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Even little companies are now going global
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By Matt Richtel ~ The New York Times ~ June 21, 2005
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SAN FRANCISCO Philip Chigos and Mary Domenico are busy building a children's pajama business. They are refining patterns, picking fabrics, and turning the basement of their two-bedroom apartment into an office.
Then there is the critical step of finding the right seamstresses in China.
Instead of looking for garment workers here, they plan to have their wares manufactured by low-cost workers overseas. In doing so, they have become micro-outsourcers, adopting a tactic of major corporations, which increasingly are sending production work abroad.
A growing number of tiny mom-and-pop operations, industry experts say, are turning to places like Sri Lanka, China, Mexico, and Eastern Europe to make clothes, jewelry, trinkets and even software programs.
"We'd love it to say 'made in the U.S.A.' and use American textiles and production," Chigos said of his product. But, he said, that would cost 4 times to 10 times more. "We didn't want to sell our pajamas for $120."
The ability of Chigos, 26, and Domenico, 25, to reach across borders has as much to do with technology as it does with globalization. Computers, the Internet and modern telecommunications, of course, make it possible for start-ups to market their goods to customers anywhere.
That infrastructure also enables even the smallest employers to find workers far away in countries they will never visit and in factories they will never inspect. They can communicate with those workers cheaply via e-mail messages and telephone, transmit images and design specifications and track inventory.
"It's easier to find people out there on the other side, to monitor them, and keep in touch with them," said Ashok Deo Bardhan, an economist at the Haas School of Business at the University of California at Berkeley. His field of expertise is outsourcing. One result of easy access to cheap manufacturing, he said, is that more entrepreneurs may be able to turn an idea into a product.
The situation "vastly increases the scope of inventors and designers in the West," Bardhan said.
Just how much work American companies send offshore is difficult to measure, as is the number of jobs lost to outsourcing, according to a report from the General Accounting Office issued in September. But the agency said the trend was growing; one piece of evidence, imports associated with offshore labor, for instance, reached $37.5 billion, or €30.8 billion, in 2002, up from $21.2 billion in 1997.
Another indicator is the recent rise of thousands of Web sites hawking factory facilities in places like Bursa, Turkey, to potential customers like Chigos.
Outsourcing is "happening at every level from manufacturing of steel to make cars to software to computer chips to a little lady who make scarves," said Ally Young, who researches outsourcing trends for Gartner, a market research firm. Any job can be sent overseas, she added, "if it can be digitized and you don't need face-to-face interaction like a haircut."
Even that constraint may be disappearing. Ben Trowbridge, a Dallas consultant to major American companies that hire offshore labor, said that he recently received a request from a psychologist who wanted to hire counselors in India to make follow-up phone calls to his patients.
But offshoring for small entrepreneurs can be rough. Taking advantage of cheap labor also means having to navigate language and time-zone differences, complex import regulations and shipping fees and the effects of unanticipated problems like the bird flu in Asia. And, of course, there are always nagging worries about workmanship and even anxiety among some entrepreneurs that the factory they engaged is a brutal sweatshop.
Beverly Lengquist, a real estate agent in Santa Cruz, California, ran into many of those problems when she hired a factory in Sri Lanka last year to sew 8,000 decorative cloth covers for water bottles.
After getting encouragement from friends who liked her cute designs, Lengquist turned to the Internet to find a manufacturer.
She searched on Google for terms like "overseas fulfillment" and "manufacturing" and quickly found numerous prospective partners in Indonesia, Bali and Sri Lanka. She settled on a Sri Lankan company, she said, because it worked with big textile firms and came highly recommended by an acquaintance with manufacturing experience.
She initially negotiated with the factory owner by e-mail and then met him when he was visiting New York; he promised he could fill the order quickly. Lengquist, a horse owner, needed to have the 8,000 holders (which she calls "Bcozies") to sell at the Kentucky Derby on May 4 of last year.
But unexpected problems quickly arose. For instance, the holders were decorated with marabou feathers. But the U.S. customs service would not allow feathers originating from Asia to be imported because of fears of the spread of the bird flu. So Lengquist had to buy the feathers in the United States and then ship them to Sri Lanka.
