Insourcing; think about it!

There was an interesting segment on French TV last night. Apparently some companies who had outsourced their labour to foreign countries were scuttling back after it all went wrong. Both companies featured complained about the lower quality costing them customers and the first explained that the cheap labour cost in Roumania wasn't all it seemed: ie Although the cost in France was 30 euros per hour versus 6, there were hidden costs, such as low productivity, transport, more management staff, etc that put the full Roumanian cost at 36 euros per worker. These were all things they just hadn't thought of. Meantime the manufacturer who'd gone to China complained about only having two colour options - both gray - and the hand-finishing causing fit-up problems. As Jeremy Clarkson would say, "hand-built is just another way of saying the door won't shut right", which is fair comment on metal objects at least. A 3rd businessman made an all-out effort to have a made in France label as a matter of pride. Let's face it a prestige manufacturer with a made in China label is just not possible. But in order to do that he needed to squeeze his suppliers. Well there's no better time than a crisis to try that. We need to take risks and make strong partnerships to survive. The Japanese though used to pay extra to ensure good suppliers but it's changed days now. I'll bet they are feeling the Chinese bite too.

Contrast this with the Ross Perot/Al Gore encounter about NAFTA where Perot correctly predicted all jobs would go South and Al disagreed. Well besides the jobs argument, just how much of the collapse of the US car industry is down to poor quality? Customers are difficult to get and even more difficult to get back when they've been let down. Short-termist thinking needs to be rooted out of managers heads. The best way to do that is probably to put engineers in charge :) like they do in France, Germany, Japan and China. France wavered a bit with US hire-em-fire-em ideas but the law stopped them and Germany had a short-lived experiment with US management but this crash has ended all that. Now they know they were right all this time.

The car industry is my benchmark for business generally and it seems that they survive due to protectionism, national pride in engineering, good management and single-union, no-strike deals. If Japanese manufacturers can manage to build and sell quality cars in the US and UK then clearly the idea that unions or workers were to blame for a car industry closure is a total red herring: It is perforce the management at fault. And that is from making decisions on a short-term quarterly return basis rather than thinking about long-term customer satisfaction. Blindly outsourcing your product is a perfect example that will come back to haunt many. Sadly on their return, one of the French manufacturers discovered that the workforce they'd abandoned had moved on and there was a shortage of skills necessary to run the machinery.

Finally I read a lot of whining from US and UK fund managers about European work hours and regulations that stop you firing people on a whim. But when it's easy to fire people, what kind of workers do you get? Answer: ones who won't tell you when you are wrong. And if it's easy to get people to work long hours routinely then are you getting the best work done in the best way - or are you getting a horses arse of a job produced by an overtired, overstressed worker? If you've ever worked in the oil industry you'll know the latter is the case.

There should be a compromise position and I for a while thought that the UK employment laws were best in that respect; reasonable protections, no impediments to startup. However for some reason it doesn't work as well as you'd think. Why? Well I've found that the worst problem in the UK is late payment. I'm pretty sure that's what kills most businesses and I'm also sure that's the intention of the accountants who keep this practice up. It goes like this; get the job done from small supplier on credit, refuse to pay, supplier goes out of business, ergo no need to pay. Even government departments practice this. My own uncle was forced out of business when after he'd done a lot of work for the local council, the Labour party decided to abolish county councils and replace them with regional councils instead. The old council couldn't pay and the new one said it was not their bill. Many, many businesses were lost in the same way because the only redress was via expensive court proceedings. Don't tell me that the Labour party is about workers. A whole bunch of accountants should be in jail for that scam. Of course any excuse works for late payment and if you've done the job already then you are shafted.

So if you are starting a small business in the UK the lesson is clear: NO CREDIT EVER. Personally I'm quite insulted when a company sends a purchase order. It's so second nature to them that they don't seem to even realize they are actually rudely assuming that I'll give them credit rather than politely asking for it. If someone ever tries that one on then send a pro-forma invoice and explain in clear terms that you don't ever give credit, because of bad experiences with late payers. That way they might actually realize that they've been begging for credit like a street urchin while pretending to be a world class company. They'll whine about their systems not being set up for that but it's all just toss. Be firm and you'll discover they can pay up front very easily when they feel like it!

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