You are considering outsourcing to reduce costs or for
other reasons.
Many activities can be outsourced. We have:
Outsourcing of manufacturing.
Outsourcing of assembly.
Outsourcing of research and development
Outsourcing of call center operations.
Outsourcing of white collar work (Analyzing ofX-rays)
On the negative side, you may be concerned about the public opinion against
exporting jobs. That concern is outside the scope of this advice. However, most
economists agree that outsourcing is good for the economy in the long run. It
will boost the economy of the country you outsource to, and that country will
import more, including from your country, and thus increase everybody’s
economy. Free trade – contrary to
protectionism – benefits everybody.
Let’s put together a CHECKLIST of what you should consider when outsourcing.
In
most cases, the prime reason for outsourcing is to obtain goods or services
at a lower cost. You want to look at the comparative wages in the area you
want to outsource to. But that is not all. You should look at total labor
cost, i.e. include wage overheads, fees, taxes, etc.
Select
countries or areas to be considered as targets for your outsourcing.
You
need to estimate the availability of qualified workers, and the quality of
the foreign work force, their skills, education, etc.
You
should also look at the labor union situation, minimum wages, pension
system, health programs, legal work week, holidays, etc.
The
costs of bringing the products and/or services to market, such as
transportation cost, packaging costs, export duties (in the producing
country), import duties (in the consuming country), and other government
restrictions, applicable to the final product as well as to its components,
should be taken into consideration.
Can
you expect economic and political support from the foreign government, such
as investment, rebates, tax, fee and duty benefits? How long will they last?
Language
and other communication problems should be considered, as well as cultural
differences.
Can
you just buy the goods and/or services from a foreign vendor, or do you need
to put your own people in the foreign country, establish a joint venture, or
even establish your own company (legal entity) overseas?
How
do you protect your intellectual properties, such as patents, trade marks,
skills, trade secrets, etc.
Availability
of capital for foreign investments, and rules regarding repatriation of
interest, profits and capital should be studied.
What
does the future look like in terms of political and economic stability of
the foreign country, inflation, foreign exchange rates, labor costs, etc.
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