Larry Butz May 2005 How Does it Affect Me?. Outline Why Manufacture/Source Overseas Types of Manufacturers What to Expect The Differences The Risks “Insourcing”

Larry ButzLarry Butz

May 2005May 2005

How Does it Affect Me?How Does it Affect Me?

Outline

Why Manufacture/Source Overseas Types of Manufacturers What to Expect The Differences The Risks “Insourcing”

Why Manufacture/Source Overseas?

Lower Costs

Access to Overseas Markets

Excess U.S. Cost Burden

What is the Objective? “We are not chasing labor costs, we are

chasing productivity."

Michael DellSydney, Australia April, 2004

Forbes Top Ten for Outsourcing

India China Malaysia Czech Republic Singapore

Philippines Brazil Canada Poland Chile

China 1982-84Two Shanghai Factories

Unitary HPs and Cooling Units

Hermetic Recips Optimized Products Equipment Selection Process Optimization Quality StandardsSupplier Qualification Factory Layout

What to Expect Lower labor costs Lower raw material prices Lower component/sub-

assemblies costs Range of quality levels

available Fewer constraints (regulations)

on factories

Types of Manufacturers State Companies Wholly Owned Locally Joint Ventures Wholly owned Foreign Your Own – Build or Buy

How to Find Government Agencies Industry Directories Web Bidding Networking Shows & Exhibitions

Where to Find

Heavy Industries

Light Industries

Be Prepared for Change Longer Pipeline Reduced Flexibility Change Control Cultural Differences

Language Societal Value Systems

Business Customs National Laws

Be Prepared for Change More Administrative Personnel

Logistics - Import/Export Banking/LC/Currency International Law

Communication Time Difference Language

Product Modifications

The relative cost of equipment vs. labor is significantly different.

Expensive labor saving equipment used in the US may not be the best choice overseas.

Be prepared to make changes in your design specifications to obtain best results.

Evaluate All the Differences

Location Legal/Patent Language Cultural Resources Political System Logistics

Taxes Laws Safety Standards Currency Infrastructure Environmental Business Customs

Risks Currency Variations Proprietary Design Info Political Stability Security Energy Availability Hidden Costs

Hidden Costs Packaging Communications Import/Export Taxes Waste/Shipping Damage Legal Travel Product Redesign Administrative Personnel

How Competitive & Stable is Your Outsourcing Candidate?

Global Competitive Index

Areas Covered byGlobal Competitive Index

tax and regulatory environment labor market legislation overall macroeconomic environment quality of the country’s infrastructure prevalence of corruption education

Global Competitiveness IndexBy World Economic Forum

Oct 2004

China 46

Mexico 48

India 55

Deloitte Consulting Study

“…some major corporations are reassessing outsourcing in light of significant negative experiences…and failure to achieve expected cost savings.”

May 2005May 2005

Insourcing

Sourcing within your own country

Advantages of “Insourcing”

Quicker Response Times Flexibility (“Specials”) Customer Visits to Factory Proximity – Designers & Manufacturing Language/Culture/Customs/Values

Summary We are all Part of a Global Economy

Don’t Fight it Plan for it Use it to Your Advantage

Know All Your Costs Look Beyond Costs Outsourcing – Is a part of the solution

Offshoring or Insourcing