Outsourcing to Asia isn’t just for big business

In the beginning, it was all about lower costs for mammoth companies shifting departments overseas. In 2007, the outsourcing process has become smarter and savvier, with the aim of creating new and better approaches to getting work done.The one reality that hasn’t budged: small and midsized businesses are late to the party. “They have done little outsourcing,” says Paul Horowitz, a senior partner in the PricewaterhouseCoopers Advisory practice who focuses on outsourcing. Adds Horowitz, “Small and midsized businesses could be like the big boys if they outsourced more. This is a huge opportunity for small companies.”

Some pioneering small businesses have already taken the dive into outsourcing. Is it easy? Will it help you get on the fast track to profit? Don’t believe the myths. Outsourcing, particularly for a small business, is a high-stakes venture that requires careful nurturing. But there are lessons to be learned from those who have taken this path—so listen to the mortgage processor, the handbag designer and the guru who claims that skillful use of outsourcing may let us pare down our workweek to four hours while making the same money.


CHETAN CHAUDHARY

Founder and President, Junosource

Junosource is a mortgage processing firm that sells its services to mortgage brokers. “We manage the entire process, from origination to funding,” says Chaudhary, who started the company in 2003 with the aim of giving small and medium-sized mortgage brokers the same level of service and competitive pricing enjoyed by huge mortgage banks.
This formula powers Junosource: 15 employees in the U.S. handle the bulk of customer contacts, while 35 staffers in India go over files line by line, looking for areas that need amplification or are red flags for lenders. When they find trouble, a U.S.-based employee gets on the phone to the originating mortgage broker.

Chaudhary says this staffing hybrid may be a harbinger of new-style services firms.Relying on Indian staff for the detail work lets Junosource cut costs around 30 percent, while the use of U.S.-based employees for customer contacts raises mortgage brokers’ comfort, because these employees bring local knowledge to the mix.

Even so, Chaudhary candidly admits that Junosource’s operating model has challenges.For one, he must travel frequently to India to oversee operations. “Last year, I went five times, with each trip lasting two to three weeks,” he describes. This year, he vowed to ease his own travel burden by bringing in a COO who will make three or four trips to India. However, Chaudhary stresses that keeping a close, personal eye on operations in India ensures better results.

Chaudhary’s other problem: Salaries have begun to soar in India, and employee turnover is high. “We are seeing perhaps 30 percent attrition,” he says. This obstacle has prompted a hunt for other locations—“We’ve looked closely at the Philippines,” says Chaudhary—but so far, he hasn’t found a country with an employee base that rivals India’s when it comes to meticulously poring over loan documents. “Indians just are very good at this work.”


JEN GROOVER

CEO, Butler Bag


It all started with a mess. That’s what Jen Groover saw when she looked into her own handbag. Where are my keys? Where’s my allergy pill? The proverbial light bulb clicked, and Groover invented an ingenious way to make any handbag organized. She took heridea—similar to a tackle box, but much classier—to a handbag manufacturer who readily agreed to do runs of a high-end bag that retails upwards of $750 at better boutiques.

So far, so good, but what about mass-market consumers who can’t spend next month’s rent on a purse? Groover had a design in mind that would retain the essence of her Butler Bag but, by using lower-cost materials, could retail for less than $100. One big problem: The factory staff said No thanks, they couldn’t make money manufacturing a bargain bag.

Groover realized she had to go to China. She found a U.S.-based project manager, known as a “sourcing manager,” and quickly set up her business in Hong Kong. The trial shipment was terrific—but when she received her first order of 5,500 bags, 3,000 of them did not pass Groover’s quality-control check. “We had to sell them as samples,” shrugs Groover, who explains that this was where her outsourcing education really began.
“Finding the right factory is a real challenge.”

Groover began outsourcing to Asia in late 2005, and is now working with her third Chinese factory. She moved her business from pricey Hong Kong to the lower-cost mainland and, she says, quality so far is holding up. “I’ve told the factory that anything over five percent errors is unacceptable.”

Why doesn’t Groover skip the hassles of manufacturing 10,000 miles away? She estimates that manufacturing costs in the U.S. for her budget bag would be 60–80 percent higher, and suddenly, that $100 handbag would cost $200. The bottom line:If it weren’t for China, Groover’s budget bag probably wouldn’t get made at all.

Is it hard to find a Chinese factory willing to take on comparatively small runs? Groover says there are so many candidates, the difficulty lies in sorting through the options. “You have to talk with lots of people before deciding on a factory. The Chinese are happy to work with a small U.S. business if they think you have the potential to grow.”


TIMOTHY FERRISS

Author, ‘The Four Hour Work Week’

Call Timothy Ferriss the guru of “personal outsourcing,” a term that describes when an executive (with or without his employer’s knowledge) outsources big chunks of everyday work to low-cost providers, typically in India. “I outsource tasks to the greatest extent possible,” says Ferriss, who ticks off the kinds of activities he pays others to do for him: “Online research, taxes, gift selection and buying, making restaurant reservations. I have even [done] outsourced dating,” says Ferriss, who claims he pays assistants in India to scout online dating sites for possible dates for him, and to conduct the prefatory correspondence. “They got me 20 quality dates in four weeks,” says Ferriss. “That’s twice what I accomplished myself in six months.”

More typical tasks to outsource include transcription of interview tapes, booking travel, responding to routine email, and other mundane miscellany: “I have yet to find anything that couldn’t be outsourced, unless legal reasons stand in the way,” says Ferriss. (HIPPA, for instance, would likely prove an obstacle to outsourcing tasks related to medical information.)

So, how can you start living the easy life? Ferriss suggests asking yourself which item on your to-do list has sat undone the longest. If work has stalled because this particular task bores you, find an outsourcer. “What do you earn per hour? Any time you can pay someone less to do that work, you are getting a return on investment,” explains Ferriss.

Even better: When an executive outsources some of the grunt work, it leaves her more time and energy to focus on high-return tasks, says Ferriss. Do you hate preparing expense reports? Gather up those receipts and pay a virtual assistant to document them, then use the time you gained to prospect for new sales leads or close deals.

Finally, keep this in mind: Even if something bores or frustrates you, there are people who will be delighted to do the work, often for minimum wage. Says Ferriss, “I often find multiple quality providers eager to do the work for $5 per hour.”
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Where should you look to begin searching for outsourcing options? Click here.
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ROBERT McGARVEY is a freelance writer based in New Jersey.