Very few businesses can or will do everything in-house.  When you need certain activities done, but either you cannot provide the resources in-house or you cannot practically or competitively afford to acquire and support them in-house, outsourcing seems plausible.  Recognizing what and why tend to be the easy part.  Who, where, and how to make outsourcing successful is the challenging part, especially when performed within another country.

Differing opinions pertaining to the pros and cons of outsourcing are very broad.  But until one experiences outsourcing across borders, do not believe the hype so fast.  It is recommended that you take time to do the necessary research.  Cultural, economic, legal, and governmental differences, business philosophy, and potential sacrifice of quality for cost are very real.  Unless you factor in those differences AND U.S. Customs into your plan, your expected outcome may prove unachievable or short-lived. 

Justification for outsourcing can be one or more of many.  It may be, for example, to lower the overall operations cost or a segment of it.  Specifically, to escape labor and energy costs; high-insurance premiums; legal expenses; government regulatory compliance costs and penalties of non-compliance; and more.  These can be significantly reduced by outsourcing. 

Deciding whether to relocate operations offshore, nearshore, onshore, or to reinvent your business operations will ultimately require a detailed analysis and collaborative effort by numerous entities. This is time-consuming and pricey.  Verifying that you will obtain their government's approval also adds to this cost. 

Startup costs, product shortages, overproduction, quality control, raw material procurement, change orders, on time and just in time delivery, price control, product knockoff and diverted inventory prevention, product return and product replacement, etc. become much more challenging issues to control with outsourcing.  Finding an organization which has competent management you can trust; has or can acquire a staff with the appropriate skillsets; and is located half-way around the world can be a monumental task in itself.  It is sometimes a monumental task when trying to find a comparable company domestically.  The outcome is not always pretty.  For comparison, take the domestic example then multiply your efforts (for some, the headache) times some large factor. 

Terminology:
While recognizing the distinctions between domestic or onshore outsourcing, offshoring, offshore outsourcing, and nearshoring, for the sake of brevity, outsourcing will encompass all of these terms. This generic usage of outsourcing will exclude management sharing and other comparisons.  It will be primarily used to refer to the 'act' of having outside entities produce or provide goods and services for an organization.  When the term offshoring is used herein, it will incorporate nearshoring unless otherwise noted.

CONCERNS AND CONSIDERATIONS
Nearshoring is a growing solution for many in the U.S., although it shares similar pros and cons of offshoring.  One distinctive advantage may lie in your ability to drive to that country.  Other considerations include potentially less travel time and expenses; the relationship between your home country and theirs; and timezone difference when compared with offshoring.   

Outsourcing production functions to another country is a totally different animal from outsourcing information-related business functions.  Comparatively speaking, production outsourcing comprises many complex obstacles.  Offshore production also has a HUGE barrier to overcome -- sight-unseen price creep and U.S. CUSTOMS!!!

Since management is obligated to optimize the organization's bottom line, it becomes their responsibility to make outsourcing a viable option.  They need to be sure whichever company is chosen can e.g. communicate effectively; meet specifications and provide necessary documentation; maintain adequate raw material inventory; react to changes in a timely manner; ensure on time exports; conform to U.S. Customs and other regulations; and much more.  This is an ongoing challenge domestically so it would be reasonable to predict the challenge to be heightened when outsourcing beyond domestic borders.

Once the projected financials are calculated for offshore production combined with outsourcing customer service and tech support and you obtain buy-in from your Board of Directors, the emotional excitement begins.  Once the outsourcing process is in full swing, will that excitement and projected return on investment (time and money) continue?

Customer Feedback Data Collection:
To measure outsourcing success, on your website you could install either a ticket-tracking helpdesk and/or forum (see our 'Downloads').  Both of these solutions provide a centralized data container that encourages customer feedback.  This feedback becomes crucial to your business' survival. 

Chipping away at profits while negatively-impacting customer satisfaction:
•  Suppose this data reveals a decrease in buyer satisfaction which is mainly a result of linguistic differences when your customers call phone support.  Very well-known large corporations experienced this.  They ultimately resolved that issue and removed that difference.  In a situation like that though, it may not require that offshore phone support be nixed; it could be outsourced elsewhere.  However, the savings initially expected may be revised downward which chips away at projected profits. 

•  If privacy or intellectual property rights are involved, offshore outsourcing may prove prohibitive if either management or your Board or both are not willing to accept the risks.  Management's responsibility is to protect those rights.  Unless you are able to adequately protect those rights despite 1) differing laws of that country you are outsourcing to and 2) the degree of enforceability or lack thereof by your home country, this solution may not be a solution at all.  Knockoff products or diverted finished goods can be the consequence.  You may find yourself competing against your own product! 

If you move forward, you are in essence accepting those risks and potential income loss.  And if at some point you decide to move the operation back to your home country, that unlawful production will undoubtedly continue offshore without your knowledge and/or ability to halt it.  Will you know who else has copies of your mold drawings and other design specs?  Actually, drawings are not necessarily needed to produce knockoffs.  Will their government or yours help you to protect your rights?  What is your recourse; how much will it cost you?  Would you have the time with travel and resources to locate and prosecute the culprits?  Granted, this could occur in your home country, but in the U.S., your recourse may be less problematic although still expensive to resolve.

