Once Cheap is Twice Expensive: the Overseas Pandemic

Sluyter Company Ltd. takes pride in being a true Canadian manufacturer. Over the last decade, there has been a stronger focus on localizing production onshore for geopolitical investment risks, quality concerns, and overall economic profitability to the North American market. The COVID-19 pandemic has only exacerbated the urgency of reshoring and exposes the fragmented areas of foreign manufacturing.

An article in the Harvard Business Review (HBR) explains “In the past, U.S. companies went abroad primarily to secure a foreign market or to obtain raw materials. Now they go overseas to buy or make products and components to ship back to the United States. The new investments are not complementing domestic production; they are replacing it.” Often manufacturers take a defensive stance on this, insisting that overseas production is the only way to compete with inexpensive labour and imports. Labour unions dispute this claim, suggesting that it deindustrializes the country, destroys Canadian jobs, and threatens the standard of living. The profit-obsessed culture driven by dated business models ends up damaging a company’s growth in an idle attempt to create shortcuts. By eliminating the most crucial part of production, foreign manufacturing ultimately devalues a brand's ability to connect with their audience and showcase curated craftmanship and customized products. The final result is an off-the-shelf stock commodity with lackluster features, poorly demonstrating any care for the end-user. 

National pride aside, many would argue that offshore manufacturing is profitable for an individual company. However, this ignores the various issues that a foreign quick fix provides. There are many penalties faced when you’re in the rat race continuously shifting suppliers for the most economic price.

Rather than having a shortsighted attack on labour costs, Canadian manufacturers such as Sluyter are committed to creating a long-term competitive advantage and reforming operations to a new way of doing business. This requires a company to address the business as a whole, rather than isolated parts of it. For instance, reducing overhead costs, maximizing operation efficiencies, increasing R&D expenditures, moving into new technologies, modernizing plants, and introducing new product lines that underscore quality. The HBR reported that Eastman Kodak had taken a similar approach in the past and saw their operational earnings immediately climb 24% within the first year.

Coincidentally, many countries overseas are doing the opposite and establishing a rooted presence in North America. Virtually every major Japanese automaker has an assembly plant in the United States and Canada. The Japanese have been investing in North American production over the last few decades for worthy reasons: to increase their political position and prevent trade restrictions by creating jobs for North Americans; to ensure access to the North American market in case foreign exports are restricted further; to obtain stronger insight on their most important markets to become more responsive; and to create a sounder defense against fluctuations of the dollar. The HBR reinforced the Japanese' success stating “Studies have shown that the main reason the Japanese were able to dominate the market for small cars over the last decade was not because of higher capital investment rates or more advanced technology but because of management philosophy and excellence in manufacturing. By emphasizing superior product designs, high quality, minimum inventories, waste elimination, and worker participation, the Japanese emerged as the cost and quality leaders in the industry.” Using these strategies, the Japanese are now outperforming domestic rivals in their home territory.

Evidently, offshore manufacturing is not the most viable option for North American companies looking to remain competitive in their respective markets. In many cases, it’s actually a disadvantage. When looking at the bigger picture, there are crucial points to consider. Sure, companies may save money on labour or materials by purchasing offshore, but oftentimes additional incurred costs offset these gains. For example, offshore sourcing usually involves larger inventories, higher administrative costs, hidden fees, hefty transportation expenses and steep tariffs.

Let’s not forget that parts made overseas are less likely to meet strict regulatory specifications and guidelines, meaning safety and quality is sacrificed, or third-party costs come at a premium to meet these requirements. The cost of training foreign workers is another aspect to take into consideration, amongst the many ethical and safety concerns surrounding offshore factories. The inability to have oversight and adequate vendor vetting is a substantial role that offshore proponents ignore, ultimately leading to a greater demise down the road once they’ve experienced customer complaints, noncompliance, safety concerns, or even blatant fraud and theft. Most importantly, the lead times to receive finished products from an offshore location is significantly longer. This implies that companies lose their ability to respond and adapt to a dynamic market experiencing immediate demands and changes. Many times, businesses will be left with wasted dollars, expired product, expedited fees, and an influx of materials that are no longer in demand. This is a vulnerability that has been widely revealed throughout the COVID-19 pandemic.

As a distributor or retailer, this should create grave concerns around product pricing. Those who manufacture offshore will face “hidden costs” that can account for an increase of 5-15% in shipping, 3% for communications, 5-10% in added inventory, and up to 35% for unanticipated changes. Those hidden costs can account for nearly 63% higher price points in finished products.

That's not to say overseas materials and production aren't worthy of investigating. Offshore purchasing can be a strategic tactic to overcome domestic limitations, but profitability shouldn't be the sole rationale for this approach.

With all these facts in mind, Sluyter has pursued an approach fueled by its entrepreneurial spirit and applied a unique business approach apart from its North American competitors. Sluyter’s management philosophy reinforces the ability to provide cost-effective solutions by evaluating the company as a whole, updating internal systems, improving plant equipment and operational efficiencies, implementing further training for staff, and dedicating its R&D to high-quality products. Rather than making rash myopic decisions that are of no benefit to the consumer, Sluyter has remained a respectable force to be reckoned with as a Canadian chemical manufacturer refusing to sacrifice quality and the economic well-being of its market. With a responsive attitude geared to emerging developments happening in society, Sluyter keeps its eyes locked on the target and stands head and shoulders above the rest.

www.sluyter.com

Sources:

Markides, Constantinos C., and Norman Berg. "Manufacturing Offshore Is Bad Business." Harvard Business Review. September 1998. Accessed April 09, 2021. https://hbr.org/1988/09/manufacturing-offshore-is-bad-business.

Witt, Michael A. "Prepare for the U.S. and China to Decouple." Harvard Business Review. June 26, 2020. Accessed April 9, 2021. https://hbr.org/2020/06/prepare-for-the-u-s-and-china-to-decouple.