This week we're talking about outsourcing.
Outsourcing of development, contracting and support have become an attractive alternative for many companies. The promise of lower costs is an attractive lure. However, there are substantial risks involved as well.
Before you turn to outsourcing as a solution, you should do a risk analysis. Below are some typical risks associated with moving resources outside of your company.
Since I originally wrote this article the Covid-19 pandemic shut down most of the world. This shows the fragile nature of global outsourcing, especially in supply chains! A major disease outbreak hits every few years. Don't risk your company betting that it will not affect you.
Many companies think about two or three items, but fail to include the rest (or think they have). For example, "increased shipping costs" doesn't just mean the difference between domestic and international shipping rates, it also means how do you solve a product shortage that requires 24-hour resolution? Priority air shipping from coast to coast is expensive enough; compute the cost of shipping days or even weeks' worth of product overseas on a priority basis. Many manufacturing companies have moved parts and assembly overseas, where the usual shipping method is via shipboard containers. However, a year's worth of savings can be wiped out with a single instance of priority air shipment of replacement or spare parts. Your company should determine whether the product you wish to ship oversees is a vital component and/or something that would entertain prohibitive costs to air-ship in an emergency. Note the Pandemic example above, too! You may not have access to your supply chain for weeks or even months.
Language and cultural differences can also make or break your outsourcing venture. Often small or subtle differences that are easy to interpret in face-to-face meetings are lost in remote conferencing, even when video is involved. Another consideration is work schedules. Does the country you want to outsource to have a long holiday during your busiest time of year? Does "ASAP" mean "next month" in that country? Some countries have legal restrictions on the amount of hours and/or days a business can stay open. Others require certain business "transactions" that, while normal in that country, constitute bribes or other illegal acts in this country. Always remember: companies do not go to jail, people do. Before you sign off on any venture, make sure that all of your processes not only comply with customs and laws local to that area, but also do not break laws in this country. Similarly, do your homework and make sure that your requests to not violate the remote site laws or cultural norms. Import and export laws change constantly, especially regarding technology. A thorough review with your offshore partner is essential in ensuring that all regulations are met, including exporting technology to the country in question and importing the products into this country.
For example, one project that I worked on faced some of these issues with an offshore location. Even though the principal language was not an issue, the local dialects on both ends caused delays. Our requests for greater attention to detail so we could reduce bugs was interpreted on their end as a need to triple the workforce. We ended up getting more bugs, and more often, until we corrected the perception to mean we wanted more testing before code was committed.
One of the biggest yet often overlooked risk is business espionage. Are you considering sending corporate secrets overseas? What about vital technology or processes? Some countries have a dismal record when it comes to respecting the copyright, trademark and patent laws of this country. It does no good to save a few dollars in assembly or software development only to see an overseas rival crop up with copies of your product. Microsoft estimates that it loses as much in piracy overseas as it makes in the domestic market. Can you afford to lose that much in sales, let alone technological secrets? Even if there is no direct theft of technology you can be burned by the fact that many contracting firms routinely rotate personnel from one job to another, including your business rivals. People do not just "unlearn" processes or software design when they move from one job to the next. You could see that your patented machine learning algorithm shows up in a competing product, where at best you would have to win a legal battle to stop your rival from using it. At worst the processes are so hidden that you do not realize you have lost vital corporate secrets.
Finally, another risk you must contemplate is the fact that you are training potential rivals how to build your product or process your workflows. In the interest of building market share, American car makers happily accepted the Japanese offer to run some production plants in Japan. The Japanese watched and learned, then went and thought of better ways to build cars. The rest, as they say, is history.
Be sure to check out my related article on Information Security!
There are many areas where outsourcing development and production can save your company money. But unless your product is mainly image or brand centric, do a thorough analysis of the risks involved. You may discover that the money saved is better spent inside your own company. Consider it insurance that protects the long-term viability of your company...and your job.
Until next time, thanks for Talking Technology with me!
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