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As
told to Patricia R. Olsen
Published: December 6, 2004
Staying
Close to Home: The Mexican Option
Ed
Trevis is president and chief executive
of American Predator, a manufacturer of
industrial circuit boards, in Morgan Hill,
Calif.
Our
controllers are used in medical equipment
like CAT scans and M.R.I.'s. We started
outsourcing about 30 percent of our products
to a company in Mexico six months ago.
They buy the necessary components from
United States companies and then assemble
our boards. I'm starting slowly, with
our higher-volume lines, but eventually
I plan to outsource half our products.
Outsourcing
will allow us to compete against Asian
and European companies overseas, as well
as those companies that export to the
United States. We will be able to expand
our services, increase our revenue, and
create more jobs in the United States.
I'm hiring now, and I plan to increase
the work force 20 percent in 2005.
The
lesson I learned from outsourcing is that
business models in other countries are
continuing to evolve, which is something
American companies can take advantage
of.
If
you have a product that can be produced
routinely and consistently, it pays to
have it produced less expensively elsewhere
and use the savings to obtain the latest
technology here. Few countries can compete
with us in that area.
Mexico
has its own way of doing business, like
all countries, and that has been a challenge.
For instance, there are restrictions on
how long components can remain in Mexico
before a company incurs duties or taxes,
and the logistics of handling that can
be quite involved.
I'd
advise other companies to look at their
long-term business-development goals and
consider outsourcing to Mexico rather
than to Asia. The North American Free
Trade Agreement and other agreements have
been good for my business and will open
up even more markets in the Western Hemisphere.
I'd also tell them that increasing profits
is not the only reason to outsource. It
offers the ability to gain market share
and expand services, too.
As
told to Patricia R. Olsen
Understanding the Hidden
Costs
Linda
C. Drake is chairwoman and founder
of TCIM Services, a call-center service
provider based in Wilmington, Del.
We
have established joint ventures in Canada,
India and the Philippines, one in each
country. Today, 2 percent of our business
is offshore; it's not generating a lot
more than 2 percent of revenue or profit.
My
clients think they could save 40 percent
in customer service costs by outsourcing,
but the actual savings are 30 percent
in India and the Philippines, and 20 percent
in Canada.
Their
estimates are too high because you have
travel considerations; you have to have
people who are going to be there, managing
and deploying the technology. Then you
have to have quality control in place
to maintain the standard. In the meantime,
you've got training and retraining, and
then you've got language certification.
Trying to learn the colloquialisms, the
American slang, takes time. And this is
part of the hidden costs that companies
are overlooking. And the savings must
be balanced against the risks of potentially
losing customers due to a lack of conversational
skills.
Do
I feel badly when people lose jobs because
of outsourcing? Of course I do. I'm a
human being, first and foremost, but I
feel very strongly that we have got to
step up and meet this challenge, working
in a global economy.
While
there will be plenty of business to go
offshore, I believe that American companies
will always provide American customer
service because they can't find enough
qualified people overseas. And then you
have language barriers that truly can't
be overcome.
For
example, in India and the Philippines,
they can speak English, and it's the accent,
cultural and interpretive understanding
that gets in the way. When you go to countries
like China, where they can't speak English,
then you've got other, huge barriers.
As
told to Jane L. Levere
A Retailer, but Acting
Like a Manufacturer
Eric
J. Lane is president and chief
operating officer of Men's Wearhouse,
which is based in Houston.
We
outsource 40 percent of our product line
to at least seven countries, including
Italy, South Korea, Mexico, and China,
but it's not always static. For instance,
the introduction of the euro made Italy
less attractive, so we don't do as much
business there as we used to.
Outsourcing
has been the key to increasing our margins
over the last 12 or 15 years. It has given
us more control over what we're manufacturing,
in contrast to buying from vendors. It's
also made us smarter. By manufacturing
our own clothing, we know how it's being
made and what it costs to make.
If
you just buy from a manufacturer, you
don't know how to improve the product
and how to price it. Once you learn these
things, it drives everything you do. Since
I know what it costs to manufacture a
suit in Mexico, for example, I know what
a manufacturer should be selling it for.
The
main challenge is to make sure you have
good people running the operation. You
really need a sourcing department to do
it right, to develop the product, arrange
for it to be shipped and inspect the goods.
Apparel retailers that outsource become
somewhat of manufacturers themselves.
I
believe in the free market concept. If
we didn't outsource, we'd be paying a
lot more for what we buy, and then we'd
have to sell it for a lot more.
