Tag Archives: Delivery

What is Your Experience Outsourcing to Eastern Europe? Five Factors

Situation: A company is in contact with an Eastern European company that seeks outsourced business from the US. The CEO seeks guidance on challenges managing as well as formalizing this relationship. What is your experience outsourcing to Eastern Europe?

Advice from the CEOs:

  • Location in Eastern Europe is important. There have been concerns with both corruption and IP protection in Russia. Some other Eastern European are more aligned with US/European values and farther up the ramp as outsource partners.
  • Experience of other US companies suggests that your spec must be written much more tightly than if you were doing the work here. If you can’t write a tight spec on the work, don’t outsource it!
  • Contract outsourced work on a fixed fee basis with the bulk of payment due on completion. This helps to assure that you receive timely delivery and the quality of work required.
  • Set up thresholds for the circumstances to engage an outsource partner.
    • Say one US worker is economically worth 5 foreign workers in your domain. Do you have enough work to support this?
    • Determine who will manage the outsourced work. A European is fine, as long as they have experience managing outsourced work.
    • Someone on your team will become their Project Manager. This can be VERY time consuming.
  • Consider setting up an offshore company to shelter some of the revenue from the outsourced work.
    • You want to locate the offshore company in a tax-free country, and to have them handle the funds connected with the outsourced work.
    • The contact in the tax-free country will likely be an accountant, lawyer or both. There are many reputable individuals who do this in tax-free countries, but be sure to check references and background carefully.

Key Words: Outsource, Eastern Europe, Challenges, Manage, Relationship, Experience, Concerns, Alignment, IP, Corruption, Contract, Protect, Spec, Fee Basis, Delivery, Quality, Parameters, Tax Shelter

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What is the Best Response to a Price Cut Request? Eight Thoughts

Situation: A key customer just asked for a price reduction. Our raw materials costs have increased and eroded our margins. What is the best way to respond?

Advice from the CEOs:

  • Are you selling a commodity or a unique and differentiated product?
    • Commodities rarely command a premium above market unless you can bundle with differentiated delivery.
    • Unique or differentiated products justify a premium because the customer has only two choices: purchase at your price or try to develop an alternate source.
  • The customer may have valid reasons to request a lower price.
    • Counter with a combination lower price and lower level product to retain your margins.
    • If the sale involves service, assign less expensive resources in return for a lower price to preserve margins.
    • Define the trade-off to the customer so that it becomes their decision, not yours.
  • Adjust your terminology. Use “run rate” vs. “price,” and speak of balancing resources assigned. Avoid cheapening or commoditizing your offering to meet the customer’s price demand.
  • Don’t assume that there is such a thing as a “fair price” or “fair margin.” The price is whatever the customer is willing to pay for your offering. The price increases the more unique it is, and the more critical to the customer’s needs.
  • Do NOT share your cost and margin information – as company policy.
  • Consider combinations of pricing, terms and delivery that keep you whole while offering the customer different price points.

Key Words: Price Reduction, Margin, Costs, Commodity, Differentiation, Counter-Offer, Resources, Terms, Delivery  [like]