Paraguay: Outsourcing manufacturing and services for a low cost
As we have all seen over the past year, historical trends have the capacity to change in an
instant, increasing the importance of having a backup plan. Not only this, but with a need to focus on recovery and new pathways for growth, outsourcing has exceeded its utility for cost-cutting, and has become a political weapon.
The ability for this industry to be monopolised by large global economies has led to a competitive edge, where new countries, such as Paraguay, one of the focuses of today’s article, are able to present lower costs and attract the custom of businesses that had been outsourcing overseas elsewhere.
On the surface, you could be wondering why Paraguay is such a good alternative to more traditional locations for outsourcing. With an economy a fraction the size of China’s, the immediate desire to take the plunge into the Latin American country is not necessarily overwhelming.
As a business owner, you will want to know what is on offer that would make the change worthwhile, and to outline some of the main reasons, Paraguay is a strong alternative due to:
1. Technological innovation
2. Maquila industry
3. Faster delivery times/More workable time difference
International relations, and specifically, interdependence, whether it be in business or politics, plays a big part in where companies relocate and to a certain extent dictates trade links. However, when this idea is tied in with innovation, a subject we have touched on in some of our recent articles, it could be supposed that balance of global trade may be shifting towards future planning as opposed to political security.
We have already seen what a change in a country’s leadership can do to long standing international relations, and perhaps the COVID-19 pandemic serves as reinforcement to the idea that nothing is certain.
By looking forward and seeking out innovative markets within the outsourcing industry, US companies can find a sense of opportunity in the wake of uncertainty in Paraguay. The
stably growing economy is one such example of the results of innovation in various sectors, such as manufacturing and technology.
If you need to develop software, the number of professionals in the IT industry means you can utilise expertise from overseas at a lower rate while receiving a high-quality service which opens the avenue to Latin America for future business development.
Going deeper into the theme of innovation, the presence of maquiladora companies in Paraguay demostrates the forward-thinking attitude relished by companies in a globalising marketplace.
If you are unfamiliar with this scheme, we have recently published an article and podcast episode on our YouTube channel outlining it in depth, however for the purpose of this article, we will touch on some of the key features.
Put simply, a maquiladora is a factory that exists outside of the headquarters of the country the business doing the outsourcing is based, where manufacturing is done often with no tariffs or other economic incentives when compared with other countries. In keeping with today’s theme, the lack of tariffs in Paraguay when compared with China following Trump’s presidency, the benefits of maquila industry are immediately evident. There is also a unified tax rate of 1% and maquila corporations are exempt from VAT, presenting further economic benefits.
Time difference and fast delivery
One part of the maquila industry that we did not mention in the above section is the
reimportation of goods following assembly in Paraguay.
If we look quickly at the shipping times between the US and China, maritime freight takes between 30 and 40 days and delivery of air freight takes between 8 to 10 days. This is inconvenient to say the least, as although the prices are low, a long waiting time in a world of instant gratification presents a difficult logistical battle. Let us apply this same theory to Paraguay, where shipping times between Asunción and Atlanta, Columbus and Portland, to take some examples, is only 4 days.
It is clear that there are going to be some cities with a longer transit time, but the previous examples show you the contrast that exists between China and Paraguay. Shorter shipping times allow for supply and demand issues to be solved as well, as products can be assembled and reimported quickly, meaning there is less chance of excess stock stemming from over-purchasing, saving your company money.
So, if you are interested in finding out more, contact us today! Below this article you will find a link to set up a free fifteen-minute consultation with us to discuss your options further.
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