Software Is Outsourcing the Answer for My Small Business?

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Is Outsourcing the Answer for My Small Business?
Q: I run a small table-top design business. In the last two years, the market has changed and my prices seem to be on the higher side. I have no experience producing goods in . How should I go about i

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Q: I run a small table-top design business. In the last two years, the market has changed and my prices seem to be on the higher side. I have no experience producing goods in . How should I go about it?

--Thomas

A: Even though many small business owners want to provide jobs for American workers, they're finding that higher costs here may eventually drive them out of business. That's because they can't compete against rivals who charge significantly lower prices for similar products.

Labor costs are much lower in than they are in the According to the Bureau of Labor Statistics, the average manufacturing wage in the in August was $16.16 an hour. In , skilled workers are paid between 40 cents and 60 cents an hour, says Anand Sharma, CEO of TBM Consulting Group in Durham, N.C. , which advises businesses on outsourcing operations overseas. In more developed regions of that country, workers can get as much 80 cents an hour, Sharma says.

For years, American corporations have had operations in , but in the last few years more small- and medium-sized manufacturers have been outsourcing their production there. "A number of things makes it easier for smaller businesses," says John Asher, chairman of US China Business Solutions in Washington, D.C., which helps smaller manufacturers find Chinese suppliers. "Access is easier. There are more flights to . There are more people in who speak English. They're a lot friendlier than they used to be. And there are people like myself." The bottom line? "Either you go there or you won't be in business," Asher says. "It's very simple. Whatever you make will be made in either by you or your competition. If you let your competition do it first, you're in trouble."

But before you decide to take your operations overseas, consider all that involves. Setting up operations in takes time, energy, and of course money. Doing business in Asia is completely different from doing business in the You just can't call several factories, get quotes, and send them your purchase orders. You'll have to find reputable, reliable suppliers. Property rights don't have as much protection in . So if you don't deal with a trustworthy supplier, you may find that he will copy your designs and sell competing products. Even if you save on labor costs, Sharma warns that you will pay more for shipping, overseas offices, travel, and the like. You may need to keep a larger inventory on hand, for example, in case of disruptions or delays in shipments. It takes weeks to transport goods from to the on a cargo ship. If there's a dock strike, you'll be in trouble, unless you've made sure you have goods in a warehouse in the So calculate the total cost of doing business in . "If you can't save 30% to 40% of your costs here," Sharma says, "it's not worth it." ,

If you still want to explore setting up operations in ,the best way is to hire an intermediary who has experience working with American or European companies. You can work with a consulting company that already has contacts in , or you can get in touch with the United States of America-China Chamber of Commerce (www.usccc.org) or the American Chamber of Commerce in Hong Kong (www.amcham.org.hk/home.html.)

An intermediary with contacts in can help you find the right supplier, arrange for factory inspections, set up shipping routes, and help out with other administrative functions. "They will take care of all the headaches," Sharma says. Usually, he adds, the intermediary receives a percentage of the cost of your order, ranging from 10% to as much as 25%.

Paul Adelberg, an executive at Hayward Pool Products, a division of Hayward Industries in Elizabeth, N.J., advises Americans thinking about doing business in to make sure that they find a reliable supplier. Hayward Pool Products started making some of its items in more than 10 years ago, but stepped up production in the last four years. "The most critical aspect is picking and choosing the appropriate factories to deal with in ," Adelberg says. "Choose someone you have confidence and faith in. It is critical that you trust each other. Folks in will go out of their way to assist you. It's more than just paper and sending them a purchase order. It means pressing the flesh."