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How Outsourcing Is a Powerful Tool in Product Development
With a lack of talented design and engineering resources readily available and a greater emphasis on achieving business efficiencies, many companies are turning to an outsourcing strategy. This promises to minimize expensive and long-term corporate obligations while maximizing flexibility, resulting in the delivery of leading-edge products at a reasonable cost. That said, the decision to outsource a business function isn’t taken lightly. While the potential to reduce expenses is attractive, there are reasonable hesitations, especially when it comes to highly technical product design and development. Let’s review the inputs to this decision to outsource.
Concerns with Off-Shore Outsourcing
When most people think of outsourcing, they equate that to large multinational firms located in India and China. Alongside language barriers, there are large time zone differences.
Quality and progress
You can’t always be guaranteed the firm you select will have the same work standards as yourself. And with the physical distance, you may not have the luxury of quality checking every stage of product development as you could locally. It’s difficult to see the actual progress and get timely insight into when the project is going off the track.
By far the largest concern for high tech firms is the control and protection of your concepts. How can you be sure to retain your competitive advantage when you share your engineering secrets with a company abroad?
It should be noted that a lot has changed over the years. Many offshore companies employ an English-speaking Project Manager to aid with communication. Other companies are open to partnering with North American and European companies (primarily in manufacturing) to allow existing local contract manufacturers to offer a lower cost solution in volume production. Off-shore outsourcing no longer has the negative connotations it once did and represents a sensible option for many high-tech firms.
The True Cost of Off-Shore Outsourcing
The cost saving associated with outsourcing product development is compelling to many high-tech businesses. Rather than having the fixed overhead of employing full-time, long-term staff, you receive the staffing, design, engineering, and product development resources as and when you need them. What’s more, labor rates are typically lower.
However, to truly quantify the savings gained from outsourcing overseas, firms need to consider the following:
- As economies like India and China grow, the costs of outsourcing will go up.
- You must develop a quantifiable cost of working with a development or design team in another time zone. A simple rate per hour is unrealistic. You need to calculate all of the tangible and intangible costs associated. There is higher oversight required than when projects are managed in-house. You can spend days going back and forth on updates and changes, due to time zone and language barriers. There’s often higher churn at offshore employers, meaning your point of contact will likely change during the project and you’ll have to bring a new team up to speed.
- Other expenses include:
- additional servers for security reasons
- social networking-based communications tools
- overtime to support late night calls and working sessions
- the social impact of requirement to work typical “off hours” can cause new stress with your current onshore team
It’s only when you take all of these factors into consideration that arrive at a more realistic hourly rate.
The Benefits of Outsourcing
Despite the potential challenges, outsourcing remains a viable, and indeed highly productive, model for many high-tech firms.
Economies of scale
When it comes to manufacturing for example, few high-tech companies have the resources to invest in manufacturing in-house. Better to leave this to a company whose whole business is focused on high quality, efficient manufacturing practices, and can carry the cost because they fulfil manufacturing needs for many technology customers.
When you outsource a business function you maintain a lean, streamlined business with reduced long-term costs and optimal focus. You invest your energy on the core of your business – your vision and your key differentiators – while delegating other time-intensive elements.
The most convincing argument for outsourcing of highly technical product design is access to a wider talent pool. You may have the vision for your product but not the full compliment of technical expertise. Partnering with engineering experts brings a fresh perspective, innovative problem solving, and collaborative consultation. Ultimately you could benefit from an even higher quality product than you originally imagined.
This model has come into its own over the last 20 years, especially for companies unfamiliar with outsourcing. A high quality, on-demand, local resource or team provides value and reduces many of the risks associated with off-shore outsourcing, and many of the risks associated with executing a project entirely in-house. It’s an excellent middle ground for growing organizations; you meet your design needs without the commitment to full-time long-term employment or having to hire to meet localized peaks in demand. Also, near-shore outsourcing provides access to subject matter experts and specialized skills that may be needed from time to time on projects but would be underutilized if employed on a full-time basis. While the rate per hour may superficially appear higher at first glance, you gain a higher calibre of staff, as well as proximity and ease of communication, which operate as a seamless extension to your internal teams.
Many companies combine the off-shore and near-shore models to meet corporate and shareholder objectives of reasonable staffing, risk reduction, IP protection, and controlled costs. Extremely complex and IP-sensitive design work is done through company-based employment and near-shore outsourcing. Manufacturing is sent offshore as product volume grows to take advantage of lower costs.
A Multi-Functional Partnership
Since product development is such a complex function, the ideal outsourcing partner is one who can offer expertise and support for every step of the process. You want a partner who can offer:
- select staffing to add capacity to your development team
- access to subject matter expertise and scarce resources
- broad multidisciplinary design capabilities
- relevant and proven experience
- state-of-the-art, leading-edge development tools
- proven program management
- complete turnkey product development
- rapid prototyping and strategic manufacturing
- integration with leading ecosystem partners
That’s why at Fidus we’ve focused on building a multi-faceted solution that excels in every criteria for a complete and world-class outsourcing model. We offer a range of engagement models and the technical expertise to take your product development to an unprecedented level.
Contact us to learn how Fidus’ near sourcing strategy may be the differentiator you need to transform your product development.