Even small businesses can benefit from tapping low-cost resources abroad. But how to start?
In a global economy, it's not surprising that most large companies outsource. But within the last five years, more small businesses, from travel agencies to boutique motorcycle manufacturers, are taking advantage of inexpensive labor outside the United States.
Improved communication technology and online job-posting services are making it easier for even single-employee companies to find and manage contractors all over the world. A new class of consultants has even sprung up to provide guidance.
"The virtual company where numerous, if not all, tasks are outsourced has been evolving over the last four years," said Anita Campbell, founder and editor of Small Business Trends, a newsletter and website. www.smallbiztrends.com "These days you almost can't afford not to outsource."
Labor is so much less expensive in other parts of the world, she said, that businesses have a hard time competing if they don't hire, for example, computer programmers in India, accountants in Ukraine, or manufacturers in Taiwan.
Costs for outsourcing all kinds of tasks abroad can be as little as a tenth of what they are in the U.S. For example, a computer application that might cost $10,000 to get done in the U.S. would cost $1,000 in some Asian countries.
But it's daunting for small businesses that can't spare employees to scope out and supervise foreign talent. Nor do they have the financial reserves to cope if vendors don't follow through on their commitments. If delivery of physical product is involved, there is the added danger of delays in transit due to weather or customs hassles.
"There's definitely more risk involved when you are a small company," said John Challenger, C.E.O. of outplacement consulting firm, Challenger, Gray & Christmas in Chicago. "It could potentially destroy your business if you rely on someone who doesn't deliver."
Websites like Elance.com, Guru.com, Rentacoder.com, and MyBusinessAssistant.com have made it easier for small businesses to find eager service providers worldwide. Prospective employers post jobs on these sites and vendors respond with bids.
There are often reviews and rankings of contractors posted by former employers and vice versa so it behooves both sides to behave professionally and responsibly. However, the websites do not indemnify the work of contractors.
The websites typically take a 6 percent to 10 percent cut of the fee negotiated between the two parties. Some sites offer to hold funds in escrow until the job is completed to the employer's satisfaction. In some cases, employers negotiate to pay a portion up front, a portion halfway through the job, and the rest upon completion.
Rock Blanco, chief technology officer at Atlas Travel International, a 130-employee travel agency in Milford, Massachusetts, used Rentacoder.com last year to find computer programmers to write software to synthesize and analyze customer data. He ended up accepting a bid from a Russian outfit and paid them in three installments as they reached benchmarks in the project.
"I was blown away by the job they did," he said. The cost was about a third of what it would have been if done locally. "They also delivered two weeks early."
This was largely due to the time difference, which allowed him and his Russian coders to jointly work on the project 24 hours a day. They traded e-mails and talked periodically using an inexpensive, VoIP phone service. Blanco was so impressed that he recently hired the Russian programmers to do another job.
However, Blanco has also had bad experiences, including an unsuccessful attempt to collaborate with an Indian software-development company that had sent him an email solicitation. "It was a lost in translation thing," he said. "I couldn't get them to even understand that I wanted red instead of blue" as background on a Web page.
That's why he was careful when hiring the Russian programmers to make sure that there was a contact in United States that could step in if there were any communication breakdowns.
The appeal of having a stateside interpreter and coordinator when dealing with foreign vendors has led to the creation of several outsourcing consultancies. Inventure Global in San Diego and Sumpraxis of Boca Raton, Florida, specialize in matching small- and medium-size businesses with foreign vendors, and overseeing projects until completion. They charge hundreds of dollars to hundreds of thousands of dollars depending on the scope of the project.
John Buchanan, founder of Wise Guides, a Chicago company with four full-time and two part-time employees that publishes guides to major-league ballparks, tapped Sumpraxis to find inexpensive overseas talent to quickly redesign his website in advance of opening day of this year's baseball season.
Though matched with an Indian Web designer who spoke English well, Buchanan said his contact at Sumpraxis "acted as offensive coordinator on the project to keep things on track" and gave him peace of mind "because I had someone I could call if things went horribly wrong." Even with the added consulting fee, he said the cost of the site redesign was half that of the quotes he had received from local vendors.
In addition to computer programming and Web design, commonly outsourced jobs include patent research, product development, human resources, accounting, and various back-office administrative tasks.
"It's that 'world is flat' mentality where young entrepreneurs in particular think nothing of outsourcing anything and everything halfway around the world," said Lawrence Geburd, a small-business consultant who teaches entrepreneurship and venture initiation at the University of Pennsylvania's Wharton School of Business. "If you think about it, risks like delivery delays or theft of vital information are not any greater than if you used the guy around the block."
Locales known for their inexpensive, educated, and enthusiastic labor forces include Argentina, Brazil, Chile, China, Estonia, Hungary, India, Mexico, Russia, and Ukraine.
Rokon International, a Rochester, New Hampshire, manufacturer of off-road motorcycles, has 15 employees and hundreds of contractors worldwide. Company president Tom Blais said his bikes have more than 900 parts and most are made offshore-grips from Brazil, wheels from China, and brackets from Taiwan, for example.
"Finding the right suppliers for my business has been about cultivating relationships over time," said Blais, who gets his best leads by networking at trade shows rather than using websites or consultants. "You have to get out there and talk to people as well as do your homework at your desk, but in the end you have to learn to trust."
Some of his trust has been misplaced, as was the case with the Chinese company that made him seats out of Naugahyde so thin, Blais said, "it'd tear if you looked at it sideways." But by and large, he said, his trust has been rewarded with good products.
Indeed, he said, his biggest source of grief in outsourcing has been "when I've not been specific enough on what I wanted."
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