December 2, 2022
Manufacturing -
The Top Low Cost Sourcing Countries for your Business| OneLink Holdings
Every business wants the best value for their money and this usually goes hand in hand with low cost manufacturing and sourcing. This article will go over the benefits and challenges of the most popular low-cost sourcing countries. It is important as an importer to know your options and how they might affect your bottom line in both good and bad ways.
In the current business climate, it is more important than ever to save costs where you can. One way to do this is to source your products from low-cost countries. But with so many options on where to source, how do you know which country is right for your business? Here are the top 6 low-cost sourcing countries that should be on your radar. In this blog, we will discuss the benefits and challenges of each country and any risks associated with using these countries as your new manufacturing powerhouses.
The top low-cost sourcing countries include China, Vietnam, India, Mexico and Indonesia. While we will go through each individual country’s advantages and disadvantages, the general positives of outsourcing production to these low-cost countries include low-cost production, skilled labour, cheap raw materials, availability and scalability. The challenges faced when dealing with these low-cost countries include logistical difficulties such as infrastructure and competence differences, product quality, communication barriers, local laws and regulations and business customs. The risks of manufacturing in these low-cost countries mainly revolve around language barriers, shipping and logistics and problems in production such as low-quality goods.
China
China was once known to be the lowest cost producer in the world but with a strong economy comes an increased cost of labour and an increased cost of living. Having said that China is a population of over 1 billion people, there is an abundance of labour available at a fraction of the cost of what you would find in developed countries. The increased labour available combined with low wages means production output also increases. This is handy for businesses who need to place large orders and want quick turnaround times. Additionally, because of the large-scale production that takes place in China, you can generally be assured your raw materials are being bought for the best possible price and as such you will often get valuable discounts for ordering in bulk. The language barrier when dealing with China used to be an issue, however with a very good education system and large amount of expatriate teachers the Chinese population now speaks more English than ever before. When dealing with a Chinese factory it is likely you will be able to speak with a competent English speaker, however as with any second language there will always be things that are lost in translation.
Vietnam
Vietnam has been rapidly growing as a manufacturing hub in recent years and is now one of the top destinations for businesses looking to source products at low costs. There is a large pool of labour available in Vietnam with a very young population, Vietnam is expected to add 36 million people to its middle class by 2030 according to a recent report McKinsey. There are several free trade agreements, including the ASEAN agreement among several Asian countries and Australia and New Zealand. The Free Trade Agreements minimize export tariffs, encouraging businesses to export from Vietnam. Location is a bonus, with proximity to existing logistic hubs, raw materials from China and ports for export. The Vietnamese government is actively stimulating manufacturing by providing tax incentives, including preferential tax rates of 10% to 17% and tax exemption of up to 4 years. One thing to keep in mind with Vietnam is that they are an up and coming manufacturing power house without the many years of experience in manufacturing that China has. Although the English language is widely spoken in Vietnams larger cities, factories and their sales staff may not be so competent in the English language. The use of a translator would help minimize any issues or challenges.
India
India has a well-developed infrastructure, a large, educated workforce and a commercial law system like the US, making it a great option for businesses looking to manufacture and source products at low costs. The Indian Government has introduced a campaign “Make in India’, contributing significant investment and development into the industry. India’s largest city, Mumbai, is home to many multinational corporations and offers a wealth of opportunities for businesses looking to set up operations there. The benefit of manufacturing in India is the large percentage of the population that is bilingual, meaning the chances of dealing with factory staff who can speak English is quite high. Manufacturing companies produce products to high standards, regularly testing and certifying raw materials are up to expectations. While infrastructure in India is well developed, it does lack the advanced infrastructure you will find in China. Another challenge is the expensive and low power availability, with it generally not available 24hrs, significantly decreasing productivity and output. Transportation can be slow and expensive, often taking weeks to get products to the ports. While India may not be as cheap as some other options on this list, it is still a much more cost-effective option than sourcing from developed countries.
Thailand
Thailand is a well established manufacturing hub when compared to other south east Asian countries due to its head start in exporting in the 1980’s by focusing on electronics, automotive and petroleum chemicals. Thailands scores well on the Worlds Bank Ease of Doing Business ranking coming in at 21st place out of roughly 190 countries. While being apart of the ASEAN free trade, Thailand also has free trade agreements with Australia, New Zealand, Japan, India, China, Chile and Peru making it an attractive option for these partnering countries. Having said that Thailand is not the most competitive country in terms of labor costs with an aging population and supply chain issues with access to various raw materials. Various political issues and slow economic growth will reduce Thailands ability to stay competitive with other South East Asian countries.
Mexico
Mexico has long been known as a major hub for manufacturing and assembly, particularly for businesses in North America looking to cut costs. With its proximity to the United States, Mexico offers businesses the ability to source products quickly and cheaply. There are also considerations such as flight times and time zones that appeal for US companies to use Mexico instead of China for manufacturing. For example, a US based executive could be in Mexico within a couple of hours, compared to up to 12+ for arrival into China. Similarly, to the other countries in this blog, the low-cost manufacturing comes from the ability to employ large numbers of workers supplemented with low wages. The large number of workers means mass production and quick turnaround times for cheap prices. Additionally, Mexico has been making strides in improving its infrastructure and workforce, making it an increasingly attractive option for businesses looking to reduce their sourcing costs. The challenge with Mexico is the potential for crime and corruption as well as the complicated tax laws governing manufacturing. Unlike China, infrastructure is underdeveloped in Mexico, which can affect the rate of production.
Indonesia
Indonesia is another Southeast Asian country that has become increasingly popular as a destination for low-cost sourcing. Like Vietnam and China, Indonesia has a large population that provides a plentiful supply of labour at relatively low costs. They have increasing domestic consumption fuelled by a growing middle class, with the attraction of foreign investment opportunities. Additionally, Indonesia has significant resources of raw materials such as coal and oil which helps keep production costs low. The challenge with Indonesia as a manufacturing hub is the volatile business environment and poor infrastructure. The poor infrastructure creates high costs in regards to logistics and transportation. There is also stringent labour laws and regulations, which represent a lack of transparency and certainty.
Outsourcing production to low-cost countries can be a great way to reduce costs and increase profits. However, there are some things to consider before making the decision. The top low-cost sourcing countries include China, Vietnam, India, Mexico and Indonesia. The general positives of outsourcing production to these low-cost countries include low-cost production, skilled labour force, cheap raw materials, availability and scalability. The challenges faced when dealing with these low-cost countries include logistics difficulties such as infrastructure and competence differences, product quality, communication barriers, local laws and regulations and business customs. It is important to do your research before choosing a country to outsource to avoid any potential problems down the road.
OneLink Holdings is a product sourcing company that provides businesses with high quality products from low-cost countries. We have a team of highly experienced and knowledgeable sourcing experts who are familiar with the market conditions in various low-cost countries and can source products accordingly. We only work with reputable suppliers who can provide us with the best possible products at the most competitive prices. Contact us today for a free consultation info@onelinkholdings.com
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One Link Holding team
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