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Offshore Outsourcing - Better Read the Fine Print
from: Steve ChittendenWe have probably all had this experience, just as I have on a
regular basis. You start your day, open your email, and no
matter how good your Spam filters are, someone across the
Atlantic pond slips through using machine translated English.
They are trying to win you over with cheap prices, wanting you
to believe you can have glorious profits with all the money they
can save you.
The "Buy American" bumper stickers had very little
impact on the buying habits of consumers in America. So now,
manufacturers in places such as India, Taiwan, Korea, and China
are aggressively seeking to capture the business market in North
America too. Many American companies have learned the hard way
that the savings are not what they appear to be, and it can also
have devastating consequences.
Imagine how it would feel to create your own foreign competitor
who can sell a knock off of your product using your very own
tooling and trade secrets. Once they have the specs and tooling,
they have everything they need to compete against you or sell to
your competitors. You are legally protected from that using
domestic suppliers, but that protection mostly stops at our
shorelines.
When you use a domestic supplier, you are usually getting
expertise and design assistance. They can often help you make a
good idea even better. If you go offshore, you may have a
language barrier and cultural differences to make things more
difficult. Instead of a helping partner, you often get a
management nightmare, missed deadlines, and poor quality.
International law experts, market research analysts, and global
commerce consultants do not come cheap either. This can quickly
consume the apparent savings being offered with offshore
outsourcing. If you do not consult with these types of
professionals, you could easily be inviting disaster.
Even in a best case scenario, your regular physical presence
will be required overseas. This will involve a great deal of
travel expenses. Relying on a third party already located
overseas to provide management services may not be a good
option. The experiences of those who have tried this approach
would strongly suggest it is not worth the risk. You need to be
there, it is your business.
If you are considering the move to offshore outsourcing, making
sure your quality specifications are consistently met is
exponentially more difficult than using a domestic supplier. If
your product fails due to manufacturing defects, an offshore
manufacturer is much more shielded from responsibility. If
product liability is involved, you will most likely bear the
burden alone.
As a web designer, I face the same competition from offshore
outsourcing that manufacturers face. There is a potential
liability to this practice that will inevitably find some
unsuspecting buyer facing serious legal problems. One highly
publicized case could open a floodgate of trouble for many
businesses.
Offshore designers routinely steal content from various sources.
I have had content stolen on a regular basis, which falls under
copyright infringement in the US. It is very difficult, probably
impossible, for content owners to legally prosecute the thieves
located offshore. However, if a US company had stolen content
provided by an offshore source, they would be extremely
vulnerable to a copyright infringement lawsuit. It is very
unlikely they would be able to hold their offshore provider
accountable either.
In a case study cited by the North American Die Casting
Association, a restaurant kitchen equipment manufacturer
encountered a serious problem with one of their vendors using
offshore outsourcing, resulting in a lawsuit against the vendor.
The vendor was having door handles cast in Taiwan that were made
of low grade materials which were pulling right off the units
they were installed on.
These units were made in such a way that the door handle could
not be replaced without replacing the entire door. The Taiwanese
company would not cover the losses caused by their defective
product, so the vendor refused to cover the cost of replacing
the door. All relationships have been severed, the vendor lost a
customer and gained a lawsuit, and there are no winners. This is
a case of offshore outsourcing devastating an entire supply
chain.
The good news is that many of those who have learned hard
lessons are now back to dealing with North American suppliers.
Some companies have used offshore outsourcing with great
success, but that does not mean it is right for your business.
The horror stories that real businesses have experienced mean
you can learn from their mistakes instead of making them
yourself. Before making the jump across the pond, serious
research is a prudent thing to do.
If offshore outsourcing works for your company, it is not an
inherently evil thing to do. If it does not fit with your
business model, offshore outsourcing can have hidden costs that
make it more expensive than just keeping your money here and
supporting your neighbor. If you jump in without due diligence,
you might end up adding your horror story to the casualty list.
About the author:
Steve Chittenden is the webmaster for H&L Advantage, a lean
manufacturer of plastic products. Services include
design, tooling, and product development. Please visit
more information.
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