The Collateral Damage of Outsourcing Manufacturing

Author: Wayne Conrad

Over the past three decades, outsourcing, typically to Asia, has been regarded as a straightforward way of reducing costs and gaining a competitive advantage in the marketplace. Companies have transferred equipment as well as the process and materials knowledge required to make good product.

While there were many challenges at the beginning of this industrial shift, not the least of which were language barriers, time-zone disruption and differing perspectives on quality control, over time the transpacific relationships have matured and, for the most part, are functioning effectively. Moreover, while western companies have usually retained a design capability in their home offices, increasingly far east suppliers are understanding western tastes and evolving their own design competency. 

Over the past few years, concerns over the “theft” of intellectual property have grown and become a hot topic. Many companies are concerned that their partners are “stealing” their intellectual property and developing new products based on it and their own designs. While this is undoubtedly occurring, I believe there is a much more insidious issue associated with outsourcing manufacturing, one with far more serious consequences.

By outsourcing manufacturing, companies are losing the practical knowledge that comes with manufacturing and that is so important as the basis for new-product development. Day-to-day manufacturing leads to observation, awareness and learning, all critically important for inspiration and innovation. It enables refinement of the production process and provides a solid grounding as experimental research and development are carried on. It increases the odds of developing the next successful commercial embodiment.

Further, many new patents evolve from experimental development and improvements on the factory floor. Historically, the company’s R&D team would collaborate with the manufacturing team and the resulting knowledge would fuel its growth. However, with outsourcing of manufacturing to a company half way around the world and in a different time zone where the workers speak a different language, this type of collaboration is problematic, despite the best of intentions by all parties.

Asian manufacturing partners are not “stealing” intellectual property, they are actually creating it and the western companies contracting their manufacturing are financially enabling it. Western companies are, in effect, funding their future competitors.

The human capital situation is equally troubling. Over the past few decades, western companies have relied on engineers, scientists, technicians and other staff with hands-on manufacturing experience to develop new products and keep their companies competitive while their manufacturing partners have made increasingly higher-quality, lower-cost products. As these experienced engineers, scientists, technicians and other staff retire, there are no replacements available with manufacturing experience. This void is leading to companies becoming increasingly less competitive.

One way for companies to remain relevant in the decades ahead is to look to the latest energy-efficient, compact, minimally polluting manufacturing equipment and processes available to re-establish a manufacturing presence on their home soil. Companies have a unique opportunity to take control of their destiny by capitalizing on the experience of their senior staff, mentoring bright new staff, and establishing new manufacturing ventures onshore using modern equipment and processes. By doing this, they can effectively compete with their offshore manufacturing partners who are often invested in less efficient, labour and energy-intensive legacy equipment.

I have spent four decades in research, experimental development and manufacturing. I understand what is involved in taking concepts from the lab into production and taking knowledge gained from manufacturing back into the lab to develop new products and processes. My team and I have over 500 patents to show for this.

If you have an idea, I encourage you to get involved with a local manufacturer to help you, or that you work with a team that can provide you with modern manufacturing equipment and process consulting to allow you to transform your idea into a reality. This is how you can create a solid future for you and your company.

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