Despite momentum gains over the past couple of years within the manufacturing industry, manufacturing companies have plenty of obstacles to overcome to create growth and maintain a successful global operation. Finding skilled workers, supply chain management and customer service are just a few of these challenges.
We'll review the top five challenges the manufacturing industry faces, and provide some helpful solutions to overcome these barriers.
- Hiring complexities
- Supply chain disruptions
- Adapting to changing markets
- Cultural and communication barriers
- Intellectual property protection
1. Hiring complexities
Hiring is complicated enough as it is, but when you’re hiring workers in multiple countries, each with unique employment laws, it becomes even more complex. Whenever you hire workers overseas, you'll need to keep a few things in mind to build a successful team.
Recruitment
Finding the best candidates for your manufacturing operations often requires a recruitment strategy. But do you know how to find the right people and craft an attractive and competitive offer? Whether your manufacturing company needs engineering or sales roles, there are a number of reliable ways to build a pool of professional candidates, such as:
- Leverage employee referrals
- Network at industry events
- Invest and develop existing team members
- Reskill workers and adapt with emerging technology
- Polish your reputation and brand
This is a lot easier said than done, especially when your recruiting team doesn't live in the same geography or speak the language. Not to mention the cultural customs or hiring regulations. Even if you recruit on your own, you may still need help to hire and onboard international workers correctly.
EOR vs. entity
Other than hiring independent contractors, there are two main methods for hiring international employees for your manufacturing business.
The first option is to work with an employer of record (EOR). This solution allows you to quickly add workers in new global markets, without having to take on the cost and risk of establishing an entity in a foreign country.
The EOR hires international workers on your behalf and facilitates all employment requirements. This includes all the banking, insurance, tax, HR and contract requirements. The employer or record is responsible for abiding by local employment laws for hiring and paying local workers. This is a great solution for manufacturing companies if you only have a few workers in specific countries.
The second option for hiring internationally is to establish your own legal entity in a foreign country. This gives you complete control, everywhere you do business, but also means you shoulder the full legal accountability. If you have a large headcount in a stable market, this might be a better long-term hiring solution.
Classification compliance
Should you hire workers as independent contractors or full-time employees? Well, it depends. You may even need to hire a mix of the two. Knowing which is the right fit and, more importantly, how to properly classify and compensate them, is critical.
Although the laws governing employee classification vary from country to country, they generally have strict parameters and steep consequences for mistakes. For example, if you hire a salesperson as an independent contractor in a test market, but they meet any of the following criteria, the local government may consider them a full-time employee, putting you at risk of fines, jail time or even a complete shutdown.
- They are paid for time worked rather than per project
- They use your tools or resources to complete a job
- They only provide services to your company, and do so for an extended period of time
- You manage their day-to-day work
If you hire an engineer as a full-time employee, these criteria are to be expected from your work arrangement. You'll also be responsible for withholding all taxes required by the local government and providing benefits like vacation time and retirement plans that are government mandated, culturally expected, or both.
In a tight labor market, offering a full-time position complete with perks and benefits can become a competitive advantage that signals you're serious about your candidate and plan to invest in their career long-term.
2. Supply chain disruptions
Supply chain disruptions have a huge impact on manufacturing companies. In today's day and age, customers expect high-quality products to be delivered almost instantly. Even if you have optimized production lines and manufacturing processes in place, it can be difficult to predict global disruptions.
War and global conflict
War, no matter how minor, can have a dramatic impact on the global economy, and in particular, the manufacturing industry. For instance, the recent Russia-Ukraine conflict impeded the flow of goods, accelerated cost increases and product shortages, and created catastrophic food shortages.
Rarely do these conflicts only affect the local region. Whether you need access to raw materials or trade routes, war negatively impacts the manufacturing process.
Trade disputes
Trade agreements are supposed to be mutually beneficial between countries. However, as administrations change, this can lead to changes and disruption to global markets. A recent example of this was when the United States and China disagreed on trade restrictions, most notably in the semiconductor manufacturing space.
These regulatory disputes directly impact manufacturers and force them to assess the risks of doing business in a country. Oil and gas producers feel the ripple effects of trade disputes the most, with an impact score of 9.0/10 for operational decision makers in this space.
Natural disasters
From pandemics to earthquakes to hurricanes, it's impossible to fully predict the damage of these natural events on global supply chains. Having contingency plans can help mitigate some of the risk associated with these events, but that doesn't stop the demand for business.
3. Adapting to changing markets
No matter how good your inventory management is, project managers can't always predict the shift in global markets.
Regulatory shifts
With each new election cycle, in each country of operation, there will be regulatory changes. Both national and local regulations are constantly evolving, making it critical that industrial manufacturing companies consistently stay updated on these policies.
In the U.S. alone, there are nearly 298,000 restrictions affecting manufacturers. The more laws that are in place, the harder it is to stay in compliance with these changes.
Sustainability
Manufacturers are expected to adhere to sustainable practices. Not only is this an expectation from international governments, but from consumers as well. People are always looking for businesses that are more environmentally friendly and demanding those products are produced in a sustainable manner.
As a result of these demands, international manufacturing companies must adopt more strict regulations to reduce carbon emissions and waste they produce. This often requires investments into renewable energy technologies and more efficient production processes.
4. Cultural and communication barriers
Communication is paramount to successful global operations. Not only do you need to understand the language, but also the cultural expectations and norms of your target market. Otherwise, even basic communication about material specifications or production schedules can lead to misunderstandings that disrupt smooth operations.
This can create unnecessary delays in production or shipping times.
Cultural understanding is also important when you’re hiring in new global markets. In addition to ensuring compliance of the local labor laws, it’s important that your hiring practices adhere to the local customs and cultural norms to be a competitive employer and ensure a productive and happy workforce.
5. Intellectual property protection
Are you planning to hire engineers or another role where their work is likely to include creating intellectual property? It's important to understand who owns what according to local law, and what specific language must be included in the contract to ensure your company IP is protected.
Considerations include the definition of IP, which can differ from country to country. It should also dictate what constitutes copyrights, trademarks, patents and trade secrets. In Germany, there are laws that "prohibit assignment of an author's copyrights and/or moral rights in a work either entirely or prohibit such rights from vesting initially in the employer."
Overcoming challenges as you grow your manufacturing operations
Sustained growth for manufacturing companies likely includes global expansion. And though some setbacks are inevitable and beyond your control, there are ways to get ahead and overcome challenges, particularly around growing a global workforce.
Learn more about how to navigate international recruitment and hiring challenges in our Global employment guide for manufacturing companies ebook. It covers:
- Obstacles to recruiting and hiring in foreign countries
- Repercussions of hiring mistakes
- A flexible, scalable solution for global recruiting, HR and payroll
If, after reading the ebook, you have questions or need guidance on international hiring, just reach out—our global solutions advisors are available and ready to help.