Reasons for Unsuccessful Offshoring

During 2007, the failure of outsourcing arrangements, particularly in China, became headline news.  Primarily for quality failure reasons, a number of US and European companies including Sony and Bausch & Lomb had to recall goods that they had made in China.  According to an article appearing in the July 27, 2007 edition of Fortune Small Business, The True Cost of Outsourcing to China, many US companies are now rethinking the advantages of outsourcing to China in light of these recent product recalls and bans.  The following story from that article is illustrative:

When Amber McCrocklin launched Paws Aboard, she followed a pattern familiar to thousands of small-business owners. McCrocklin, now 35, had created a line of gear for pet owners who like to take their dogs on their boats. She started by handcrafting boat ladders, life jackets, and waterproof leashes with the help of a local engineer.

When the orders began pouring in, McCrocklin decided to shift operations to China, which could trim costs by half and give her time to design more products to expand Paws Aboard (pawsaboard.com)….

Then the problems started. The clasps on her life jackets were breaking, the shipments were late, and her contact in China was unresponsive. McCrocklin’s patience finally expired when she opened a container of 3,000 leashes-all defective. "The colors were completely reversed, and the logos were all upside down," she says. The factory would not make good on the order, and McCrocklin didn’t want her clients, retailers and online stores, to see the shoddy work. "I’m not sure if I’ll ever be able to sell these," she says.

As a result of this and other examples, outsourcing to China-standard procedure for thousands of entrepreneurs-is being more carefully reconsidered. Companies are now adding to their Chinese production costs a "recall allowance".  In some cases, the total cost is more than the cost of retaining production in the US.  Another solution referred to in the FSB article is the use of in-country consultants to assist US companies with identifying and selecting outsourcing partners and managing the outsourcing arrangement.  For example, a consultant may locate a foreign manufacturer and ensure quality control by regularly inspecting the production line and overseeing packaging and shipping of the products.  In some cases the consultant will assume liability for defects in the products; however, the indemnity is only as good as the financial resources of the consultant and the ability of the US firm to compel payment and usually carries a high price tag in the form of a commission for the consultant.  As always, great care must be taken in conducting due diligence on these consultants and US companies are counseled to seek recommendations and performance histories from trade associations and other firms involved in the import of similar products.  And, of course, US companies should always be mindful of the following common reasons for unsuccessful offshoring:

  • Failure to adequately qualify providers;
  • Initial aggressive demands made on providers;
  • Outsourcing innovative or unstable activities;
  • Inadequate investment of time and capital;
  • Management problems;
  • Non-overlapping business hours;
  • Staffing problems;
  • Lack of a clear and efficient change process; and
  • Lack of technical tools to manage the relationship.

It should be noted that market conditions are changing and that US companies and their potential foreign outsourcing partners are each taking steps to mitigate some of the risks of an outsourcing relationship and improve the chances of success.  For example, foreign firm are voluntarily improving their security and quality control procedures and increasing English-language training for their workers.  In addition, some outsourcing companies are beginning to open up facilities in Latin America so that they can work in the same time zone as their US-based clients.  For their part, US companies are changing their view of outsourcing arrangements from a cost-driven, customer-supplier model to a true strategic partnership.  This means investing additional resources in communication and managing the relationship including regular meetings and designation of specific managers to work exclusive with outsourcing partners to ensure that all goes well.

3 thoughts on “Reasons for Unsuccessful Offshoring

  1. Nike Zoom

    You can definitely see your enthusiasm in the work you write. The world hopes for more passionate writers like you who aren?ˉt afraid to say how they believe. Always go after your heart.

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  2. knowledge process outsourcing

    There are so many middle-sized to large companies today who are offshoring or outsourcing, but not all of them are successful. There are so many worries about this, especially if you choose a country with full of cultural hindrances. So, you really have to consider those before offshoring. Thanks for this article, now we can really understand that offshoring business is not always successful.

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  3. Sean Carter

    this really helps illustrates all that can be entailed in the international shipping process. It is why finding reliable international shipping companies is so important when dealing globally. I find a fantastic service and have been much less stressed ever since

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