Manufacturing Abroad

The continued shift of production from the Western Hemisphere to Asia, as well as the strategy of many apparel vendors to close their factories and contract production to full-package suppliers who can handle everything from buying piece goods to booking space on ships, is changing the power dynamic of global sourcing.

The center of power is shifting more toward the Far East, with multinational, flexible companies that are able to move their focus from country to country rising in stature.

US labor costs tend to be relatively high, leading many manufacturers to turn to overseas sourcing for a majority of their products. Companies can establish overseas production in three ways. They can buy or build a plant, establish agents that have ties with factories in the foreign country, or contract directly with the owners of foreign factories. Typically, major US apparel and footwear companies establish overseas production in all of these ways. They also use domestic sources other than their own plants. Some manufacturers would rather pay more and have their garments produced domestically where they are able to keep better control over the quality of goods, have a faster turn around in production, and not have the customs and shipping costs to contend with.

Using overseas manufacturing and/or outside domestic contractors benefits apparel companies in different ways. Overseas sourcing allows manufacturers to compete with less expensive imports. Domestic sourcing allows companies to respond quickly to fashion changes and to retailers’ needs for automatic inventory replenishment. Generally, US companies go to Southeast Asia for production of more complicated apparel items. Many of the region’s countries have large pools of skilled laborers who can craft high quality items. Although overseas labor rates have gone up in recent years, they are still significantly below those in the United States.

Not withstanding the advantages, currency fluctuations are a concern for overseas manufacturing. At times such fluctuations can benefit the domestic industry. For instance, when several Asian currencies declined sharply in value versus the US dollar in late 1997, manufacturing costs within affected countries dropped for US companies. Conversely, when foreign currencies unexpectedly appreciate against the US dollar, as many have done lately, it raises US manufacturer’s costs. Nonetheless, overseas labor rates should remain significantly below those in the United States.

Offshore manufacturing is virtually impossible for the small start up unless relations with overseas factories are already established through friends or family. Minimums are usually too high.

Chances are, as a small start up you won’t be dealing with overseas manufacturers or contractors. Not only are minimums too high but distance, design, quality control and shipping costs eat up profits. Hassles of importing would require considerable expertise and time commitment not usually available to small businesses in their early years.