Business Week is running a story on 6 case studies on US companies who have faced the decision to outsource - with different outcomes: Here Or There? - Six entrepreneurs explain why they outsource -- or not.
What I found most interesting was the strategies of the 3 companies who chose to stay.
Adam Keller can't beat competitors who build birdcages in Asia. Instead, CagesByDesign.com, his Neenah (Wis.) company, creates custom cages that run from $300 to $2,000 for customers such as museums and amusement parks. "There are other products we could make, like the typical $39.95 birdcage you see at the pet store, but I won't even consider it," says Keller.
Brenda Lynn knows she could save money by having her Fairfield (Conn.) company's knitwear made in the Pacific Rim or South America. After all, most of her competitors do. But ever since Lynn sold her first hat to Barneys New York in 1991, she has stayed stateside. "Companies that outsource can offer retailers a similar product at a lower wholesale price, and that has hurt me at times," says Lynn. "But I retain a competitive advantage because of the desirability of my designs and our ability to maintain a higher level of quality."
Eric Poses has a list of reasons his two-person company, All Things Equal, makes its board games in Wisconsin. The first is a matter of principle. "If there were more companies like mine keeping business in the U.S., we could certainly have a positive impact on American labor," he says. The rest are all business. The factory that produces such games as Loaded Questions and Talent Show is a short flight from his Venice (Calif.) offices and offers free warehousing of his inventory. He pays one-third down before production but says many foreign producers demand half. And Poses can "produce and ship as much product as I need in 3 to 4 weeks, vs. 8 to 12 weeks with overseas production." Of course, there is a downside: Poses estimates he could save 30% going abroad.
The lessons:
High end customization.
Design and quality.
Close link between office, production and customer.
It sounds like the old story, compete on premium or on price. And the competitive location of premium production is different from commodity production. The trick for governments is to turn that old truth into an economic development strategy.
Premium producers of intangibles -- like marketing communications -- should also play their home field advantage. See my post here.