Why Is Outsourcing Such an Attractive Way for Firms to Tap Into Foreign Markets?

Companies outsource manufacturing or business services, such as call centers or research and development activities, with the aim of reducing costs or accessing skills they do not have in their own organization. Outsourcing manufacturing or logistics to partners in other countries also can help companies enter local markets by reducing the cost of market entry, building an understanding of local requirements, overcoming barriers to entry and supporting market expansion services.

An outsourcing partner can share valuable local market knowledge with an exporter. The partner company is familiar with local cultural and business requirements, and understands the country’s product and marketing regulatory requirements. An exporter operating from its own territory might find it difficult to gain the same level of understanding. Local knowledge can help the exporter determine the most appropriate sales and marketing strategy, and reduce the risk of costly errors.

A company that uses an outsourcing partner to supply its local market reduces logistics costs. The exporter minimizes shipping and warehousing expenses and can adjust to changing market conditions more easily. As a result, a locally-outsourced supply source helps the exporter offer fast delivery to local customers and react quickly to exploit emerging opportunities.

Using an outsourcing partner to manufacture and distribute products to a local market can help an exporter overcome barriers to market entry. Some territories may impose high import tariffs that don't apply to the local firm. In other countries, governments may ban imports or only allow domestic manufacturers to sell products. Customers in local markets may also prefer products that are manufactured nearby. Outsourcing partners may change the original product specification to comply with local standards and regulations.

Outsourcing partners can offer exporters valuable market expansion services. These services represent a wider role for outsourcing and include market research and support for business processes that involve a substantial level of direct customer contact, such as marketing and sales, logistics and distribution, and customer services. Outsourcing partners can manage promotional campaigns, organize sales training, take orders and manage invoicing. They also can provide customer support services such as installation, repairs and maintenance.

Companies that need to have a local presence in an export territory to improve marketing performance or meet import requirements can reduce their resource requirements by working with an outsourcing partner. They do not have to invest in setting up and managing their own local manufacturing facilities. Market expansion services help them to accelerate growth in international markets without establishing a local marketing or customer service operation.