Overseas Production Can Pose Problems for US Small Businesses

A domestic debate carries on, weighing the pros and cons of producing US goods in overseas factories. Labor cost savings aside, the issue is laden with concerns about quality control, logistics, sourcing, fair employment practices, and other related matters. With Trump tariffs shaking up import and export markets, and high US employment levels squeezing the available work force, domestic producers are open to creative solutions – including doing business with overseas factories.

Though overseas production has an upside for some small businesses, manufacturing arrangements with foreign factories are often beset with challenges.

Lower Labor Costs Herald Related Obstacles

The same incentives that entice US big business into foreign production agreements are also attractive to US small businesses.  Like large companies doing business outside the US, small manufacturers often reduce labor costs by producing goods on foreign soil.

As the Trump administration’s economic policy stokes the debate about overseas production, observers are getting an inside look at the complications associated with outsourced manufacturing. Though US companies may save money producing goods in foreign factories, the process is not without challenges. According to a timely article shared at app.com, small businesses producing goods overseas frequently encounter

• missed production deadlines,
• legal disputes,
• quality control issues.

And these are only a few of the obstacles US companies overcome to effectively utilize foreign facilities. Startups.com recently outlined several challenges US companies face after deciding to manufacture products in foreign facilities.

• Managing Money – In order to take advantage of affordable fixed labor costs, you must also take on the other financial realities of producing goods overseas. Turnaround times are longer, for various reasons, and you’ll be required to pay up front. In practice, that could mean paying for products you won’t be able to merchandise for three months. These conditions, not to mention the ocean standing between your foreign partners and the domestic product deliveries you need to make sales, all contribute to money management challenges.
• Scaling Orders – Each scenario is unique, but most manufacturers contemplating overseas production are looking for worthwhile per-unit cost reductions. While foreign factories are a great place to find production efficiencies, you’ll probably have to order large quantities to make it worth your while. Paired with manufacturing and shipping times, requiring 2-3 months to land goods in the US, some small businesses may have a hard time managing orders for tens-of-thousands of units.
• Logistics Challenges – Domestic producers may have difficulty conceiving of the true cost of transoceanic transport. Next to the actual cost of producing items in foreign factories, logistics expense – delivering goods to your customers, is the next highest cost of doing business overseas. For some US firms working with foreign facilities, shipping may even cost more than manufacturing the items being transported. Like other businesses expenses, proper planning prevents surprises. In particular, small businesses contracting logistics help overseas must recognize the price of similar assistance can vary widely across providers and service levels.
• Addressing Unforeseen Problems – Small business entrepreneurs understand the need to think on their feet, addressing unexpected commercial challenges. Unfortunately for US firms partnered with foreign manufacturing facilities, remote representatives deliver mixed results managing crises.
• Communication and Culture – Working worlds away occasionally results in communication breakdowns and cultural chasms between diverse production partners. Before making commitments overseas, it’s important to acknowledge how your production presence will influence indigenous people and culture. Selecting a manufacturing partner that shares your professional values is a step in the right direction, but integrating operations may still require a patient transition period, sensitive to the needs of the community.
• Brand Perception – Problems faced abroad may not be your only concerns when producing goods overseas. Back home, in the US, consumers have diverse views relating to production integrity. You may lose “Made in America” supporters across the board, by producing overseas, but a large share of US shoppers have grown tolerant of goods produced in foreign factories. There is evidence, however, that some personal care items and other products are not as readily accepted, originating from foreign facilities. One article contributor suggests thinking twice about overseas production for items consumers use in close contact.
• Different Time Zones – Some of the obstacles facing US companies producing goods overseas are nuanced, while others present practical problems, requiring pragmatic solutions. Time zone differences are among the latter, yet the concern represents a very real challenge for US operators attempting to synch with partners on the other side of the world. In the case of China, where many US makers find production savings; the time zone is 12 hours ahead of Eastern Standard Time, making for late-night phone conferences with your Asian manufacturing partners.
• Competition From Big Business – Major US retailers hold sway over foreign manufacturers, because they come through with large orders and may need to partner again, producing additional goods in the future. Small businesses may not enjoy the same ability to shape outcomes with overseas manufacturers, so it is harder for them to reconcile problems and negotiate favorable terms. Lacking resources and bargaining power, you may get the best results partnering with foreign facilities specializing in relationships with US small business owners.

Conclusions About Overseas Production

Though you may be able to reduce fixed manufacturing costs producing goods overseas, it’s important to prepare for the challenges of doing business offshore. From logistics concerns to scaling orders, anticipating common obstacles can help you thrive (and save money), making your products in overseas factories.