Global Trade

Business First of Columbus - April 21, 2006

by Judy Huang

For Business First

Importing, otherwise known as outsourcing, is the way of the international business world. One way companies can prepare to start importing from overseas is by doing an internal analysis and executive pitch. Top-level management needs to be firmly on board and understand that it has to stick with it so it will better be able to navigate the tough waters that are sure to come along during the process. Management must develop an overall strategy.

A Michigan company serves as an excellent example. Its product was becoming a commodity, and the only way to stay in the game was to lower costs, improve the design and push it out more quickly than the competition.

Within a span of three years, not only did it start to source components from China , but it also brought assembly to China as well. A top-level executive, sensitive and open to marketing information from Wall Street and consultants, took information from all sources to decide what the right approach was for the company. The intensity of the purchasing and engineering departments was high, as they needed to come up with a new design, then tweak it to produce a better product, manufacture it and push it to market.

The company's old approach was to buy materials locally from a number of vendors and then assemble them in-house. The first step of its new approach was sourcing from Asia though continue assembling in Michigan . At the same time, the company began looking at the next step, which was setting up a plant in China. Once a site was selected, staff was hired and the assembly line started.

The transition and the move overseas was not without its challenges, including operational and legal ones. Among them were assimilating American staff and their families in China, hiring people in China to support the company, and expanding the factory to include all types of workers.

This could not have been possible without the support and constant pushing from upper management.

Change is not easy and there are various issues the company needed to deal with, which included how it affected the company's workers in its U.S. plant. Because the China plant assembled more of the commodity products, the U.S. plant was able to open up new lines that required more engineering, which added to the price and profit margin of the product.

On the other hand, not every company has a positive experience with outsourcing.

Take, for example, an Illinois company that has been around since the mid-'50s and was successful in its heyday. Its original product line was diminishing because the market it served was diminishing, and the product hasn't seen many upgrades.

The company has an old way of thinking that believes if nothing is broken,then don't fix it.

Within the company, different sectors had different views about global sourcing. Middle management saw it as a plus, but the idea was never embraced by the purchasing department or the top levels of the company. The department looked at global sourcing as a risky step and the upper echelon executives worried it would be difficult to start without making employees feel like they would lose their jobs. Middle management tried to do it secretively without extending the effort and financial resources needed to make it successful.

In the end, it failed because there was just not enough support from all levels of the company. Departments such as engineering, logistics and shipping, warehousing, purchasing, finance, legal and, of course, president and CEO, all need to be on board - from the design to the shipping and the delivery of goods.

Not all companies need to go the extreme of starting a plant in China , but as globalization is here, it's imperative to change with the times.

Because a company takes a risky step, it's able to salvage existing staff and expand it to cover additional products that are more appropriate for the combination of their work forces. Otherwise, it's a slow bleed that is not stoppable until the blood has completely drained out. We need to be globally minded as the world gets smaller.

Judy Huang is president of 889 Global Solutions Ltd, a strategic China sourcing firm in Columbus . Reach her at 614-235-8889 or jhuang@889globalsolutions.com.

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