Outsourcing to Foreign Countries

Improve your profit margin with cheaper labor overseas
By Greg Brown Outsourcing has become a kind of four-letter word in political circles, but for Corporate America it's just the way the new global game is played. If you want to scale up your production or drive down development costs, finding or building foreign labor capacity can make a difference in your plans.

Although the first jobs to go were telephone-driven service tasks and computing, much of the next wave will be seriously industrial. Here's how to go about finding your own vantage point on this trend.

Start with the country that began it all

Far and away, India is the largest source of U.S. outsource labor, much of it technolgy and what is known as business processes, like accounting and back office tasks, including human resources.
Try:  India's outsourcing trade group is the National Assocation of Software and Service Companies. The best know Indian outsourcing operations are Tata Consultancy Services, Wipro Technologies and Infosys.

Get to know the next biggest source: China

China is predicted to swamp India in the coming years when it comes to providing inexpensive and willing hands. Things are still rocky, what with time difference and language problems, but major U.S. corporates are getting in, which should pave the way for smaller U.S. companies to follow.
Try:  OffshoreExperts.com maintains an exhaustive registry of Chinese firms looking for foreign contracts.

Bring in a specialist to advise you

Often, the best way to find your feet in a new kind of business is by relying on those who have gone before. Consultants in outsourcing usually take on actually procuring services, contracts and legal matters.
Try:  Thomas Register maintains a database of manufacturing consultants, called ThomasNet. Among the big guns in this area are Everest Group, Genpact, Accenture, and IBM Services. For more, see Business Week's annotated list of Gartner's top requested outsourcers.

Nearshoring is offshoring without the time lag

Increasingly, Latin American countries are seeking to replicate the "Irish miracle" by turning educated workforces into productive outsourcing pools. Same time zone as USA, and many U.S. companies have Spanish-speaking staff to manage contracts.
Try:  Mexico is keen on software and call centers. Argentina the same, but also big into Web design and graphic art. Colombia's huge printing industry and advanced telecom sector has made it a good spot for print production. Several Central American countries are vying for a space in this market, as is the Dominican Republic. Even India's Tata has moved into Uruguay.

Consider your industry in context

Outsourcing a call center is quite different from setting up a circuit board factory. Some of the best brains in the business will share what they know -- if you can stand a bit of salesmanship couched in academic terms.
Try:  See dozens of free whitepapers on the topic of outsourcing abroad at Silicon.com.

Is offshoring bad for the United States?

It's a reasonable question, and one you might seriously ask before plunging in, since the political impact of your company's choices could be felt in the form of boycotts, brand damage, even legislation.
Try:  The Massachussetts Institute of Technology recently issued a 62-page (PDF file) report that found, in short, that it's not "bad" -- yet. Job losses could potentially grow, but then free trade -- which means access to foreign markets for U.S. made goods -- could offset lower level, and lower-paying, jobs going overseas, a position even tech unions support.

• Experts note that doing the work is rarely the problem, but that managing the work is nigh impossible. Consider hiring local management and train them yourself at the home plant.
• Do not underestimate the initial costs of setting up an outsourced labor force overseas. Better to buy capacity from a domestic partner with excess labor, at least at first. They'll eat part of your margin but the risk is lower.
• Always price and re-price your margins, even several times a quarter. What seemed like a good deal (40% cheaper!) could end up costing you in lagging quality or service gaps.
• Bear in mind that working abroad does not absolve your company from meeting U.S. labor regulations and, of course, domestic work rules. Nothing will hurt your company more than finding out later that sweatshop conditions helped keep prices down.