13 October 2009

Outsourcing Disasters Put Consumers at Risk

Outsourcing manufacturing and even development to overseas companies became a fact of life with international agreements and the economic globalization which quickly followed. Foreign export subsidies abroad and lowered import tariffs at home offer a powerful case for simply sourcing what we want from somewhere else. The benefit to consumers are cheaper display prices. However, the products themselves can have hidden costs which total much higher than the display price. Here are just three costs not on the price tag:

Safety: September 2009 saw the latest chapter in a long string of expensive and time-consuming product recalls of items manufactured in China. Just the other day one of our staff found themselves face to face with this reality in their own home, having narrowly avoided possible injury when the powder metal blade retainer for their new, one-day-old imported lawn mower cracked a large chunk off after just ten minutes of operation. This safety-critical part was stamped from powder metal and probably given insufficient oven time to bake - which means there are hundreds - thousands somewhere just like it. Back at the store our colleague watched as the entire model line seemed to have a similar flaw and started immediately getting pulled from the floor. How much could that have cost someone?

Economic: Training overseas personnel has opened the door to a flood of skillful black-market copycats, counterfeiters, patent and trademark pirates who apply inside knowledge to cleverly reproduce almost any product illegally, which becomes expensive and difficult to police. Local jobs and skills are lost overseas forever. Eventually, the local economy finds itself borrowing from China to buy from China.

Human Rights: Those employed overseas in the manufacture of low cost goods for export often discover their original expectations wrong, working in appalling conditions, with no way back out. Middlemen, business brokers and investors receive the entire net profit from the supply-demand relationship.

The real differential in the final consumer's decision is actually not cost, but timing. When presented a choice between "pay now or pay later", MBA 101 states that credit-based consumerism such as what is encouraged in the USA will pick "pay later" - even if it means paying more. Darwinism 101 responds that if cutting out fierce business competition could therefore be timed early, it technically justifies almost any other consequence in quality, ethics or community interest. Darwin knows that consumers will still have opportunity to pay their fare share of it all, just a bit "later".

Uncontrolled serial product outsourcing can be a disaster. Not surprisingly, there is growing understanding about the importance of highly selective outsourcing, supplier evaluation, certification and inspection by qualified local staff and agency, while maintaining tight product control, domestic R&D, and a healthy ratio of credible domestic suppliers and know-how at home.

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