How about outsourcing digital products design to China? How to make it cheaply? Are Chinese digital services any good? Here, I share a couple of thoughts about these two seemingly contradictory matters which recently bothered me quite a lot. So let’s start right off the bat with the question in contention.
Can outsourcing to China stand for lowest cost and highest quality? Yes, at least during the initial planning making phase. We all agree that China might be the answer for cheap products. After all, we all expect costs of digital modeling to be lowered in comparison to the costs in-house. At the same time, we are hopeful that quality won’t worsen. But how to ensure high quality level? Can lowest cost stand for best quality? The answer is probably in your pocket. Have you ever tried to spot any quality flaws in your cheap smart phone? You might quickly realize that even ladder’s lower bottom models are relatively decent. So the answer is: “yes, lowest cost and best quality can come together”… or can they?
I am sure we can all pretty much agree on the term: “outsourcing” and its huge benefit of simply lowering costs of activities. If the money didn’t play a vital role in this process, there will probably not be any need for outsourcing, as nobody wanted to have their business operations performed thousands of miles away by people of different ethnicity, culture and often in a different time zone. Your business suddenly performs activities on the other side of the planet. You don’t have a direct insight into the progress. This gives you an impression of lack of direct control. So what does it take and how to begin the process of digital product outsourcing to China?
Say: “hop” before you jump
Do some research, get your frame of reference. Make sure you do your own thorough research. It’s free, as it costs you nothing but time and some cups of green tea. You probably think: why would I want to do the research? Well, you might think that you are the first to have come up with this original idea? By doing research, what you normally find out is that other people had this idea and they either done it successfully or unsuccessfully. You can certainly learn from people who done it successfully, but equally as much from the people who has done it unsuccessfully. So, go on and do your product research to learn and make sure that you are aware what is going on around you before you try to plough a new path or a new road on your own. It’s quite possible, that other people have already done what is new to you, and either succeeded or failed.
Don’t get excited, but get your frame of reference instead. If you reach out to 30 companies, chances are that 2 to 5 will be your reasonable match for you. Unfortunately, a lot of people reach out to 5 or 10, get 1 match and they think they are ready to go. This results in a product that is not what they thought was going to be.
Calculate hidden costs for better business outsourcing
There might be costs that aren’t immediately apparent! Would it be enough to just read the contract, paying particular attention to the small font at the bottom of the page? It looks like things are more complicated than this.
The costs of monitoring the terms of so called: cooperation or transactions must be taken into consideration. In other words: you should not only be aware of the costs of digital modeling that you want to outsource, but also realize that the additional money will have to be spent to manage and monitor the transactions and people associated within the cooperation. It’s in your best interest to manage resources of the company you outsource to. Take the resources under your surveillance.
However, doing all of these doesn’t necessarily mean that the project will complete itself without your guidance. The more your project needs for human to human interaction the higher the chance that some management efforts and charges (always on your side) will have to take place. Designing a digital product in China at lowest cost and best possible quality will require decent portion of communication on daily basis.
Surprise fees follow close behind: These are some sudden, unexpected bills to pay. Usually, you would not expect or simply didn’t know they exist, such as licensing, outsource the activity through the 3rd party vendor, contracting etc.
Don’t forget the rework costs! Often the digital product might simply not be good enough. Just imagine the feeling of disappointment and anger when months of hard work simply backfire, resulting in wasted time, shattered nerves and dumped money.
All in all, you’d certainly need help of estimation experts to identify all possible groups of costs for your particular business. Or at least know a person/people who can help you find out 2 simple identification costs.
Is China the best place for digital product modeling?
Here come the next question. Is China the best place to go? How about other Asian destination which might seem like a better choice in terms of language abilities, culture difference, ethnic characteristics. What’s really important, especially when you are starting out, is that the more friction you can remove from the process of starting your digital product outsource in China business, the better. If you consider China’s tremendous development in domestic car design, the choice should be pretty obvious. Therefore, going to the place like China, even if the cost is higher, you are going to spend less time and less energy figuring everything out, than going to the places, where they are still figuring out themselves how to provide the service of digital modeling.
Cheaper to outsource?
Low initial price doesn’t necessarily mean low costs of outsourcing. The graph shows percentage of most common hidden costs of outsourcing. Many advisers would suggest to include the costs by spreading them over longer period of time. By doing so, we can offset the negative impact of additional money spending during the outsourcing digital product deign to China and have a better planning and anticipation for the future finance.
