Firms take outsourcing beyond borders to gain an edge at home, JEFF HALE writes When it comes to outsourcing services, small business can dish it out as well as it can take it.
That’s because small businesses can benefit from the flexibility available in outsourcing, from something as simple as buying accounting software to striking production deals with a foreign manufacturer. Either way, Canadian small business is embracing outsourcing.
“Outsourcing is the nature of small business,” says Ted Mallett, the vice-president of research and the chief economist for the Canadian Federation of Independent Business. “In virtually everything a small firm does, it’s a pretty regular situation.”
A small business will typically outsource in a manner reminiscent of networking, Mr. Mallett says, seeking expertise in legal, accounting and marketing fields so that the proprietor can devote his or her time to the business.
But outsourcing can involve much more elaborate arrangements.
The Portables, a maker of trade-show displays and exhibits based in Richmond, B.C., figures it has about $2-million worth of its business outsourced to two manufacturing plants in the southern Chinese city of Shenzhen. The plants manufacture display stands and banners for The Portables, which employs 90 people in Canada.
The company started its offshore outsourcing in 2001. In 2004, it had sales of $11.5-million. Last year, sales reached $14-million. Hanif Muljinai, president of The Portables, says offshore outsourcing was never the plan for his company.
“But we find with some of the newer products, it’s a lot easier to get some of the products manufactured in China. It’s a lot quicker and less expensive,” he says. “Some of the quality of the work they do is very scary, it’s so good.”
For work on a banner stand that included many injection-moulded pieces, Mr. Muljinai was given an estimate in Canada of $50,000 for a prototype. To build a prototype and the moulds, the price rose to $100,000. But Mr. Muljinai found a company in China that could do the same work for about $40,000.
Mr. Muljinai started with The Portables in 1991 as a controller. He bought the company in 2000 and when he started to outsource work, he did so cautiously. Initially, he bought components from his Chinese connection, then entrusted that company with designing the product until he felt confident enough that it could manufacture the product on its own.
“They are very, very entrepreneurial over there,” Mr. Muljinai said. “You go to them and say, ‘I need this.’ They say, ‘No problem. I’ll get it done for you.’ He’s got a prototype done instantly. [They are] very, very aggressive.”
That enthusiasm often means Chinese companies reach beyond their grasp. In those instances, patience is vital, Mr. Muljinai says.
“They always say yes, whether they can do it or not. Sometimes they’ll say, ‘Yes, we can do it in six weeks.’ And it really takes 12 weeks. You have to anticipate it’s going to take longer,” he says.
“You have to keep testing them in small increments and making sure that they can actually deliver on it. That’s why you start small and progressively give them more until you feel they have exceeded their ability to handle it. And then you pull back.
“But they’re pretty good when it comes to costing. [The estimate] wouldn’t be far off.”
As well as outsourcing its own needs, The Portables also provides outsourcing for other companies, setting up and dismantling displays at trade shows on behalf of larger companies, a business worth $2-million, Mr. Muljinai says.
“They’d much rather hire a company to go do [installation] for them and they just show up on the day of the show and do what they’re supposed to do, which is sell,” he says.
Selling is what AbeBooks of Victoria does, handling sales of about 25,000 books a day around the world. The online book site serves as the conduit for 13,500 booksellers in 57 countries, 8,000 of them in North America.
Founded in 1995, AbeBooks (the name derives from the acronym for advanced book exchange) outsources its business through brick-and-mortar bookstores and people selling from home.The company developed its own software, HomeBase, which sellers download to list their inventory. About 200,000 new books appear on the site each day.
Sellers pay a subscription fee to advertise their wares with AbeBooks, with rates beginning at $25 (U.S.) a month for a listing of up to 500 titles. AbeBooks gets 8 per cent of the price for each book sold (prices are listed in U.S. currency for ease of international transactions). Last year, the value of books sold on the site was $170-million (U.S.).
As successful as AbeBooks is at selling books, when it comes to selling itself, it enlists two Web firms, Channel Advisor of Morrisville, N.C., and Commission Junction of Santa Barbara, Calif., specialists in so-called affiliate marketing.
For example, if you have a blog that reviews books, you can affiliate with AbeBooks and provide a link to its site for prospective buyers of the books you review. Affiliates receive a commission for directing traffic to a sale. Channel Advisor and Commission Junction provide AbeBooks with a pool of affiliates from which to choose.
“They work with other sources as well as us, to find people who want to help push our product,” said Scott Laming, a spokesman for AbeBooks. “Some people do it [affiliations] as a business; some people do it as a hobby.”
Either way, it saves work for AbeBooks, which employs 90 people in Canada.
For Mr. Muljinai, outsourcing helps a small business grow. Too often, he says, small business is afraid to outsource because it focuses on the short-term cost rather than on the long-term benefit. “There is so much expertise out there that is available at a very reasonable price,” Mr. Muljinai says. “We don’t take advantage of it.”
Source : www.offshoringtimes.com
