how do new startup companies outsource labor for a cheaper price?

May 24, 2009 7:35 PM

What if I want to outsource a product to another country to get it made cheap. How do I do that?

I am interested in selling a 'good' that has a small amount of labor-intensive sewing. I have read and heard about women starting small companies( like purses , etc.) and outsourcing the work to other countries to get the product made. How do they do that, how would I look into it or even potentially start something like this?
Thank you so much for all ideas!

posted by femmme to work & money (3 comments total)

One of the hard-learned lessons of software engineering is that you should avoid premature optimization. In your case, that means you should try to build your product locally and sell it based on the local manufacturing costs. Once you have an established business around your product, consider outsourcing some or all of the production.

The reason why you want to avoid premature optimization is that unless you have a huge amount of experience in building exactly the type of new product you are proposing (which is almost never in software and other new product ventures) you won't know exactly what to optimize. There are other pitfalls as well, the most obvious of which is accidentally selecting a factory that uses unacceptable labor practices such as child labor, excessive work hours, or poor working conditions.
posted by b1tr0t at 9:17 PM on May 24 [1 favorite]

Commercial "middleman" organizations like Paragon Sourcing exist to fill needs such as yours. For someone without extensive foreign trade and banking contacts, the fees you pay such an organization may be well worth the contacts, advice and services you get, particularly on small to medium sized production runs.

But it pays to do your homework, as you may find that sewn products contractors in the Caribbean, under section 807/9802 type tariffs, may have faster turn around and lower overall costs, due to cheaper, shorter shipping arrangements and favorable Customs action, even though they have higher wage costs.

You do need a somewhat higher level of business sophistication to act as a foreign contractor and importer, particularly in terms of working within the byzantine channels of international import trade finance; at a minimum, you'll need a banking relationship that enables you to raise conditional letters of credit to your supplier, which are actionable by your customs brokers and shipping agents, so that the release of goods from your supplier is assured to meet your standards, and that shipping proceeds without embargo of your goods. Once money is transferred to your supplier in normal trade finance channels, you generally have no recourse, beyond that of your continuing/future relationship with that supplier; it is normally impractical to return defective merchandise, for example, due to shipping costs, and so provisions for consumer warranties, product safety, etc. will likely fall entirely on you, as the importer.
posted by paulsc at 11:54 PM on May 24 [1 favorite]

The snag that surfaces time and again with outsourcing is knowing what you must specify and at what level of detail. The more complex the task, the more critical it is to understand how to specify things. For example, in your sewing project, what happens if you say "sew this seam". With what kind of thread? With what spacing between the stitches?

When you get that sorted, -now- think of how much you are giving away by having the work done. Several people I know who successfully make things in China use multiple pieces that are made in geographically separate places so the function of the parts isn't obvious. This keeps the people who have the molds or presses from selling the assembly themselves.
posted by jet_silver at 10:25 AM on May 25