Benefits of Manufacturing Domestically
The benefits of keeping your manufacturing operation in America vary from economic to social.
Labor Standards
In the US, the 1938 Fair Labor Standards Act (FLSA) began offering protection for America’s workforce. The FLSA is responsible for establishing a minimum wage, monitoring total hours worked, and preventing child labor exploitation.
It ensures there’s a healthy working environment for American laborers and that they’re receiving appropriate compensation.
Manufacturing Standards
In addition to labor standards, there are also quality control standards in the US that go beyond what is required in some international manufacturing operations.
This ensures the products being manufactured are up to par with what consumers in the US expect.
Other manufacturing standards in the US ensure that the environment is taken into consideration as well. Domestic environmental regulations may promote cleaner manufacturing processes than an international operation.
Reduced Lead Time
When raw materials are sourced domestically, lead times for acquiring them are reduced. When materials are purchased from offshore vendors, it’s estimated that 99% of them arrive in giant containers on cargo ships.
As we’ve seen in 2022, this shipping method has led to long delays in the acquisition process.
Thanks to labor shortages, US-based companies are waiting months for shipments that used to arrive in just two weeks’ time.
If companies can afford to switch to domestic suppliers, they may pay a little more for materials, but they won’t lose as much money waiting for them to arrive.
Lower Shipping Costs
On the other end of production, domestically manufacturing products means lower shipping costs when it comes time to send final products to US-based customers.
Streamlined Market Analysis
If everything is sourced, produced, and sold domestically, your market analysis is more streamlined. Researching, forecasting, and marketing are simpler because you’re catering to a single, domestic market.
Whatever business solutions you’re using, such as Infor ERP from Guide Technologies, provide real-time analytics customized for a local demographic.
You won’t need a language or cultural interpreter to help you forecast for a target market with which you’re not personally familiar.
Brand Image
There’s a trend of wanting to buy locally-made and sourced products in America. According to a 2020 survey conducted by the Reshoring Institute, of 500 Americans polled, almost 70% responded they prefer American-made products.
Of those polled, 83% said they’re willing to pay more for products if they’re made in America.
Domestic manufacturing can be very good for a brand’s image, as it shows a commitment to serving not just shareholders, by the American workforce as well.
Cons of Domestic Manufacturing
As much as a company may want to keep its business strictly “American made,” it isn’t always feasible.
Limited Access to Materials and Labor
If you’re limited to only sourcing materials and labor within the US, you may face shortages without any workaround options.
There’s a finite supply of resources stateside, and that can be a con of domestic manufacturing.
Limiting your company to calling on expertise only found state-side only may mean you’re missing out on superior products designed within a country that has more experience.
Take 45 Blast, for example. They’re a US-based company that sells high-end firearm equipment. Canik firearms began as a Turkish leader in aviation components and have since expanded its partnerships.
As a result, The US market now has access to precision-made firearms and accessories for both professional and casual handgun enthusiasts.
Limited Target Market Size
Other issues companies face is limited market size. There are only so many people to whom you can market within the US.
If you can expand your reach internationally, you capture a larger audience. If you only manufacture and ship domestically, it can stall business growth.
Benefits of Manufacturing Internationally
Going abroad with manufacturing comes with a slew of benefits to US-based companies.
Lower Overhead Costs
From labor and materials to renting warehouse space to building a manufacturing facility, it can be significantly less expensive to set up shop overseas.
The US is known for having some of the highest labor costs, which is why many companies decide to outsource labor internationally.
Spending less on overhead means product pricing can stay competitive without affecting the bottom line as significantly.
Expanded Market for Materials
Sometimes looking outside the US is the best way to find materials that are better suited to your manufacturing needs. Or, you find a material that helps you stand out against the competition.
Moving manufacturing offshore may just mean your company is closer to the materials needed for production, which reduces transportation costs and lead time.
High-Volume Capacity
Manufacturing in bulk, or high-volume capacity, can save companies a lot of money. Unfortunately, this isn’t always an option with a domestic operation.
That’s why manufacturing internationally appeals to some businesses. They can save money by ordering high-volume capacity shipments compared to small-batch shipments.
Access to Labor
It’s not that there aren’t people in the United States available to work, but it seems many are unwilling to work in manufacturing. There is often more access to labor offshore, which is another pro for manufacturing internationally.
Cons of Manufacturing Internationally
While it can save money, manufacturing internally does have some drawbacks.
Lower Quality Control Standards
Whether it’s because a company representative can’t be there in person to maintain quality control, or the region itself doesn’t have strict production standards, internationally manufactured products sometimes lack in caliber.
Offshore operations may also lack workplace quality standards compared to those in the US, which means working conditions may be less than ideal. This can result in dissatisfied employees and high turnover.
Cultural Barriers
It can be difficult to conduct business in a language you don’t speak. Additionally, there may be cultural differences between an American-based company and its international manufacturing branch.
Things may get lost in translation, or different time zones may make it difficult to be in touch during business hours. These minor inconveniences can add up to significant delays over time.
How to Choose Between Domestic and International Manufacturing
It can be a personal or professional decision to choose between domestic and international manufacturing. The bottom line may be the motivating factor, or you may be cultivating a brand image that is best supported by one or the other.
Some companies find it’s best to keep extremely specialized products domestic, allowing them to oversee every step of the process and maintain strict quality control standards.
Some companies need the option to order large batches, which may only be available from international facilities.
Don’t limit yourself to one option; take your long-term business goals into consideration when making the choice.
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Category: Business
