What You Need to Know About Outsourcing Now

Exchange rates and the recession have changed the outsourcing calculus

Handing off any business function to an offshore company—from manufacturing to legal research—can cause anxiety in even the most battle-tested entrepreneur. But outsourcing can be a critical element to thriving in a bad economy. That's why the BusinessWeek SmallBiz team has jumped in to talk with consultants, outsourcing firms, and business owners to find out what you need to know about outsourcing—and, most important, what has changed since the last time you may have considered the option.

And plenty has changed. For one thing, great service outsourcing opportunities have emerged in Costa Rica and other Latin American nations with plenty of English speakers and a modest time zone difference with the U.S. Vietnam is coming on strong as a manufacturing hub for businesses willing to brave its rough infrastructure. The global economic slowdown is giving American business owners new leverage with Chinese manufacturers.

These changes come as the pressure to outsource mounts. Outsourcing a business service can sometimes cut costs in half, and successfully outsourcing manufacturing can save even more. Even if some entrepreneurs may be reticent, investors are enthusiastic. "Many venture capitalists won't look at you unless you have a plan to outsource," says Amar Gupta, professor of management and technology at the University of Arizona's Eller College of Management.

But a closer look at outsourcing may lead to a surprising conclusion. Shifts in exchange rates, plus the strain on resources needed to manage a relationship with an overseas plant, make manufacturing in the U.S. newly viable for some. Nearby production facilities are particularly important for companies whose products have a short life span and can't sit in transit for weeks, or for whom custom orders and quick turnaround are the norm.

Those companies often turn to U.S.-based manufacturers such as Jim Dyer's Metal Products. With 85 employees, the McMinnville (Tenn.)-based sheet metal fabricator has invested heavily in new equipment over the past two years, cutting turnaround on some jobs to just 24 hours. "If you have a product with constant revisions and don't want to hold a lot of inventory, we are your guys," says Dyer. Leave it to entrepreneurs to find a way to preserve the tagline "Made in America."

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