Business Owners Have Qualms About Offshoring

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By Gayle Cinquegrani

Have you ever wondered what goes through a business owner’s mind when he’s deciding whether to move some of his operations to a foreign country? If you assume the only consideration is profit, you’d be wrong.

Business owners “are not machines,” and “many of them are emotionally conflicted when it comes to sending jobs overseas,” Martina Musteen, a business professor at San Diego State University, told Bloomberg BNA Jan. 5. “Many of the managers do not follow strictly a cost-benefit analysis.”

In a study of 22 businesses in the San Diego area, mostly startups and small companies, Musteen found that a feeling of patriotism made it harder for some business executives to offshore their work.

“I feel very strongly about building things here in America,” Eric Reinhorn, one of the participants in Musteen’s study, told Bloomberg BNA Jan. 4. He runs a small, family-owned manufacturing company in San Diego that builds ground support equipment for aircraft maintenance. Reinhorn said his company has never used offshoring.

Chinese businesses frequently inquire about doing some of his production, but “the amount of product that I build does not warrant it,” Reinhorn said. His 10-employee company only builds “equipment in allotments of 50 or 100 at a time.” Furthermore, he said, his contracts with the Defense Department limit the amount of offshoring his company can do.

Philosophical Qualms

Even if offshoring were feasible for his company, Reinhorn would have philosophical qualms. “It bothers me to take jobs overseas” because keeping jobs in the U.S. “puts people to work,” he said. The “manufacturing base” is “what made our country great.”

Paul DiPerna, a partner at Fuel Source Partners in Escondido, Calif., also has reservations about offshoring. “For a small startup, it makes absolutely no sense to go offshore,” he told Bloomberg BNA Jan. 3. Problems inevitably occur as a startup develops its product, and offshoring presents “logistical nightmares” that can delay a company’s ability to fix glitches at overseas production facilities, he said. By contrast, if the production facility is in the U.S., “you’re able to get your engineering and operations teams over to make the rapid changes,” he said. Therefore, it’s easier to outsource an established product than an evolving product.

DiPerna previously ran a company called Tandem Diabetes Care, which made “a very complex insulin pump.” At Tandem, DiPerna decided to outsource only the smallest part, to Denmark, because “it’s too difficult to control what’s going on as they build your product” in another country.

Patriotism and “a personal loyalty” to the suppliers he used previously also influence DiPerna. “I feel a certain allegiance to the people who got me where I am,” DiPerna said. “It’s difficult to abandon them for strangers miles and miles away.”

DiPerna is not planning to offshore any of the work associated with a cardiac monitoring gadget being developed by his new business venture. “The cost is not worth it versus the unknown quality, the unknown language and culture, and the uncertainty about the design,” he said. “If somebody down the street is making your parts and doing a good job, it feels very wrong to me to yank that product and send it to a foreign country.”

Necessary for Success

By contrast, Lea Wolf told Bloomberg BNA Jan. 4, “I don’t feel any guilt” about outsourcing. “I wish it could be different,” she said, but she does “whatever it takes to be successful.”

Wolf is the chief executive officer and founder of iclique-in technology inc., a San Diego-based company that owns “an app that connects blue collar workers with employers via bilingual text messages” in English and Spanish. It enables employers to contact workers who lack computer access and skills, she said.

Wolf’s company, which has four employees in the U.S., offshores most of its work. It sends its software development work to India, Pakistan and Russia, and it has call centers in Mexico.

“The main reason is to save money,” Wolf said. In the U.S., she would pay software developers $50 to $100 per hour, but in India, Pakistan and Russia, she pays only $15 to $25 per hour.

The second reason is the diligence of workers in other countries, who “work until they satisfy your needs,” no matter how many revisions are required, Wolf said. By contrast, in the U.S., “the contracts need to be so detailed” and require “a lengthy negotiation,” she said.

Now, for software development, “I go right away to other countries,” Wolf said. “I don’t even entertain to hire here.” She is less likely to outsource website design because “design is a matter of taste” that varies among cultures. American designers are more “attuned to what navigates better” and pleases users in this country, she said.

To contact the reporter on this story: Gayle Cinquegrani in Washington at gcinquegrani@bna.com

To contact the editors responsible for this story: Tony Harris in Washington at tharris@bna.com

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