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Posted on September 4th, 2012, by

The development of modern manufacturing facilities will need substantial investments and well-developed managerial and financial skills in order to make the manufacturing facility operate smoothly. In such a situation, the choice of the proper manufacturing facility and manufacturing operation may be crucial for the overall success of business. In this respect, it is possible to outsource the manufacturing operation since it will help to reduce costs of production substantially and conduct competitive pricing policies on the condition that the product manufactured abroad will be of a high quality. On the other hand, the development of manufacturing facilities at the local level will need substantial managerial and financial skills because it will be necessary to employ well-qualified personnel and pay higher wages compared to wages of employees working in a developing country. Therefore, outsourcing is definitely better than the development of local manufacturing operations. However, outsourcing will need higher costs being on transportation compared to the localization of manufacturing operation. Nevertheless, the development of local manufacturing facilities is unlikely to increase the competitiveness of new product because costs of production will be higher compared to the product manufactured abroad. In addition, it is possible to outsource manufacturing and employ well-qualified local specialists who will maintain the high quality of products being manufactured and these specialists will not need high wages. Finally, the outsourcing of manufacturing operation opens opportunities for operations with local companies which may be experienced in financial and managerial issues related to the development of business and, what is more, local partners will facilitate the development of manufacturing facilities abroad minimizing financial losses and risk of errors.

The manufacturing decision

The decision concerning the development of manufacturing facilities and manufacturing operations can determine the further development of business and the successful introduction of products in the market. In such a situation, I made the decision concerning manufacturing operations on the basis of my professional skills and abilities, personal inclinations and objective analysis of the contemporary business environment. First of all, I do recognize that I am not proficient in financial issues related to the development of business. Therefore, my primary goal was to minimize financial risks and costs I could have spent on the development of business. In this regard, outsourcing of manufacturing operations seems to be a logical decision because I do not need to invest as much as I would have invested in the development of manufacturing facilities at the local level. In spite of physical remoteness, I still can manage as well as monitor manufacturing facilities located abroad via modern telecommunication systems and with the help of modern information technologies (Volti, 2005). The low costs of production and investments mean lower risks I am likely to face abroad. However, to ensure the safety of such investments, I needed to conduct the marketing analysis. What I looked for was economic and political stability in the target country, where I could develop my manufacturing facilities. The analysis of the current business environment helped me consistently to take the decision concerning outsourcing of manufacturing operations since I found a relatively stable country located not far from the target market. At the same time, I had to take into consideration possible alternatives and critically evaluated other options concerning the development of manufacturing operations, including the establishment of all components and final assembly and the establishment of assembly. On analyzing carefully, existing options I arrived to the conclusion that outsourcing is the best decision that I can take at the moment.

Pros and Contras

In order to better understand whether outsourcing will be an effective decision, it is necessary to take into consideration both pros and contras of outsourcing. First of all, it is important to stress the potential financial benefits of outsourcing. Obviously, wages abroad, namely in developing countries, are lower compared to the domestic labor market. Therefore, I can save costs on wages. Secondly, outsourcing manufacturing facilities abroad will decrease costs of production, especially if the manufacturing will be localized, i.e. local materials will be used for manufacturing of the product (Newel, 2001). In addition, it is possible to count for the state support because developing countries are interested in foreign direct investments. Moreover, I would focus on the partnership with a local manufacturer that will facilitate the development of manufacturing facilities as well as the development of business abroad.

On the other hand, the outsourcing of manufacturing operations is likely to raise the problem of the interaction with local authorities, who may be corrupted. In this regard, the problem can be solved through the partnership with a local company that knows how to deal with the local authorities. Furthermore, outsourcing will increase transportation costs, but I expect to tackle this problem through the development of manufacturing facilities in a country which is located next to the target market. Finally, there is a problem of the quality of product, but this problem can be solved through the automation of the production process and introduction of modern means of control and monitoring of the production process and quality of products.

Alternative

As for possible alternatives, I would attempt to establish manufacturing of all components and final assembly since, in such a way, I would create the full production cycle being independent of external suppliers, including local vendors. In fact, such a choice seems to be effective because the use of local vendors and simple assembling will increase the price of the product that can put under a threat its competitive power in the market, especially if the level of the competition is high. At the same time, this is not the perfect choice because I will need the support of professional financier and manager in order to manage the business effectively. However, the employment of well-qualified professionals will increase substantially costs spent on wages, especially compared to the costs spent on wages in a developing country. As a result, I will need to increase the price of the product compared to the product manufactured abroad, but the price gap can be closed through the minimization of transportation costs in case of the use of local manufacturing facilities. In such a way, the establishment of manufacturing of all components and assembly is the only alternative to outsourcing. Nevertheless, the outsourcing still seems to be the best decision that can be taken in the current business environment and, taking into consideration my financial and managerial skills, the outsourcing will minimize risks related to errors that I can make. Moreover, in case of failure, my losses will be lower compared to my potential losses in case of the failure of business developed in my country.

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