Why are companies reconsidering their outsourcing strategy?

Companies have been outsourcing part of ther non-critic activities for decades to gain a competitive edge while increasing the focus on the core business or to reduce costs and generate more revenue. But nowadays, in our globalized world, there are also compelling reasons not to do it. Keep reading and take a why some companies are starting to reconsider a outsourcing strategy.

Why are companies considering their outsourcing strategy?

Because the large margin of savings that was obtained by moving factories and manufacturing processes to countries with cheaper labor is being reduced. This is due to the small but constant rise in wages in these developing countries. In addition, distance and subcontracting have sometimes resulted in the loss of technical knowledge of the process. At the same time, this circumstance entails a capacity to respond to the needs of the most limited demand.

What advantages has outsourcing brought?

At the time, the outsourcing of some processes that are not vital for the main business to third-party companies meant great savings. This was due to the enormous price difference that existed between the countries to which part of the process was taken and the countries of origin of companies, or simply because of the savings involved in delegating certain processes and their related activities (training, contracting, maintenance, etc.) to a third party. This subcontracting was carried out, above all, for the processes of lower added value for the company. In this way, organizations can also focus all their resources and focus on their core business.

What kinds of companies have decided to bring manufacturing back to their home countries and why?

The companies that are re-thinking their outsourcing strategies are mostly technology, automotive and innovation component companies. This is because the relocation of their factories is causing the loss of much of its core technical and process knowledge and know-how, which remains where the factory is located. Another reason is that part of its innovation processes consist of observing the different production processes.

In addition, the wage gap between the developing countries that used to be relocated and the countries of origin of the companies is decreasing, with what adding the cost of transport and the different added logistics costs of having each process of manufacturing at one point on the planet, assume that the total savings from relocation is minimal, if any. Therefore, it is much more profitable for them to have production processes and R&D+i centers together and in constant cooperation to promote innovation, which is ultimately the source of competitive advantage for companies.

On the other hand, it must be taken into account that today society is increasingly demanding, and maintaining production processes in the country where a company operates means that it adapts more easily and responds more quickly to changes. demand from the local clientele.

In addition, companies will regain control over many processes that had been outsourced “without thinking too much”, such as information and knowledge management, and that are really important to maintain within the organization.

How does the the future looks in this field?

Technology companies will gradually move abroad to get closer to the markets and not to save in the production process. However, this will surely happen with the rest of the organizations in other sectors in the very long term since, until the economic factor confirms this trend, companies will continue to bet on the current model. The R&D processes will return to the countries where the main headquarters of the companies are located and the factories will be positioned very close to these centers so that they can collaborate closely, and all the know-how and innovations are taken into account and put on going.

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