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Conduct a risk assessment before offshoring the production process

Manufacturers need to conduct a risk assessment of a country before offshoring its production process.
09 Sep 2013

U.S. businesses have many countries to pick from when deciding where to offshore manufacturing, yet a natural hazards risk atlas showed Mexico a lower risk of natural disasters than other offshoring destinations, making it a much safer place to expand into. Although it can be difficult to anticipate natural disasters, manufacturers always need to conduct a risk assessment before building a factory in another country. U.S. businesses need to keep numerous factors in mind when expanding to Mexico, but one of the things many companies forget is that Mexico is one of the lowest risk locations to offshore manufacturing. 

Mitigating location risk by choosing safe locations
According to Manufacturing Digital, manufacturers should remember numerous things when entering into a competitive production market, because expanding into a high-risk location can negate any benefits a business may enjoy from offshoring. Some businesses have maintained a steady eye on numerous Asiatic countries, such as Japan and China. However, just last year many of these countries saw natural disasters that caused significant damage to the country's infrastructure and resulted in socio-economic harm. Manufacturing Digital reported events in Japan and Thailand in 2012 resulted in electronics companies in the region to lose market share and credibility.

One business in particular, Seagate Technology, built its factory on higher ground in case of a flood and became a market-leader at the time. While taking this type of action is essential, not expanding into a high-risk country in the first place can often be a better strategy. According to Maplecroft's annual Natural Hazards Risk Atlas, Asiatic countries like Japan have a high risk of natural disasters affecting the socio-economic stability in the region. In fact, numerous countries in the region, such as China and India, have likewise been designated as extreme risk.

With mega-cities growing in many of these countries, Maplecroft reported more factories are being built in flood plains or coastal areas to take advantage of the commerce in the cities. When a natural disaster hits a low-lying region with a large population, businesses might not only see their own production process suffer, but see its market share dip as well, causing many operational and financial issues for the company. According to Maplecroft, Asiatic countries have a greater risk of socio-economic collapse and are often unable to increase their socio-economic resilience.

Mexico has a lower risk of natural disasters, stronger socio-economic resilience
According to Manufacturing Digital, U.S. manufacturers must mitigate their risk of being exposed to a natural disaster and to be prepared in case one does happen. Factory buildings, the supply chain and the safety of the workforce are all at risk if a natural disaster strikes. Companies need to make sure their buildings are in the right locations within the country, their supply chain is secure and their employees are safe to reduce the adverse impact of the natural disaster on the business. To be successful when offshoring fabrication, manufacturers must choose a country with high socio-economic resilience.

Mexico only has a medium risk of socio-economic issues arising after a natural disaster compared to Asiatic nations, according to Maplecroft. With the country's close geographical and economical proximity to the U.S., Mexico is in a better position to react quickly to mitigate the damage if a natural disaster does occur. With Mexico already looking to improve its infrastructure, it is a much safer and more reliable choice for U.S. companies to offshore the production process there.

Shelter companies are in the ideal position to help businesses mitigate their risks by understanding Mexican law, the country's workforce and where the more secure locations are for factories. U.S. companies don't have much room for error when offshoring the production process, so doing it right the first time is essential.

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