President Trump’s recently announced tariffs on imports from China has started to have an effect on American businesses that rely on imported goods to refine and turn into new products. Many of these companies are struggling to figure out how to accommodate for the increase in operating costs because of the tariffs, and whether or not to pass the costs on to their customers. While the specifics vary from company to company, it brings up several questions on the pros and cons of sourcing materials from overseas.
Pros of Overseas Sourcing
• Lower training costs – If you need a part that requires specialized skills to make, it’s often easier to buy the completed part than invest in additional training and human resources to have your current workforce make it.
• Access to unavailable materials – Whether due to scarcity, regulation or cost, sourcing overseas can get you quick access to products or materials that might not be available in your area at a reasonable price point or timeline. They may also fall outside of state or federal regulations.
• Lower cost of goods – The most obvious benefit is cheaper cost of raw goods and materials, meaning a cheaper finished product and better profit margin.
• Saving on facility costs – Outsourcing part of your production process saves space in your facilities, whether it’s storage of raw materials or machinery to process materials, which saves money.
Cons of Overseas Sourcing
• Prone to cost fluctuation – As the Chinese tariffs have illustrated, an imported good can quickly become too expensive to absorb into a business’ budget if federal regulations change. The same can be said if the source country’s regulations or political climate changes.
• Longer lead times – Many projects can stagnate if you’re waiting on outsourced materials to complete them, and your lead times are at the mercy of the supplier’s ability to fill your order promptly.
• Lack of control – Outsourcing means you’ll have to cede some control of the production process to your partnering company overseas. That can increase the chance of product or process quality not meeting your standards or design protocols.
• Quantity concerns – Most companies exporting to a client overseas will require a large quantity in order for it to be worth their investment of time and resources. This leads companies to have to plan and budget for large-scale orders constantly.
Sourcing a portion of your business’ materials and goods from overseas certainly has its benefits when it comes to cost and availability, but the United States’ recent tariffs on Chinese imports have shown us how quickly outsourcing can backfire. It’s important to prep for such circumstances so your business doesn’t experience too heavy of an impact from sudden regulation changes. Does your company source some of its products and materials from overseas? Share your thoughts on overseas sourcing with us in the comments below.