While some still view China with a degree of trepidation when it comes to outsourcing, industry veterans have drawn attention to the astounding rate of growth and development that is currently taking place in the Far East. Companies, however, must be prepared to establish their own business abroad, as subcontracting could turn a potential money saver into a PR disaster. James Walker reports...
In today's climate, the key outsourcing issues for Western companies are quality, cost and delivery. With regard to outsourcing to the Far East, many businesses have expressed uncertainty as to how it is possible to ensure quality and visibility from such a long distance.
Speaking at the Softworld Supply Chain & Logistics Exhibition that recently took place in Birmingham, UK, George Hadley, global operations director for De La Rue, was adamant that there is a misconception about the quality of the products that come out of Asia. Indeed, while many businesses view places like China and India merely as a cheap alternative, he maintained that the business measures to be taken remain the same regardless of where companies source from, be it Toronto or Taiwan.
In an effort to quash the negative perception of the East, Mr Hadley cited Japan as an example of how quickly a country can develop. Japan is a shining example of how perceptions of an Eastern economy can change in a relatively short period of time. The idea that Japan would produce some of the finest high quality vehicles and electronics in the world was unlikely 40 years ago.
Despite China's image as the sweatshop of the world, the country's home-grown technology sector is beginning to bloom. Interestingly, most of the parts required for Japan's high quality products are actually made in China and shipped across. Over recent years, China has invested in high quality manufacturing equipment and training, and companies operating in the Asian superpower are now demonstrating that they too can produce state-of-the-art products.
However, Mr Hadley said that while China is a very tempting target for Western businesses, outsourcing in the country is not a decision that should be taken lightly, "You get what you pay for, and it's very important when you are looking to source in a partner, particularly in China, that you do your homework and you select the right partner that's right for your business."
"You cannot subcontract this, a lot of people will tell you that you that you can get a sourcing company who will act as the interim agent for you...For some people that may work, but in my view that is a mistake," he continued.
Indeed, one only needs to think of one damaging image that appeared in the papers a few years ago - the Nike sweatshop cartoon, which showed a mean-looking overseer shouting "just do it" to a group of overworked children. This is a classic example of bad outsourcing decisions that ultimately served to have an adverse affect on an extremely powerful brand.
Mr Hadley was adamant that Western companies have to work very hard to select and work with their partner in the East, "If you go through an agent or you don't get involved, you can end up with a situation where something is going on that could actually come and bite in the backside later on. It is an alliance; it's not a supplier where you simply buy a commodity and walk away. You work together with that partner and work in a true partnership."
"The only way to do it properly is for you to get your own people - who understand your product and your needs and your requirements - on the ground and set up your own team, recruit local Chinese people to work with you and then set up an outsourcing office of your own."
"The investment will pay dividends in the long run, and it will give you a lot of credibility, and will enable you to explain your needs and requirements very clearly. And that in my view is the only way you can ensure quality," concluded Mr Hadley.
Consequently, while some companies may still see China as a labor-intensive outlet for their operations, the truth is that the country has moved on. Although it still has a long way to go until it approaches the level that Japan now sits at, there is no doubt it is moving in the right direction.
Nevertheless, if companies do not invest correctly, both financially and in terms of time, the benefits that China can yield will be jeopardized and potentially lost.