The Benefits of Manufacturing Globalization

Raghuraman Ramamurthy June 3, 2015

Manufacturing_GlobalizationWithin manufacturing fields, the benefits of globalization and offshore product development outweigh the cons in virtually every aspect. The stigma around globalization is dissipating, as more companies are expanding their operations globally to cut costs and gain competitive sway in their industries.

Globally connected production plants, teams and systems give many manufacturers the flexibility they need to respond to market demand and price sensitivity. Globalization initiatives, including overseas development centers, fixed production agreements and hourly T&M work, fuel the global economy while maximizing profits at home. 

Less spending on labor and raw materials gives companies a pricing edge over the competition; additionally, hourly arrangements make real-time scaling possible, eliminating overproduction and helping companies meet consumer demands as they arise.

The following are the most prevalent ways globalization initiatives give manufacturing companies the advantage they need to overcome today’s marketplace challenges.

Economic Benefit: Cost and Pricing

The largest and most apparent benefit of globalization is the way these practices influence cost. Within manufacturing, material costs and labor can make up as much as 70% of a product’s total cost; moving operations overseas and developing products in regions where materials come cheaper helps manufacturers reduce these costs without detracting from overall product quality. 

More affordable production, of course, allows manufacturers to adjust their pricing as-needed to suit market demand. Market flexibility generates greater sales revenues, which in turn drives a company’s profitability. Globalization initiatives optimize the entire development cycle, and make it much easier for companies to push products to market quickly at low cost. Hourly offshore engagements also allow companies to introduce new product lines and variants at minimal cost, as per ongoing market trends. This ability to create specialized products or increase production on the fly is invaluable within manufacturing industries.

Overseas Specialization Facilitates Competitive Growth

Another major strength that globalization provides manufacturers is the opportunity for specialization. Offshore trade agreements make it possible for companies to pull resources and labor from around the globe, as per the demands of their product lines. 

Globalization gives companies the option of developing specialized products in more affordable regions. There’s little reason to keep operations local when offshore plants and trained laborers can produce identical products at a fraction of the cost.

By moving specialized labor overseas, companies can reserve more resources for areas that provide greater value to their business, such as management and distribution. 

Scalability and Market Responsiveness

Beyond cost and specialization benefits, globalized product development is what allows manufacturers to scale their operations on the go, as market demands fluctuate. Hourly arrangements overseas can be scaled back or expanded to fit consumer activity, without many of the challenges of local operations. If responding to market demand in a timely, low cost manner is a major challenge to your business, there’s a good chance moving key operations offshore can help you overcome these challenges.

Globalization helps major manufacturers optimize development, resource use and supply chain efficiency when scaling their operations to suit market activity. Scaling challenges like overproduction and insufficient material use can cost your company tens of thousands of dollars and ruin overall profitability; this goes without mentioning the production down time that’s required to modify operations. 

Offshore manufacturing, on the other hand, eliminates scaling risks and minimizes down-time, all at a greatly reduced cost. For multinational manufacturers in many industries, globalization provides the framework and flexibility needed to overcome common challenges to cost. However, globalization is just one product cost optimization (PCO) initiative today’s leading manufacturers are using to control costs and boost profitability. For many companies, combining global development with a number of other initiatives, like part standardization and lean product development, delivers the greatest profitability growth.

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Topics Globalization Product Development Solutions