To pay her Sri Lankan manufacturer, she wired the company $13,000, an amount she thought covered shipping costs as well as manufacturing. But the shipper demanded another $4,000, which she ultimately paid, but that wasn't the only problem. When she opened the shipment of holders on her kitchen floor, she found that half of the bottle covers were the wrong size and were too small.
Frustrated by the problems, Lengquist has since decided to use a manufacturing company on Ohio instead. The Sri Lankan company could not be reached for comment.
"The problem had to do with language and culture," Lengquist said. The manufacturer, she said, did try hard to accommodate her requests, but "just didn't understand the water bottle concept."
She has sold nearly all of the holders, which are priced between $10 and $20, through her Web site, bcozy.com, or through retailers. Demand remains strong. She said she recently received an order for 150,000, but she said she could not fulfill an order of that size and the purchaser - which she declined to name - could not decide on a price.
For some small entrepreneurs like Todd Collins, 32, the operator of Irealitymanager.com, a Web site that focuses on property management, outsourcing has been relatively easy. In 2001, Collins, who is based in Washington, came up with an idea to sell software that would help apartment owners manage their properties.
He turned to Macrotech in Bridgeport, Connecticut, which hires computer scientists and engineers in Bucharest and in Pune, a city near Bombay.
The head of the Bucharest office, Alex Anitei, 27, said over the past three years he has worked for many entrepreneurs, like Collins, doing piecemeal software work, including projects as small as building online address books.
E-mail, instant messaging and Internet-based phone services, Anitei said, allow him to stay in constant contact with clients on other continents. He said he and his staff of six programmers, who work in a three-room apartment in Bucharest, charge hourly rates of $15 to $25 - one-third to one-15th the cost of American software engineers.
Still, Manish Chowdhary, the president of Macrotech, said the use of offshore labor is not always efficient for the smallest businesses. The big cost savings from outsourcing, he said, come over time and from placing large manufacturing orders; the time and costs associated with finding an overseas contractor and setting up communications simply may not be justifiable if the project is very small.
Chigos and Domenico, though, see foreign workers as crucial to their nascent enterprise. Without them, they said, they would not be able to sell the pajamas, inspired by the book "Where the Wild Things Are," for under $50.
Chigos, a former commercial real estate agent, found information on the Internet about a trade show for overseas manufacturers that took place in Las Vegas in February. At that conference, he found eight prospective manufacturers, seven in China and one in Mexico, that could make the pajamas designed by Domenico, a 2001 graduate of the Rhode Island School of Design.
He and Domenico have sent designs to six of the companies, including Suqian Pajama Clothes-making and China Worldbest, both in China, and are waiting to see samples and receive final price quotes in the next few weeks.
Domenico confesses she's not sure where Suqian City in Jiangsu Province is located. "I feel like I'm supposed to know that," she said, laughing.
Once the business is up and running, they hope to hire a freight management company in Richmond, California, to receive the shipments, check the merchandise's quality, then send it along to customers. Their business is a virtual one; they have no manufacturing, storefront or warehouse. They plan to market the clothes on the Internet and through boutique retailers.
"With the technology available today, we'll never touch the product," Chigos said.
Both, however, are concerned about the pitfalls of dealing with a far-flung manufacturer. Domenico did volunteer work for Amnesty International growing up, and she worries that they may wind up working with a sweatshop. "It's my biggest fear," she said.
"People in the U.S. won't work for 50 cents an hour," counters Chigos. "We also recognize that there are people around the world who are happy to work for 50 cents."
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LocateAmerican.com Opinion: Philip Chigos represents a great deal of inexperience, arrogance and greed. Do you really think it will cost $50 to sew pajamas in USA? Then why is this company able to offer similar products in organic American cotton, sewn in their own factory in Arizona, for $7 - $10 bulk price? What about this lady who makes pajamas by hand in Texas and sells them for $15? Or this company that makes pajamas in Virginia and sells them for under $30 retail? We think Philip was never interested in finding a local supplier--he really, really wants a Chinese worker sewing 15 hour days at 50 cents per hour. Would you want to support this guy by purchasing his pajamas? Ironically, we don't think Philip Chigos will succeed anyway. |
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