Hidden Costs of Using a Foreign Manufacturer

When engaging with, and outsourcing to a foreign manufacturer, it is important to recognize that there are hidden costs in the interaction that can eventually affect the overall efficiency and cost effectiveness of the project or purchase. In some situations, these hidden costs can directly affect the price per unit and thus increase the overall market costs. Therefore, caution should be employed when seeking an overseas manufacturer.

Hidden Transportation Costs

Naturally, shipping will be part of any foreign purchase. However, there are some hidden costs of using a foreign manufacturer that are not always known upfront. Port fees, loading fees, custom fees, originating VAT taxes are just a few of the direct costs that can increase on a moment’s notice and thus can cause cost inflation. Besides these direct fees, there are other potential cost points that can create issues. Delays due to labor disruptions, congestion, either port or infrastructure, weather delays, concerns or issues aboard the transport and more. Effectively, at any point along the shipment, hidden costs can create issues or problems.

Miscommunication and Quality Control Issues

Miscommunication when working with foreign suppliers is common. Part of the potential for miscommunication is the difference in design numbers and specification from country to country. Some countries use metric and some Imperial measurements and conversion is not always exact. This can lead to problems with manufacturing to the level required. Additionally, quality control can vary due to the difference in communication. What might be an unacceptable standard in this country might be acceptable in another. So there are varying degrees of quality control that can also inflate overall costs.

Nothing suggests that a company should never outsource to a foreign supplier, only that there are hidden costs that must be taken into consideration. These costs, coupled with the overall project costs should be part of any discussion of outsourcing to a foreign supplier. In many cases, after the hidden costs are accounted for, domestic suppliers are usually in a better position to meet demand.