Pros and Cons of Outsourcing

Pros and Cons: Outsourcing manufacturing jobs carries with it a negative connotation among consumers that can damage a small business’s reputation. The benefits of outsourcing can be so significant, though, one might find it’s worthwhile to suffer some bad publicity and reduced sales in exchange for the significant costs savings realizing from moving your production:

i) Lower Labor Costs - Depending on where you outsource your production jobs, you can reduce your labor costs significantly. This includes not only savings on salaries and hourly wages, but also on payroll taxes and benefits.

ii) Fewer Regulations - Businesses outside the U.S. are often subject to fewer regulations regarding labor conditions, use and disposal of materials, right-to-work laws and other areas of manufacturing that raise the cost of producing goods in more developed and regulated countries.

iii) Lower Real Estate and Plant Costs - Considerable money can be saved on outsourcing if you reduce or eliminate your real estate, building, maintenance, property taxes, insurance, security, utilities and other operating and overhead costs.

iv) Effects on Sales, Pricing and Margins - Lowering labor, operating and overhead costs through outsourcing allows you to maintain or lower your current price levels. This can lead to increased sales and the ability to take market share from your competitors. Based on the savings you realize from outsourcing, you can lower your prices and still increase your profit margins.

v) Increased Operating Capital - When you outsource, you reduce your expenses, and if your sales remain the same, you’ll have more money to spend on marketing, debt reduction, research and development, headquarters salaries and other areas that can help improve your bottom line.

vi) Reduced Quality - When a small business outsources manufacturing, it has to consider its ability to oversee and regulate the production process taking place at its contractor’s location. Unless you can...