Outsourcing the production of an Online Shop Abroad
Many people think about it to outsource their production abroad. There are many pros and cons of offshoring. Let's find out more!
Are you possibly in the process of setting up an online store with Shopware? Or maybe you already have one? - For sure you have thought about it, to move your production abroad. For example to India.
But why is it like this? Why are so many people thinking about outsourcing the production of their goods? Also many Shopware online Shops have their production offshored. Maybe just because they are too lazy to take care of everything themselves? And at least what is the right technical term for this outsourcing anyway?
First of all, it's definitely not because they are too lazy, because outsourcing the production alone requires a lot of organizational and strategic planning.
Below you can learn a lot about what are advantages and disadvantages for outsourcing. But first, let's clarify the two terms outsourcing and offshoring. In fact, these two terms are often confused or mentioned in connection.
Term definition: offshoring or outsourcing
Often, when we work, we simply say "outsourcing" to it. Here, many also call the outsourcing of production to other countries. Quite you can call it like that but this definition is not 100% correct.
Outsourcing Definition: In economics, outsourcing is defined as the transfer of corporate tasks and structures to external service providers.
Offshoring Definition: Outsourcing of corporate tasks abroad. The reason for offshoring is usually more favorable processing than in our country. So in this post we are talking about offshoring.
So far so good, right? But abroad productions fail, again and again. In the next section you will find out whether the commissioning company is simply to blame and where the problems usually arise.
Problems with offshoring
As already mentioned, global collaborations for the purpose of production often fail. For example, Swissinfo reported in 2017 that dozens of US and European companies were moving their production back to their own country or to a neighboring country.
Here is a list of the reasons why companies brought back production:
- In the case of outsourcing, the main reason is "low wages". - However, these often rise in the supposedly "favorable" countries as well. If customs duties and shipping costs are then added, the lower wages very quickly no longer pay off.
- Agreements are often difficult due to language barriers and lengthy due to time differences.
- Too long delivery times make it difficult to react to bottlenecks.
- Seal of approval. Who doesn't like to read it? >Made in Germany< or >Made in USA< ... while >Made in India< or >Made in China< often speaks for inferior quality.
- Loss of control: You want your goods to be produced under fair conditions? Due to the high distance, it is difficult to maintain control here.
- Dependence: If you outsource too much, you can develop a dependency on your service providers. This can affect your internal processes.
- Privacy: You have certain processes that you don't want to go public? When you offshore, you diminish your data protection security. Like the german phrase goes, "Different countries, different customs". The local people may not be so privacy sensitive. So be aware of what information you can or want to disclose.
- This point is not a problem for outsourcing, but it is an important social aspect. The more processes and productions are outsourced by companies abroad, the more jobs and innovations are missing in our own country. In this way, the economy of our country is suffering.
That was a small list of problems that could arise. However, offshoring is not the only problem. So what are the reasons to do it?
Pros for offshoring
Global collaborations can also work well. Not only, if you do it right, you may even be able to use it as positive marketing for yourself. In the following list you will find some interesting examples.
- Support international workers: Are you paying fair wages? For example, the German minimum wage is a VERY good pay in countries like India. So you can support the local workers. And by our standards you still produce cheaply.
- Reduce costs: Not only the salaries, but also the rents and electricity are often cheaper abroad. With offshoring you can save a lot of money.
- Increase market potential: Open up new markets through your international orientation.
- Quality improvement: Combine international knowledge to create new processes and strategies.
- Lower consumer prices: don't be greedy! You have less costs? - Let your prices go down a bit, too. That way, more people can afford your products.
These points speak in favor of offshoring. In the previous point, we listed the issues that can complicate offshoring. But now we come to the cons! In addition to the problems, there are also points that can really speak massively against offshoring.
Cons of offshoring
As already mentioned above "Other countries, other customs". There are also reasons that are not only problems with offshoring. They are really reasons against offshoring. Read through the following list and think for yourself what would be important points against it.
- Negative example China. The state has eyes and fingers in all processes. You have no data protection from the Chinese state. Corruption is there, daily.
- A "non-Western" philosophy of work
- Often there is only a mismatch in the willingness to engage a dialogue.
- Quality: You can certainly keep the quality at our level with precise specifications. But a higher control of the good is necessary. Many companies report that the quality does not hold up in the long run and must be pointed out new each time.
- Data protection in another sense: theft of ideas, industrial espionage. Many companies that offshore have had experiences with their products being brazenly copied. Confidential blueprints (often state-supported) were analyzed. With the goal of getting into these areas themselves.
- Not necessarily a contra, but an important point to consider: Responsibility. You may want to identify your store as being particularly environmentally friendly. However, India, China, South America and many other typical offshoring countries are anything but not eco-friendly. The dirt and waste here is not disposed of properly and is guilty of global pollution. In addition, you have a social responsibility to everyone who has to deal with your products.
Of course, there are also other examples and companies that operate offshoring without any problems. These contrasts do not necessarily have to happen, but the risk exists. If you still want to search for the right offshore company for your products, we explain where you can find them below.
Where can I find producers abroad?
Producers usually want to be found. That is why they are listed in various online databases. You can use the following databases for your search:
- German-language: wlw.de (Wer liefert was)
- Worldwide directories: Alibaba, GlobalSources.com, MadeInChina.com
You can also go to trade shows to find producers.
Here you can find dates for trade fairs: Messe-Ausschusses der Deutschen Wirtschaft, expodatabase.com
But as with anything else, it's the best to get in touch with other people. These people may already have experience and can refer you directly to a producer.
A company that successfully produces in China
Despite all the cons, there are of course still companies that successfully produce abroad. I found an interesting article at Shopify. An interview with the founders of Talmo. They have succesfully produced their products in China from the beginning. In the interview they talk about their experiences and give a few tips.
If this sounds interesting to you, feel free to read through the article. The article is only available in German: https://www.shopify.de/blog/produzieren-in-china
Result: Is outsourcing really worth it?
Ultimately, this is a personal matter to decide for each entrepreneur. However, it must be said: Pay is also rising in the typical offshoring countries. You have to consider much more than just the cost of production. In addition, there is a lot of planning involved.
Overall, it is important to keep an overview. To be honest, offshoring is an interesting and important way to maximize profits.