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Joel Delman

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Cost vs. Quality: The Dangers of Outsourcing Design Overseas

The United States does not have a monopoly on a creative work force

Published: Thursday, March 3, 2011 - 06:00

For years now, outsourcing U.S. manufacturing overseas has been a common practice. Asia leads the way in producing most consumer goods—from electronics to housewares and everything in between—at a far lower cost than would be possible in the United States. Although this has resulted in a painful transition period for countless U.S. workers, by and large U.S. companies have embraced the ability to produce their products at significantly reduced tooling, parts, and labor costs.

Yet while U.S. firms have given up manufacturing and production to overseas vendors, the tacit assumption has been that we would remain the headquarters for research, strategy, concept development, and engineering. Unfortunately, we are seeing the beginning of a new phase of outsourcing, one that could transform the playing field all over again. Having already gained the lion’s share of manufacturing work, countries like China and India are now focusing on building their capabilities in the innovation and design phases of product development. While some may dismiss the seriousness of this trend, we’d be naive to believe that the United States has a monopoly on a creative workforce.

In fact, the hard numbers tell a different story. A handful of years ago, BusinessWeek reported that China had more than 400 design schools with an estimated 10,000 graduates every year. The Chinese government realizes that its position as low-cost supplier of labor will not last forever, and its population is already demanding higher wages and better living conditions. As a result, Western manufacturers are looking at places like Vietnam for even less expensive production solutions. Meanwhile, China is consciously investing in educating its work force in the skills needed to add greater value to the product development process, so as to contribute from a higher rung on the ladder of international trade.

Those who dismiss the quality of thinking and design being offered from newly minted Chinese and Indian professionals are rather shortsighted; we only need to think back to the days when Japanese goods were scoffed at as low quality.

There are risks to chasing low prices for any service, and that’s equally true when considering the use of offshore resources for research, innovation, and design—the creative foundations upon which a successful product, line, or brand is built. In many cases product-development strategies overseas have favored a “produce lots of stuff and let’s see what sticks” approach, which works well for a developing economy but can hamper the deep research and planning required for product development. In the United States and Europe, focus is placed on taking the time to effectively target needs and opportunities in the market to ensure that new products will be met with open arms and driven demand. In contrast, the experience of overseas suppliers has largely been based on bringing imperfect products to market quickly, knowing that their deficiencies can be inexpensively addressed in the next version.

There is also the well-established concern many firms have for protecting their intellectual property when outsourcing to overseas markets. The risk of losing control over valuable intangible property—the critical ideas that form the foundation of a product’s success—can be far more serious than problems related to the theft of technical or engineering-focused properties.

For many outsourcing manufacturers, solutions that are “good enough” will suffice, particularly for lower-cost products where investment in more expensive domestic design and development is difficult to amortize over these products’ increasingly short shelf life. Investment in extensive front-end research, strategy, prototyping, and testing can pay off for brands with the equity to sell their products at higher margins over lesser competition; but the business model for such investment can look decidedly different for products competing primarily on price point or in generic product categories.

Tempting as some may find the lure of overseas creative services, I would advise proceeding with caution. As a creative professional, I’m concerned about the potential for the United States to give up yet another area for competitive advantage that, as a nation, is so critical to our economic well-being. U.S. design and development firms have decades of experience in gaining insight into the needs of users and opportunities unmet in the marketplace. There’s much to be said for the proven methodologies of research and design strategy practiced by creative professionals here. Moreover, thinking is not a precision skill like injection-mold toolmaking and it certainly isn’t a tedious assembly operation that can be accomplished by inexpensive labor. We’ve seen examples of clients trying out the creative services offered overseas, only to return in frustration to U.S. firms after realizing that promised cost savings were illusive at best.

Although cost will always be an issue for manufacturers, the efficient investment of capital is also a key consideration in the product development cycle. There’s no more important aspect of product development than coming up with the right idea or the optimal design; that’s the foundation for everything that follows. It’s tough to argue with overseas production these days, but innovative thinking is not a place where any firm can afford to cut corners.


About The Author

Joel Delman

Joel Delman is the Los Angeles design director for Product Development Technologies (PDT), where he has helped build and grow PDT’s industrial design and research departments. Delman has practiced corporate law and is experienced with the business side of design, including licensing of technology and intellectual property issues.