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Offshore manufacturing
Offshore manufacturing involves relocating production processes to lower cost countries for export or import back to the home country to reduce costs and improve profits. Many large companies outsource manufacturing abroad, especially to Asia where labor is much cheaper. China has become a major destination due to its low production costs, large labor force, and tax incentives. Companies like Nike, Apple, IKEA, and clothing brands outsource the majority of their manufacturing to Asia, especially China, to take advantage of lower labor costs. This allows them to connect globally and increase profits.
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Offshore manufacturing
- 1. Manufacturing in acountry where labor and raw-materials are cheaper, for export or eventual import intomanufacturer’shome countryis ‘OffshoreManufacturing’.Itisrelocationof manufacturing process by a companyfromone countryto another. The economiclogicbehindthis istoreduce coststoimprove corporate profitability. Here acompany evencan subcontract a business unit to a different company in another country. Most of the big companies outsource their manufacturing process. China & other Asian Countriesas Offshore Manufacturing Hub: Chinahas emergedasa prominentdestinationforproductionoutsourcing.The marketsacrossAsian countriespresentseveral benefits. Laboraspectisthe prime reason, inwhichcheaplaborcould costat the fractionof the price it wouldcostdomesticallyinthe home country. Apartfromthis, there isan aspectof expandingtheirbusinesstoChinaandotherAsiancountries.The world’smostpopulated countriesopenupa tremendousopportunity tothem.Fromelectronics products,apparels,textiles to furniture, everyproduct’smanufacturing processisbeingoutsource bybigcompaniesto Asian countries. In lessthana generation,Chinaevolvedfromascrappydevelopingnationintothe world’sfactory. A strategyreserved forthe largestglobal playersofaddingmanufacturinginChina hasbecome the norm. Chinahas attractedforeigndirectmanufacturinginvestmentata rate unprecedentedinhistory,driven by itslowproductioncosts,a vastsupplyof labor, and preferential tax treatmentforforeigninvestors.
- 2. Nikehasmajorityof itsproduction farawayfromitsheadquartersinBeaverton,Oregon.The majorityof Nike’smanufacturingtakesplace indevelopingcountries. Nikewasoneof thefirst company to offshore its manufacturing production. In1950, theyoffshoredtheirmanufacturingproductionof athleticshoes inJapan, itwas bythe wayan immediate success.In1974 Nike leftJapanandwentto Koreaand Thailandbecause the laborforce waslessexpensive.Inthe 80’sthe companyreachedone billiondollar turnoveranddecidedtomove to ChinaandVietnamwhere theyare still settled. Apple Inc, worldfamousforitsiphones,ipadand Mac computers, outsources 70% of its manufacturing components. The majorcontract manufacturersof Apple are Foxconn,InventecandPegatron.All these three companiesare Taiwan basedelectronicmanufacturingcompany.Theyall manufacture electronic productsfor bigbrands. For Apple theyall operate fromChina. IKEA is a multi-national home-furnishingcompany.Theyalso offshore it’smanufacturingtoAsia. Earlierkeentofindasource of cheap laborIkeastartedoutsourcingpartof itsproductiontoa manufacturerinPolandin1961. Since thenAsiahas suppliedanever-growingshare of itsproducts. Chinahas overtakenPolandtobecome Ikea’stopsupplier,accountingfor18% of purchases.Inall 33% of whatispromotedas "made inSwedenquality"comesfromAsia. Ikeacurrentlysources$370 million worthof goodsfrom Indiaannually. Theyare evenplanningtodouble theirsourcesby2020. In textilesmanyhuge brandslike TommyHilfiger,Inditex (thatownsZara), CalvinKlein,Disney, Matalan, Mango and Walmartoffshore theirmanufacturingtoBangladeshandIndia. Walmartisthe secondlargestbuyerfromBangladesh.ArvindMillsinIndiaoutsource forvarious international brands such as Arrow, Lee,Wranglerand Tommy Hilfiger.
- 3. These companiesare connectinggloballywitheach-otherfortheirlargerreachandto earn highprofits. We here at CrossProf.comhelpyouinthe same way.We connect youwiththe expertisegloballywho can assistyou insetting-upandmanagingyourbusinessinacomprehensive way.
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