Outsourcing your production abroad

Outsourcing your production abroad

When a part of your production is processed abroad, we call this outsourcing or 'Business Process Outsourcing (BPO)'. By moving a part of your production to low-wage countries, you can save on labor costs. You may also encounter other benefits. For example, there may be a shortage on staff or knowledge in your particular field within your country, while there is an excess in other countries. What should you keep in mind when outsourcing?

Check if your product is suitable for outsourcing

The technical knowledge or raw materials must be available in the country where you want to have your product made. Producing in low-wage countries can also be more difficult than in the Netherlands. Take into account, for example, the possible impact of language and cultural differences. Also, protecting your intellectual property can sometimes be more difficult abroad.

Which products and services are suitable for outsourcing?

Some products or orders require a large number of personnel to carry out the work. This is a good opportunity for outsourcing.

Your core activities are less suitable for outsourcing. These are activities that distinguish you in the market and make customers want to buy your particular product.

When outsourcing services, you can think of call centers and IT support. The Philippines can be an interesting country to outsource your services, because of the low wage costs and the good command of English.

Finding a production partner abroad

Are you in search of a production partner or supplier? Make use of the Enterprise Europe Network (EEN). You can quickly and easily make new international contacts through this professional network with 600 organisations in more than 600 countries. Or contact the advisors of the Netherlands Enterprise Agency (RVO). They will be happy to help you find a production partner abroad. The Centre for the Promotion of Imports from Developing Countries (CBI) can also help you make contacts.

Your own production company abroad

Perhaps you have your own production company abroad. And a company in the Netherlands to sell these products. It does mean you can control the working conditions and salaries of you employees abroad, the quality of the products and delivery methods. You know where raw materials come from and will be able to avoid risks that could harm your product or business. If sustainability is an important aspect for running your company in the Netherlands, you can extend that to your production company abroad. If done right, you have made a good start with sustainable purchasing and meeting the International Corporate Social Responsibility (ICSR) principles.

Choose offshoring or nearshoring

You can have your production carried out nearby or far away. If you choose a production partner close by, for example in Eastern Europe, we call this ‘nearshoring’. Advantages of nearshoring are, for example, shorter delivery times and less language and cultural differences.

Do you outsource you production further away, for example in China? This is called ‘offshoring’. The wages in these countries are often even lower, which means you save more on labor costs. However, other costs (such as transport costs) are often higher.

Reshoring: bringing production back to the Netherlands

Some circumstances may make outsourcing abroad less attractive. For example, rising wages or difficulty finding raw materials. In that case, you can decide bringing the production back to the Netherlands. This is called ‘reshoring’ (in Dutch).

Check the reliability of your business partner

Always do research on the company you will be working with. This way you limit the risks. For example, check whether your business partner is registered in a foreign trade register. Or have the company screened by a trade information agency.

Agreements and liability

What about the intellectual property on your product? Who is liable for any damage caused by a defect in your product? Do you share confidential data with your business partner? Then consider a confidentiality agreement.

Always make sure you lay down agreements about outsourcing in writing. Also, having a point of contact with your production partner can help to keep communication easy and clear.

Importing your products

Do you outsource your production outside of the EU and have the products imported into the Netherlands? You must file a declaration with the Customs Administration of the Netherlands and pay import duties and VAT. If there is a trade agreement between the EU and the country where you outsource your production, you may pay less or even no import duties. Within the EU there is free movement of goods. This means that you do not have to submit an import declaration to Dutch Customs, however, you do have to pay VAT.

Useful tips

• Get information about outsourcing from the advisors of the Netherlands Chamber of Commerce or RVO.
• Contact representatives of the foreign network: embassies, consulates, business support offices, innovation attachés and agricultural councils.
• Approach an advisor and receive reimbursement of costs.
• Take part in a trade mission.