As
told to Patricia R. Olsen
Gain Experience, Then
Look Abroad
 |
Larry
Mana'o is chief executive of
Detto Technologies, a manufacturer
of products for transferring data
between personal computers,
in Bellevue, Wash. |
We
outsource our technical support to India,
our packaging to China and about 20 percent
of our programming to India and China.
We evaluated where we could obtain the
greatest efficiencies, and these three
areas made the most sense.
For
example, when we considered technical
support, we had two years of good data
to support the decision. The data revealed
that no further quality improvements could
be gained, so we worked on reducing our
cost.
We
save 40 percent on packaging and assembly
costs alone. We get a better box for our
money, and it saves us from having to
invest in the packaging technology. And
outsourcing helps us turn product around
faster when our inventories are low. Our
overseas distributors have also outsourced
from the factories we use, so we have
gotten to market faster and have been
able to localize products for various
countries.
We've
experienced only a couple of problems.
The color of the packaging wasn't right
initially, but that can happen with any
vendor. You hope it happens only once,
but with outsourcing, it probably occurs
more than people want to admit. There
were some language difficulties with technical
support in the early stages, but you train
continuously to surmount that.
I
wouldn't recommend outsourcing in the
early stages of a business because you
need to be responsive, and you need a
great deal of communication. If you're
working with a company on the other side
of the globe, regardless of the efficiencies
you might gain from working around the
clock, you can't just walk down the hall
to talk about a problem. As you become
more familiar with the business and learn
about your customers and what your production
demands and costs are, then you can consider
it.
As
told to Patricia R. Olsen
The Videoconference
Job Interview
Chetan
Shah is executive vice president
of technology of Synygy Inc. in Conshohocken,
Pa.
We
enacted an offshoring model about two
years ago and it's been a challenge. Synygy
provides solutions to help organizations
provide compensation software and services,
and we were looking for a way to be able
to build more products faster and cheaper.
Our clients were demanding more products,
but they didn't want to pay top dollar.
So
we opened up offices in India and Romania
to handle software development and business
processes. We have about 500 employees,
and 35 percent of them are offshore.
The
hardest part of setting this up was finding
the right candidates. The hiring process
begins in the United States. Everybody
has to apply through a Web site, and the
applications go to our hiring managers
here in the United States. They had to
have a lot of training to learn how to
look at a foreign résumé.
For instance, technical degrees vary from
country to country, so these managers
had to learn how to decipher everyone's
credentials.
Once
a résumé is approved, candidates
receive an e-mail link for taking a couple
of tests. Then comes the hard part. There
are two rounds of interviews: the first
takes place with Synygy employees in the
country where the applicant lives; the
second is done through a videoconference
in which our American managers participate.
Everybody speaks English in the interviews,
but the accents can be very difficult
to understand. For instance, in India,
all of the candidates are English-educated,
but their accents vary wildly, depending
on which part of the country they're from.
We always have a local human resources
person sitting in the room to clarify
any miscommunication.
We've
been able to handle problems like this
by seeding our offshore offices with experienced
Synygy people who can bring the company's
proven processes and procedures to the
offshore operation. We knew going into
this that this was going to be the key
to doing it right.
As
told to Melinda Ligos
Looking Over Shoulders,
a Continent Away
Ken
Scharen is chief executive of One
Remote Systems, a software company in
Delray Beach, Fla.
We're
a very small company that outsources work
to computer programmers and artists in
remote offices throughout the world. We
have people in Germany, Colombia, Hong
Kong and India. It's been totally worth
it for us, because I can hire an artist
in Colombia for $10 an hour; that job
might be $100 or more if the person lived
in New York City.
The
major problem with having workers in far-flung
locations is that when you're paying people
by the hour, you really need to know that
they're working, not surfing the Internet.
Funny
enough, one of the things that our company
does is set up remote offices for companies
that allow executives to manage visual
content over the Internet. At any time,
a manager can log on and view, in miniature,
the screens of all of his employees. You
know what they're working on and when
they're not at their desks.
I
use this with all my employees. At first,
I think, people thought the technology
was a little bit disconcerting. But then
they got used to it, and it's helped bring
us all closer together.
When
you're all in one office in the same country,
communication flows much more naturally.
You can easily tap someone on the shoulder
and ask him a question. But when you're
all over the place, you tend not to want
to bother people with minor questions.
Using this technology, if I see that Wolfgang
in Germany is working on a specific project,
I might be able to interrupt and give
some quick input. He appreciates the feedback,
and I appreciate that he's doing what
he's supposed to do. I can get a good
sense of what everybody's working on and
whether people are going to finish projects
on time.
As
told to Melinda Ligos
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