Tag Archives: Offshore

How Do You Guide a Company Through a Sale? Five Thoughts

Situation: A company was built on capital equipment complemented by annuity sales of supplies used by the equipment. The company is moving toward automation of technology and offshore production of OEM equipment. An OEM partner will take on the equipment side of the business and the company will focus on automated supply solutions with sales direct to the end customer. The OEM partner has approached the company with a purchase offer. How do you guide a company through a sale?

Advice from the CEOs:

  • It is important to determine the value proposition, both from the company’s standpoint and the standpoint of the OEM buyer. The company’s objective will be to optimize the intersection of these two views of the value proposition — to its benefit.
  • Look at current employees and the technology and determine what to do to preserve their positions and interests. This will become part of the negotiation, but it is essential to have a clear idea of how this meshes with the CEO’s personal priorities.
  • Look to outside experts for advice on exit and succession planning.
  • Determine the CEO’s vision and path of involvement up to the sale. This involvement is negotiable, but should remain consistent with the CEO’s vision during the negotiation.
  • What is the company’s patent position, and the value of the patents in terms of future revenue? IP produces a future revenue stream. Consider the valuation to be in the range of 4 years of IP value.

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How Do You Change Suppliers for a Key Product? Four Thoughts

Situation: A company buys several important components from a single US supplier. They are considering an offshore source for one of these components which makes up a large portion of what they purchase from the supplier. Does off-shoring make sense in this case, and how do they mitigate the risk? How do you change suppliers for a key product?

Advice from the CEOs:

  • The key consideration is the off-shore partner’s ability to reliably make the component at the price promised. If they can, why not outsource offshore?
  • The decision depends upon two additional factors: the amount that you stand to save by off-shoring your source, and the potential cost to you of inconsistent or unreliable components from the off-shore supplier.
    • If the cost of failure is high, a modest savings is less valuable. You may want to wait until you have higher volume and higher potential savings before looking at off-shore sources.
    • In the US, we assume – with some security – that a pilot run predicts a large run. Historically this has not been shown to consistently apply to offshore suppliers.
  • Can you afford to invest and potentially lose the amount that it would cost you to secure your first production order from the off-shore source?
    • If the answer is yes, invest the time and effort to visit the supplier, and secure resources to monitor their production – your own or a trusted partner’s. Your presence and interest are very important.
    • The principal challenge will be quality and consistency of raw materials, and varying age of production equipment used to produce your components.
  • Are you concerned that your current supplier might cut you off?
    • The CEO is not sure, but has identified this as a risk.
    • If this is the case, start now identifying second sources for other components made by this supplier – if only to keep them honest in price, quality and delivery.

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How Can You Best Reduce Costs? Six Points

Situation: A company wants to reduce their cost of engineering. They are considering outsource options, both domestic and overseas, as well as remote offices in lower cost regions domestically. How can you best reduce costs?

Advice from the CEOs:

  • An emphasis on cost may be misplaced. Consider instead of where you can offer the best value to your customers or clients. Focus on and compete in best part of your market – the place where you possess the strongest advantage; then worry about cost.
  • Outsource companies can be dangerous partners. Assume you only profit from the first job that you give them and that they may be your competitor the next time around.
  • We’ve learned from the last decade of experience in Asia that cost advantages are often temporary. Salaries for top talent in India and China now approach those in the US. This experience is likely to be repeated in Southeast Asia.
  • Focus on high dollar services and opportunities.
    • There are limitations to offshore talent – especially in complex, multi-step development projects. Keep high dollar projects in-house because they justify higher prices and margins.
    • When you outsource, negotiate retainer contracts with additional charges for work above and beyond the scope specified in the retainer.
  • What do you want to be? Consider your options:
    • Become a project management company and outsource development.
    • Be a development company and just look for cost effective sources of labor.
    • Start your own outsource company – a split-off staffed by your own employees – and feed them work.
  • Before you invest substantial time or money, do a test.

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