To outsource, or not to outsource

So i just got off a plane, which means i just finished reading another magazine. 🙂

(Actually, i read two but i’m only going to talk about one. : )

I read an article in the current issue of Wired (Mar 2011), “Made in the USA; Fast. Flexible. 100% automated. Guaranteed quality. (No outsourcing to China required.)”

In it, the author argues that it’s better for small to medium-sized businesses not to outsource to China, for four reasons: 1) As labor costs in China rise, it’ no longer the economic advantage it was, 2) Quality control issues with outsourcing labor to China can be a nightmare, 3) American companies can compete with low foreign labors costs by automating processes (using robots), and 4) keeping your production closer to home reduces shipping costs and the length of time to market.

The example given is a smaller company called Sleek Audio, who sell high-end earphones. They were losing money by producing their product in China, due to quality-control issues, shipping costs, and time of length to market (forced to sit on expensive products that take months to produce and then ship to market).

Okay, but is any of this cause and effect?

The author admits that larger companies will still maintain a competitive advantage by outsourcing, because they, due to their size and influence, can afford to hire their own on-site staff to stay on top of quality control issues and also can make demands (they’ll get first rights to production).

So that right there proves that outsourcing is neither beneficial nor not beneficial. If a company benefits from outsourcing, and another company does not, then what that proves is that there is no relationship between outsourcing and being competitive.

So what should you do? Outsource or stay home?

A classic diamond deal… it doesn’t matter whether you outsource or not; that is not the cause of being successful. Apple outsources and is highly successful. So what should Sleek Audio have done? Because moving their production back to the States or not can not be the cause of their success. Firing employees and/or moving factories around is roboclawing the situation.

So first look at the problem. They were having quality control issues that were making outsourcing expensive. They flew out to the Chinese factory, where they were assured everything was under control… but this turned out not to be the case; new products were also defective. So what did they do? Fly out again. 🙂 Then give up and move their production back to the States.

But again, in the end, whether that proves to be successful or not will depend on something else: planting the seed to see high quality products. So how do i do that?

I can tell you one seed you can plant: rejoice in the high-quality products you see produced by your competitors. Every time you see a high-quality, cheaply produced iphone come out of China, you should think, “Wow, that’s so great that they are able to do that.” The result is that you will start to see similar results for yourself.

You might also try making sure that you are not taking short-cuts somewhere in your own life. Did you tell your wife you would make dinner and then just through some hot pockets in the microwave? Shame on you, you’ll regret it. 🙂

Also, in this case, i’m also reminded of another common business problem Geshe Michael discusses in his Diamond Cutter book. Problem #23: Market strategies that used to work for you don’t succeed anymore.

I think this is exactly what is happening here… outsourcing to China “used to be” an effective strategy, but no longer is.

According to the Diamond Cutter system, the cause of an effective strategy losing it ability to be effective is that there you are using some form of deceit or dishonesty in the way you are trying to make money.

This sounds like it might be the case here with Sleek Audio, because one of the problems they describe with outsourcing is that their supplier tells them the problem has been corrected when it hasn’t; meaning that they are lying to them. The cause of having your supplier lie to you is also probably some dishonestly on your part.

So clean up your speech, don’t lie or mislead others, and rejoice in the products you see others making–then you can outsource (or not : ) and your company will be successful. 🙂

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2 Responses to To outsource, or not to outsource

  1. Peter Axtell says:

    Yay! Eric Brinkman is back….these real world gems are so useful. I’m a real estate agent doing lots of short sales which are seldom short nor easy. I got this idea (Diamond Cutter) that I would change the way I see my own business. I decided that I would focus on four things. How can i help my clients solve a complex problem, how can i see the other real estate agent get paid, how can i see the bank get a non performing asset off their books, how can I stop another foreclosure in my town. How can i show appreciation for my fellow real estate agent, how can I be empathetic to my clients facing a difficult situation and how can I let the bank negotiators know how much they are appreciated for the difficult job they do. While I’m certainly not Mr. Ghandi, i try and get myself out of the picture as much as possible. After 11 years of struggle, i’m happier and my business is growing.
    Blessings to Eric and all he does for other people (secret to happiness). PS i like Eric’s idea of the small case “i”
    PPS: this sit could use a spell checker….hope i didn’t miss too many words…

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