Oliver McDermott, managing director of Blender Design.
Oliver McDermott, managing director of Blender Design.
Fast turnaround times, proximity to export markets, access to innovative manufacturing capabilities, resourcing projects in busy times - there are a big range of reasons small business owners cite for outsourcing offshore.
One thing's for sure, it's definitely not all about cutting costs; in fact a number of the small business owners I've interviewed this week about their experiences of outsourcing offshore say focusing solely on getting the cheapest deal can cost you more in the long run.
Oliver McDermott is managing director of Auckland-based product design and development consultancy Blender Design, which gets some prototyping and small production runs of products its working on with clients done offshore, primarily in China.
"I have to be very clear upfront that we 100 per cent support New Zealand manufacturers - because that's who a lot of our clients are - but we leverage overseas suppliers to our mutual benefit for a number of different reasons," McDermott says.
"It's almost never about price," he says. Instead fast turnaround times, and accessing a full turnkey service and specific manufacturing capabilities are the primary drivers for the company getting such work done offshore, he says.
"Don't focus on getting something cheap because that's the result you'll get," he advises. "Instead, put an emphasis on quality and teach your suppliers what you value in that regard and they'll learn what's most important to you."
McDermott says he's also learnt over the years the fundamental importance of providing clear instructions and specifications in writing or drawings.
Aaron Muir is a director of Auckland-based firm Argus Tracking, which has had its mobile asset management hardware manufactured in multiple countries.
Argus now gets its hardware manufactured by a partner in Taiwan after shifting from a China-based manufacturer.
"We approached our current manufacturer differently than we did our earlier suppliers," explains Muir. "Rather than talking about price up front our initial focus was on what we needed to meet our customers' needs. We discussed quality control, quality components, robust relationships and processes with the component suppliers, the strength and knowledge of their R&D and support teams and their turnaround times. Only once we were satisfied with these did we begin to negotiate the price."
Don't focus on getting something cheap because that's the result you'll get.
And striking the deal is just the first step in a long journey, say the business owners interviewed this week. Like any relationship it requires constant attention and good communication to keep it healthy - which comes at a cost when the other partner is offshore.
Every six months Argus and its Taiwanese partner will meet face to face; that allows Argus' manufacturers to come to New Zealand and see firsthand the conditions the Kiwi company is operating in, and also allows Argus to see firsthand what's happening at the Taiwanese production facility to discuss product development and innovation opportunities, says Muir.
John Cochrane is a trade commissioner with New Zealand Trade and Enterprise based in Guangzhou, China. He emphasises that in the Chinese market nothing is ever static; for example, partners in China are repeatedly flooded with new and enticing opportunities.
"Neglecting the garden, so to speak - that is neglecting the health of your relationship with the Chinese partner - implicitly signals to them that you don't value your relationship and are not worried if you're displaced by another business opportunity. One, in fact, that may be directly competitive with yours," says Cochrane.
Adrian Falvey is managing director of Wellington-based mobile and web app developer Touchtech, which has outsourced work on several occasions to help resource projects at busy times or to plug capability gaps.
Falvey says Touchtech generally plumps for outsourcing locally where it can, but in a small local market like New Zealand looking offshore can sometimes be a necessity to meet specific project needs urgently.
The company has found people either through personal connections or the free international job marketplace indeed.com, often contracting someone for a small project initially to test the waters.
"So, for example, late last year we got in touch with a developer in Argentina and worked remotely on several small projects with her. We enjoyed working with her and were delighted to hear that she was interested in moving to New Zealand. Now she's on her way over here to Wellington to work with us on a fulltime basis in our office," explains Falvey.
"I think that's a great example of how outsourcing can provide benefits beyond just a lower hourly rate."
Oliver McDermott, Blender Design
Oliver McDermott is the managing director of Blender Design, an Auckland-based product design and development consultancy.
Can you tell me about some of the work your business outsources offshore?
We're a product design consultancy and we work with a lot of manufacturers, so what we generally outsource offshore is prototyping and small production runs of products that we're working on with clients. I have to be very clear upfront that we 100 per cent support New Zealand manufacturers - because that's who a lot of our clients are - but we leverage overseas suppliers to our mutual benefit for a number of different reasons.
What are the factors that lead you to get this work done offshore?
It's almost never about price. You might find this difficult to believe but a fast turnaround is one of the main reasons. And that's not just about the speed of getting prototypes delivered, but the speed of the whole process - from getting it quoted, to negotiating the process and getting it delivered.
Secondly we can get a full turnkey service; you can get a whole product - which is made from a variety of different materials and processes - all done in the one place, whereas here you'd be project managing it all over the place to get it done. And thirdly it's about the capability we can access. There are things we get done in China, which is where we mainly outsource to, that you just can't do here - at least not feasibly.
How have you found your outsourcing partners and how have you assessed they're right for the job?
The first port of call is recommendations. It's always good to have a solid recommendation from someone within your networks who's used that business before. Obviously you can also scout out a variety of options online, but I'd say never just pick one option and go with them; find a few options and start early on your search. You do have to take time to select the right company because it's like doing business anywhere - there are good companies to work with and then there are bad ones.
Then when you find people who you think you can work with it takes time to find out more about them. And if it's a really significant project, you definitely want to meet them and see for yourself their facilities. If they don't speak good English it's also going to make things really difficult, so you need to find someone with good communication skills. It's the most important thing.
What are some of the challenges you've encountered during your experiences outsourcing offshore?
When I think about the challenges that we've faced it's always come down to communication. We've learnt to work only with companies and individuals who can communicate well and that we can trust. What we've also learned with any of these challenges we've faced is they've always been solved by spending more time writing very clear instructions and providing good specifications - especially really good drawings that make things very, very clear. You have to have it all written down, because then you've always got something to go back to.
The cultural differences always seem to be an issue when dealing with China, too - although I think that's getting better as the new generation of Chinese business people are coming through. It's just experience now that helps us identify when things like this are an issue - like when people are saying 'yes' to save face when the answer is really 'no'.
What advice would you have for other business owners looking to outsource offshore?
Be prepared and available to work at odd hours because of the time difference. You can't just wait until the next day to respond to requests because it all adds up and projects can easily become delayed.
Be very, very clear with your instructions. Have them in writing, or even better in a drawing and get a signed quote so you've always got something to go back to.
Get to know the people you're working with, build trust with them and make an effort to understand their culture because they do the same for you.
And probably most importantly, don't focus on price; don't focus on getting something cheap because that's the result you'll get. Instead, put an emphasis on quality and teach your suppliers what you value in that regard and they'll learn what's most important to you.
Coming up in Your Business: What's happening in the franchising market and what tips do some small business franchisees have for success? If you've got a story to tell as a small business franchisee, drop me a note: nzhsmallbusiness@gmail.com
