There’s no rule that says you must offshore even a fraction of your manufacturing needs, but it’s an option. The problem is knowing why and when to make that change. In this Tough Things First podcast, Ray Zinn answers those questions and puts it all into perspective to avoid costly mistakes.
Rob Artigo: Rob Artigo here, your guest host for another edition of the tough things first podcast with Ray Zinn. I’m a writer and entrepreneur in California. Being invited back is always a pleasure, Ray, how are you doing?
Ray Zinn: I’m doing great, Rob. Appreciate you taking the time with me today and doing another great podcast.
Rob Artigo: Your decades of experience in the Silicon chip industry, I suppose you’ve manufactured all over the world and built alliances as well as products with companies in multiple countries for a single production. Probably, fair to say.
Ray Zinn: Yeap, absolutely.
Rob Artigo: You didn’t start out offshoring, but at some point it made sense. If I’m a small business… or a growing operator here in the Bay area and I’m getting peppered with questions about costs, not pressured about making a cost change, but I’m being asked about it. Where am I at in the process of deciding when to offshore?
Ray Zinn: Well, you look at your costs. That’s the first thing and find out, can I get the same equivalent quality and service by doing some offshoring? Or complete offshoring? Depending upon the kind of product or business you’re in. And, so once you’ve decided that. Once you said, yes I can benefit from offshoring. Then you have to look at where do I offshore? Where do I go? And of course with me at Micrel, I always favor those countries and those peoples that were friendly to the United States. In other words, I would not want to offshore to a place where there was conflict between the country and our country. Because I know that could be short lived as you would, in my offshoring. Offshoring is expensive and to the extent you want to set it up, it’s to bring it back is not easy but I would never offshore to a country where there was political conflict between the… where I am and the offshoring of country is.
Rob Artigo: If I’m looking at my product and I… it’d be impossible to just come up with an example of something. I suppose that would make sense for the purposes of this conversation. But sometimes the product has multiple port… multiple parts and sometimes it’s a single product that’s manufactured on an assembly line that… using your Wafer Stepper for example. Puts the product on there. It’s all part of very high tech stuff. But if you have these different products and some things are done in one spot, but some things are maybe done in multiple spots for the purposes of bringing them all together. It can be very complex and how do I know when I’m prepared to be able to reach out to those different countries and make it work. So that is… it is an advantage. Like you said, offshoring can be expensive and it could end up being a mistake if you do it wrong.
Ray Zinn: Well… various countries are known for their various expertise. Like India is known for its software capability. Malaysia and Southeast Asia are known for their manufacturing… low cost manufacturing. So it’s that sort of… and then Israel’s well known for their technology, their creativity, inventiveness. And so other countries, they have their expertise and so you tend to go to the countries where there is a built-in expertise or at least the countries are favoring that particular expertise. If you just go to a country just because they’ve got low cost labor and they don’t have the expertise that you need your costs are actually going to go up.
Rob Artigo: I suppose that there are no guarantees against intellectual property theft when you’re doing… your offshoring activities, but what kinds of things can I do to mitigate those types of problems?
Ray Zinn: It’s like… locks are to keep the honest people honest, you’re not going to keep the thieves honest. I mean, if the thief wants to break into your house, he’s going to break into your house. We got 10,000 cameras and locked doors everywhere. You want to go to a country where they’re known for their integrity and that they’re not going to be… or then their laws also favor integrity and protection of your IP. Again, if you’re going just to cut your costs and you’re not taking into consideration the political environment, the reputation of that country for its honesty and integrity and protecting your IP. You’re going to lose in the long run.
Rob Artigo: And like you said, again, underscoring the fact that it can be expensive because if you lose your intellectual property and…
Ray Zinn: Right.
Rob Artigo: …if it ends up being sold on some knock off website somewhere, then you’re not getting anything out of it. Except for being the person who did all the hard work to create it and just so somebody else can take advantage of it and sell it for a cheap price. Is it a matter of networking? Reaching out to the people you know, and then finding out who they’re dealing with and who they trust, or how do I get there so that I know that I can trust the people that I’m going to use in these other countries?
Ray Zinn: Well, you can visit those countries that you intend on implementing your offshoring. You can also talk to other companies that offshore there and get their experience. So, there’s a lot of homework you can do. I mean with all the social media and the press has around the world are… because of the internet, we’re so well connected and interconnected that it’s almost impossible not to know and understand the country you’re doing business with. How many countries that you can think of right now that are enemies to the US that if you were to go there, you might even be kept there. You may not be able to even leave. So… go to places where they’re friendly to us or to your particular, if you’re an entrepreneur in India then… or in wherever you are an entrepreneur, in Germany, England. Make sure that the companies… countries that you’re offshoring with are friendly to your particular country.
Rob Artigo: And if you haven’t done all that due diligence. Don’t even bother, right?
Ray Zinn: Exactly.
Rob Artigo: If you step into something, you’re going to step into something that you are not prepared for. If you don’t know the laws of dealing with the those countries or the various… the costs of doing business with those particular countries. Even, I mean I think of Iran, you know there… we just simply American businesses simply just don’t do… can’t do business with Iran because there are restrictions there. And if you go to a place where you don’t know, I mean Iran might be an obvious one but there might be another country out there that, that there is a restriction regarding. And if you don’t know that, then shame on you for just not having done your homework.
Ray Zinn: Yeap. Put whatever country you decide to offshore with, make sure that there’s all going to be a long-term relationship there and that your intellectual property will be protected and that there’s not going to be a political unrest in a near future.
Rob Artigo: Smart decisions will help you in the long run for sure, right Ray?
Ray Zinn: Absolutely. Think smarter, pay later.
Rob Artigo: That’s right. Join the conversation on toughthingsfirst.com. Your questions and comments are always welcome. Make sure you rate this podcast and follow Ray on Twitter, Facebook, and LinkedIn. Thanks again, Ray.
Ray Zinn: Thank you, Rob.