More and more companies around the world preach very interesting practice, which could help lower or eliminate hidden surprises and strengthen business relationship. They tend to spend 2% of their outsourcing budgets to personalize their relationships with a provider. The companies have listed a set of guidance, which can further solidify your position as a client. The practice can also improve communication between the two sides, and that will certainly lead to better cost to quality ratio of your digital product modeling.
- Your strategic decisions should stay yours;
- Set clear final design outcome expectations;
- Get personal with the provider by creation of multiple organizational links based on common interests;
- Communicate on regular, daily basis;
- Build relationship management;
- Set goals of future bilateral digital projects development;
- Careful evaluation of current cooperation;
- Motivation and surveillance;
- Reward and punish;
- Don’t fear change;
- Long term, established, trusted relationships can turn out to be your main competitive advantage in the future.
A modern indicator of performance evaluation is an indicator of economic value added EVA. It prefers economic gain i.e. profit consisted of a difference between the return of capital and economic costs, therefore costs, which except for financial costs include so-called future opportunity costs (such as interest on equity).
EVA indicator can be hierarchically broken up so factors which affect it are verifiable. This decomposition may have simplified form which shows an operating investment and financial activity influence on EVA value indicating financial performance of your company. For a valuation of effectiveness of outsourcing and its contribution to the growth of company, a decomposition branch of NOPAT is particularly relevant, which evaluate the impact of costs reduction, sales growth in a financial performance of your company.
Why not to outsource? Problems with quality! Problems with control!
“This product not good”. This is how I used to portray bad quality. But digging deeper, the term: “quality” is also applicable to the overall process of creating products and/or services, not just plainly the product itself. In order to manage best digital product quality outsourcing in China, you should go much beyond auditing and surveillance. Lack of quality at any point in the outsourcing process can result in product recall or major outstanding risks. What risks? Risks of much higher cost than in-house manufacturing, resulting in high defect rates, late deliveries, poor service and overall dissatisfaction. Did you know you need a proper outsourcing process to identify needs for your business quality management system? Well…if you didn’t know, now you do.
Hurray! There is a system that can help you get best out of cost and quality when outsourcing! Hold your horses! If something still goes wrong, the system wouldn’t excuse the lack of responsibility and mutual understanding. Your other side need your conformity, statutory and regulatory requirements.
Benefits of outsourcing with best quality.
Want to enjoy benefits of good quality outsourcing? Ask yourself a question: In what conditions is it safe to outsource manufacture contracts and when? Your quality pursue for the China digital product outsourcing must commence at the planning stages of new product development. If you are ahead of the game and you already posses an existing product or service, a comprehensive plan must also be developed for the outstanding process prior to execution. You are probably thinking: ok, but what does all of that mean? What shall I do? Is there any correct way I can reach out to these companies?
Approaching them in a way that you come off professional, where you actually know what you are talking about, such as dimensions, specifications, materials, tolerances, having some flat renderings. Everything to what the digital product outsourcing company can refer to. Having these ready will make you look more serious than the people who are not. It will also put you on the higher priority level.
Your should also cover comprehensive knowledge preparation on equipment, manufacturing, and transactional processes, hardware, software, domain knowledge, skill sets, people availability, communication protocol. Is there anything else you might think of that is applicable to you?
Try due diligence in applying quality basic rules that might seem generic to your program. Apply careful advance consideration of the special circumstances presented by projects and programs in the current global economy. (Intellectual property, trade compliance, cultural differences, communication, virtual teams, tacit knowledge, logistics, process maturity, etc.).
Remember that the higher ambiguity of your China digital product outsourcing, the higher risk of things going wrong. In some circumstances, could it be better to stay in-house? If you are still thinking of outsourcing, select the service provider based on quality measure system, that is built and tested into its organization.
Cost Vs. Quality Balance of digital products
A critical question for deciding about using outsourcing services is to determine the economic benefits and, in particular, potential cost savings arising from the use of outsourcing services without impacting quality.
From my own experience, I can say that in theory as well as practice, there isn’t available general methodology of economic calculations of evaluating the potential cost savings. Companies solve this problem intuitively and quantification of cost savings occur only at the stage of evaluation of effects arising from outsourcing after a conclusion of the accounting period. A criterion for a comparison is the level of economic indicators such as profit, labor productivity and company turnover, and comparing these indicators before and after implementation of outsourcing. However, by planning well, preparing well and executing well you can greatly reduce risk of failure. Remember that outsourcing is a process, which people tend to forget to care enough. That causes them to take wrong actions, in wrong places that leads them to wrong results.
