Outsourcing is not just for large firms

CONSUMERS are used to reading “made in China” on everything under the sun. After all, with every business in need of cutting costs, outsourcing looks ever more appealing. But, contrary to what you might think, this does not just apply to large corporates. The cost savings for small businesses can also be huge, allowing entrepreneurs to undercut their rivals’ prices and revolutionising the marketplace. But can those entrepreneurs who have invented a niche product benefit from the advantages of outsourcing without putting their idea at risk of theft?

Mark Shehan, the owner and inventor of Squeezeopen packaging, a new London-based packaging firm, says it can be done. He took his recent invention to China for manufacture, reducing initial production costs from £200,000 to £80,000. He says the cost of tools and labour in the UK led him to consider outsourcing. “The comparative cost of flying out to China, hiring a car and a translator is nothing compared to the savings you can make.” And these low costs are essential in his industry: “Packaging has to be cheap to be successful,” he says.

Shehan is aware that his design is at risk of being stolen given China’s spotty record on intellectual property. But with due diligence and by using trusted providers, he thinks it is worth the gamble. He takes precautions by ensuring that all the design work is completed in the UK. Another worthwhile precaution that entrepreneurial inventors can take is to divide the manufacture of the parts between factories. “Just don’t tell each factory where the other one is!” says Shehan.

But this might not work for everyone. Tanya Ewing, owner and inventor of Ewgeco, a manufacturer of devices that measure energy consumption, says outsourcing does not make sense for small-scale firms. She says: “Once you have factored in the opportunity cost, it is just not worth it for small businesses. Instead of spending their time managing foreign outsourcing, they should focus on their customer base. When there’s a problem I can sort it out straight away by driving to the factory – it’s an hour down the road!”

So as with every business decision, outsourcing is a matter of costs versus benefits. If the service you need is not overly specialised and can be bought on the cheap without requiring supervision, sending production thousands of miles overseas could bring huge savings. This will not make sense for everyone but small business owners should not assume that outsourcing is only for large conglomerates. It does no harm to consider all the options.