•  Some call it 'nickel and dime' creep when startup and other costs are unconfirmable and unplanned.  This could stem from product mold retooling due to tolerance changes realized during pre-production or for unforeseen additional product-testing before mass production begins, etc.  You must be prepared to have the necessary staff on-site or implement other checks and balances as needed to control those overages and prevent being taken advantage of because your company is located so far away from the operation.  If the timeframe does not allow for your personnel to travel when situations arise, you would undoubtedly have to take their word for it and pay the bill.  A relationship of trust with the manufacturer is imparative, else chip, chip, chip...

•  For your product, does your offshore producer import at least one(1) raw material from the U.S.?  If so, do they have enough inventory on hand if there are product demand spikes?  When they receive imported raw materials, what if they fail to meet specifications?  In contrast, if the products were produced domestically, whether in-house or domestically outsourced, would replacement of off-spec raw materials be reasonably available such that your customers stand a better chance of on time delivery?  Are any of the raw materials directly tied to e.g. petroleum pricing?  If so, historically, how has that country been affected?  How much of a cost and/or processing impact would your product sustain when their government more aggressively enforces environmental compliance?  How much would all of these variables add to price creep?

•  Overproduction costs and inflated inventory quantities are likely to chip away at your expected return if you have a timid or nervous management and/or Board.  Offshoring tends to have this effect on people.  The major question is, what tools or other resources are at your disposal to better forecast demand and therefore optimize raw materials inventory while incorporating the export/import process and its uncertainties?

•  When exported to the U.S., what would you do if your products sustained shipping damage or were returned by consumers because they did not perform as expected?  Suppose the alleged defects are discovered after installation by contractors?  How many items per site and how many customer sites?  How much labor, travel, replacement, shipping, and installation costs will your company incur?  Would those customers have to wait another 8-12 weeks to receive replacement product?  What is the cost of a lost customer?  When the product was domestically produced, did you stand a better chance of replacement within a more acceptable timeframe and lower overall cost?

•  Unless there is sufficient inventory here in the States to meet ALL orders in a timely manner, especially when order volume unexpectedly increases or is unaccounted for in production forecasts, undoubtedly, deliveries will be very LATE!  This is a huge downside.  Consumers do not like to be told they have to wait a long time for a product when another company has a similar product on hand or can produce it in the U.S. and deliver within days.

•  Suppose your product arrives on time at U.S. Customs but Homeland Security has again tightened up border security.  Not only did this perpetuate increased cargo inspection delays, they are now rejecting your cargo and/or imposing a higher duty on those goods!  Not only is your 8-12 weeks no longer achievable, your profit margin just took a nose-dive.  Your customers purchasing from your competitors becomes imminent. Because of this, it is likely that offshore production will begin to diminish for some (many) companies and more jobs will return back to the U.S.  

•  Suppose your company had in-house capability, but as a consequence of outsourcing, that facility was closed, the equipment sold, and your skilled and experienced workers along with those professionals who knew your products best moved on to other opportunities.  This would severely limit your ability to reverse your offshore outsourcing decision.  Do you have a 'Plan B?'  Is domestic outsourcing a potentially-viable option to revisit?  What about costs associated with moving your operation back onshore - can you make it worth it?  One advantage is that the onshore producer would be managing government compliance and its associated issues along with other business functions although incorporating these expenses into your product's cost.  In essence, you would be engineering out Customs and more while hopefully, achieving a substantial increase in customer satisfaction and realizing an acceptable profit margin.

BOTTOM LINE
Granted, many aspects of the aforementioned outsourcing scenarios have forced some businesses to shut their doors or become devoured by their competitors, but it could and does occur with domestic outsourcing as well.  The difference is distance, communication, and your ability to better oversee and manage your investment.  

Barring those and/or other major roadblocks and having found solutions to circumvent those potential problems, offshoring or nearshoring may become the most viable option to seriously consider since there are many success stories.

Before deciding, take a step back and re-evaluate domestic production. It may become more practical, controllable, and profitable when assessing overall time including travel, cost, quality, customer satisfaction, and involvement of two governments.  If domestically, you have better raw material procurement ability; better turnaround time when unusable or returned product requires replacing; U.S. Customs is a non-factor; plus you can avoid the cost and effort of reversing your offshore outsourcing decision and high cost, then rework your decision analysis to include how to become more efficient.  At the beginning, it almost always looks too good on paper.  Hindsight is and will always be 20/20.

If you would rather manufacture domestically and become a stronger competitor, start with this plan overview:  •  integrate into your infrastructure the Internet and technological automation; •  engineer out inefficiencies; •  re-evaluate all specifications; •  manage and optimize your maintenance, inventory, and delivery costs; •  lower energy consumption e.g. relocate your operations to an energy-efficient facility and replace equipment energy hogs; •  minimize waste; •  reduce environmental, health and safety costs and more with innovation, then continue to INNOVATE, INNOVATE, INNOVATE!  

A NOTE TO EMPLOYEES EVERYWHERE
Everyday, jobs are becoming more high-tech; so if you want a job where you are not one of the working-poor OR find yourself in those positions being phased out, then you will need to get the appropriate education and marketable skill sets via some type of formal training.  More opportunities will then become available to you.  You might also consider becoming an entrepreneur.  Then you, as a business owner, will have a greater appreciation for outsourcing.

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