The Impact of 3rd Party Manufacturing Companies on Domestic Jobs

3rd Party manufacturing companies refer to businesses contracted to produce components, products, or services for another company. Unlike traditional manufacturers, 3rd Party manufacturers do not sell their products directly to end-users under their brand name.

The domestic job market in many countries has undergone significant fluctuations due to various economic factors. Globalisation, outsourcing, and automation are fundamental forces that have disrupted traditional employment avenues and impacted the livelihoods of skilled and unskilled workers.

In this blog post, we assess and understand the specific impact of thriving 3rd Party manufacturing companies on existing employment patterns and opportunities.

What Are 3rd Party Manufacturers?

3rd Party manufacturers specialise in production and manufacturing processes for other firms. They are contracted by businesses that wish to outsource some or all of their manufacturing operations instead of handling production in-house.

Some typical characteristics of 3rd Party manufacturing companies are:

• They own manufacturing equipment and facilities for production
• Employ a trained workforce to operate machinery and oversee processes
• Handle procurement of raw materials needed for production runs
• Adhere to product specifications and requirements set by their clients
• Ensure quality control and delivery timelines as per contracts
• Provide customised packaging and shipping support

What is the Role and Functionality of 3rd Party Manufacturers in the Market?

 

3rd Party manufacturing firms play a crucial role in contemporary supply chain ecosystems across various industries like electronics, automotive, medical devices, etc. Their specialised capabilities and production infrastructure help other companies focus on their core competencies.

Broadly, their roles encompass:

• Production Expertise: Possess knowledge and capabilities to manufacture products using the latest equipment and techniques
• Improved Efficiency: Produce goods at competitive costs and enhance efficiency by leveraging scale
• Specialised Infrastructure: Invest in manufacturing assets, machinery, factory space and skilled workforce
• Flexibility: Able to adjust production volumes as per fluctuating market demand
• Innovation: Help clients implement innovative production methods and use of new materials

In effect, they function as an extended production arm for other businesses and add tangible value as a manufacturing partner. Companies are increasingly leveraging their services to reduce production costs, ensure quality, accelerate speed-to-market, and concentrate more on sales, marketing, and product innovation targeted at end-users.

As per industry reports, the 3rd Party manufacturing market is poised to grow at a CAGR of over 7.10% from 2022 to 2030 and exceed a trillion dollars in overall value.

Major manufacturing hubs concentrating on such production as China, Taiwan, Singapore, and India are investing heavily to boost their output and capabilities.

3rd Party Manufacturing Companies: Do They Impact Domestic Jobs?

The steady expansion of the 3rd Party manufacturing industry has significant ramifications on job markets, especially in developing economies that harbour most production clusters.

There are both positive and negative implications on domestic employment:

Positive Impacts

1. Job Creation

Rapid growth in contract manufacturing directly stimulates job creation in affiliated production facilities and ancillary support services. Skilled workers are recruited across assembly lines, quality analysis, packaging, inventory/warehouse management, and allied functions. Positions also open up indirectly for workers aiding output logistics and raw material movement.

2. Economic Growth

Thriving manufacturing drives higher exports, consumption, tax revenues, and GDP growth for host regions. Associated job creation and rise in personal disposable incomes further propel localised spending and consumption.

3. Specialisation

Focus on distinct manufacturing competencies leads companies to hire specialised engineers, technicians, and shop floor experts. This enables the creation of an evolving talent pool adept in niche sub-sectors.

4. Supply Chain Development 

A robust manufacturing ecosystem fuels the expansion of interconnected local supply chains spanning raw material suppliers, assembly plants, product testing labs, and export logistics partners. More employment opportunities thus emerge across such auxiliary industries.

Negative Impacts 

1. Job Displacement

While augmenting particular job roles, 3rd Party players also precipitate adjustment of specific existing jobs which are rendered redundant. Automation and optimised production can eat into specific jobs related to more traditional manufacturing modes.

2. Dependence on Foreign Companies

Some low-value-added manufacturing jobs may be relocated to overseas locations like China and Taiwan, offering cheaper alternatives. This discourages domestic players from lacking scale and localised capabilities.

3. Skill Gaps

Specialised technical and engineering roles demanded by 3rd Party manufacturers require developed skill sets which remain unavailable among the local workforce in developing markets. This necessitates the recruitment of expat talent, depriving some local aspirants.

4. Labor Standards/Conditions

In some instances, a lack of governance may incentivise players to compromise on labour regulations related to wages, workplace safety, and employee welfare. This may spark concerns about exploitative practices.

What are the Factors to Mitigate These Effects?

However, proactive measures by companies and government interventions can help maximise the positive outcomes of contract manufacturing on domestic job creation.

1. Government Policies

Favourable initiatives like IT hardware Production Linked Incentive (PLI) schemes, cluster development programs, and skill councils can enable locals to have more comprehensive access to manufacturing employment opportunities. Policy reforms to improve the ease of doing business also help attract foreign investments in production facilities.

As per the IT hardware PLI 2.0 scheme, an incentive of 5% will be provided by the government on net incremental sales of goods manufactured in India over the base year, compared to 2% earlier.

2. Investment in Training

Investments by government and industry participants to skill, reskill, and upskill the domestic workforce as per evolving manufacturing industry needs are vital. Such training programs build expertise in robotics, 3D printing, industrial IoT, etc., to bridge skill gaps. Educational institutes also need to align curricula to such requirements.

Oakter: Crafting a Sustainable Future in 3rd Party Manufacturing

Growth in 3rd party manufacturing companies shifts the employment landscape via simultaneous job augmentation and realignment. Policy interventions emphasising skill development and manufacturing investments can maximise domestic job creation.

At the same time, 3rd party manufacturing companies practising responsible labour policies need encouragement. Overall, the manufacturing boom offers a promising opportunity for developing nations to ‘make and export globally.’ Careful planning to develop local capabilities in tandem is the need of the hour.

In this evolving scenario, partnering with the right third-party producer is essential. Consider Oakter for your manufacturing needs.

Get in touch with us to explore the possibilities of ethical and impactful manufacturing solutions.