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Offshore Outsourcing - Better Read the Fine Print

Written by: Steve Chittenden

Article Overview: Offshore outsourcing is not always the bargain it appears to be. There are hidden costs and dangers that could turn your cost saving into a devastating nightmare. Consider all the variables before you leap across the ocean.

Offshore Outsourcing - Better Read the Fine Print

We 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.

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