Total Cost Minimization
In order to minimize total costs companies have historically looked toward outsourcing. China has been the preferred destination for many global sourcing initiatives until now, as Western corporations are continually searching for strategic alternatives. This is due to concerns rising over costs for labor, fluctuations in currency, shortages in labor, an aging population, and policy making in China.
Many clients now consider countries such as Vietnam, Thailand, Indonesia, India, and Malaysia for sourcing product due to the cost, quality, risk-management and increased capacity. A myriad of companies throughout the United States and Europe no longer maintain a monogamous relationship when it comes to sourcing their products overseas. While China was once the only place to turn, many other Asian countries in the same geographic region are quickly becoming appealing alternatives. As the sourcing relationship extends to other credible and rising alternatives, there are particular sectors suitable for diversification beyond China.
The start of the outsourcing relationship has taken the last decade by storm as it has shifted the global position of many manufacturing jobs to offshore factories. Traditionally the minimum sourcing fee was $2,500 per item if a third party is used for negotiations and quality control. The use of a third party meant that companies were supplied with an average of four sources in China and given quality control. Companies could rest assured that representatives from said third party would visit the factory during production and inspect all goods upon completion. Random samples would be pulled from production and sent back to the company for review along with video or photographic footage if applicable. No longer did western companies have to fear the backlash of failing to meet western product standards, a backlash only comparable to that of an angry mob aided by the media witch hunt, as independent laboratories and engineers could be hired to conduct material testing. This ensured that finished products were free from lead and nonflammable.
Companies who outsourced products to China saw a significant increase in production and profit as they were now able to source a product in China within 2-6 weeks for products which had become commoditized and were not based on in time delivery or if 30 or 60-day terms. The Chinese government often allowed medium sized and large companies to fly under the radar while third parties handled exporting and marketing products in the Yangzi River Delta Industrial Zone and The Pearl River Delta Industrial Zone.
As national and international laws have changed, so too has the framework of the outsourcing relationship. When it first hit, western companies outsourcing their production and manufacturing to locations such as China were seen as the enemy of all that capitalism had created. Protests slandered their company names with the argument that they were removing jobs from western countries, taking away opportunities for things such as achieving the American Dream.