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Those companies that engage in offshoring purely for cost savings are more likely to find that their initiatives fall short of expectations. They are also more likely to have to constantly re-evaluate sourcing as the initial offshore markets experience economic growth and rising labor costs.
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As manufacturing costs in low-cost countries have increased, there has been much discussion assessing whether it makes sense to re-shore production. However many of the cases have involved large companies. Mid-market companies face unique challenges and risks.
The Keystone Group has conducted a survey of mid-market C-level executives across multiple industries with the goal of documenting the current state of mid-market offshoring and outsourcing.
The survey results suggest that a large percentage of mid-market companies have some experience in offshoring and/or outsourcing. Their motivations for offshoring and outsourcing go deeper than simple cost savings.
For purposes of this article, the term "offshoring" is used to indicate overseas manufacturing and the term "outsourcing" is used to indicate the purchasing of parts and/or products from a non-domestic vendor.
These companies are seeking long-term competitive advantage. Far from a quick fix to the bottom line, offshoring and outsourcing – while delivering bottom-line benefits in the majority of cases – often require much more time, more management oversight, and a more nuanced approach than most companies realize when they first embark on these initiatives.
To create a successful offshoring and outsourcing environment, mid-market companies are looking beyond unit cost savings. They are focusing on the longer-term strategic benefits, as well as the total economic cost of their offshoring initiatives.
They are also doing a better job of uncovering and anticipating the unforeseen costs and liabilities which may include: hidden costs in production and logistics, quality control issues and inventory management, lead times that may fluctuate and be difficult to control, and duplicative management overhead. Investing time up front to assess costs and set realistic expectations will yield better and more predictable results even in a volatile environment.