It Thrives Thanks to Outsourcing in the Philippines
Small- to medium-oriented offshore suppliers have increased in number, much to the delight of companies like Crest Media, an SMB interactive marketing agency that does a full spectrum of Web site development and Internet marketing. Crest Media offers services competitive with those in the United States because it teamed with a Philippine provider that helps it increase quality and maintain higher margins.
According to President Mike Marquardt, the company was onshoring most of its Web development. “We found the high cost of development was not allowing us to be competitive because our margins were very low. The economy wasn’t helping either. We had two choices: go out of business in six months or outsource. We outsourced.”
Culture makes a difference
The company evaluated suppliers in India first. In negotiations with them, Marquardt got the feeling “they’re frugal and don’t like to negotiate price.” With the rise in the rupee versus the dollar and wage inflation, Indian suppliers are now charging significantly more than in the early outsourcing years. He found the savings “weren’t significant enough for us to get our costs down.”
Marquardt opted for the Philippines instead. He says the people there struck him as “humble and accommodating, which made our decision to go with a company in the Philippines easy.”
John Feldcant, CEO, BabbleGlass (the Philippine company Crest finally chose) agrees: “Filipinos as a culture tend to be remarkably friendly, responsive, and non-confrontational. They want to please. Those things all benefit a work relationship.”
Reporting directly to the boss
The way BabbleGlass did business was important too. With other suppliers Marquardt evaluated, the people who did the work did not report directly to the buyer — they reported instead to a project manager. With BabbleGlass, the people report directly to Marquardt; he knows exactly what they’re doing and how they’re utilizing their time. This lets him know if they are efficient or not.
Marquardt also found BabbleGlass to be excellent at hiring designers. It went through multiple resumes to find the right talent and then had Crest Media sit down with the management in the Philippines offices and interview the candidates one at a time.
Marquardt says, “We were able to do an interview process like we do here, which made hiring go smoothly.”
An all-in-one solution
The way the infrastructure works for Crest Media is this: the company has direct phone lines to the outsourced persons’ desks but mostly relies on instant messaging to communicate. The Philippines workers send images as attachments; if the files get really large, Crest has its own server and can upload data to it via file transfer protocol.
Getting the system up and running and the outsourced staff responding as they were supposed to was relatively challenge free. As Felcant explains, “The great problem and worry for SMBs is capital risk. It’s scary to push cash out there when you don’t know if the project is going to succeed (as opposed to a commodity you can see is selling pretty quickly). An SMB’s real fear is it’s not going to work.”
“Once we sorted that out,” Felcant explains, “Crest has been nearly a perfect client.” The thing that made it work for Crest, says Marquardt, is:
- It knew exactly what it wanted
- It was engaged
- It reviewed the work, determining whether it was satisfied
- It communicated if the supplier had to make changes
Despite the staff being outsourced, Crest is managing them as if they were in house.
“Where we see problems and failures is when the buyer has unrealistic expectations about how quickly things will get done,” explains Felcant. For instance, if it hires a new person, it’s worried about how long it will take the person to get up to speed, how effective the person will be, and so on, he adds.
In addition, some customers feel they don’t have to do anything. Felcant says, “They feel they don’t have to communicate, oversee, or help with developing the training that’s needed. Some feel we wave a magic wand and they will get everything they want out of these offshore people, who will solve problems they haven’t even defined.”
“In the case of Crest,” says Marquardt, “our outsourced people work very closely with us as a part of our team, and BabbleGlass has people around to help support us.”
A big upside to a small outsourced staff change
As a result, says Marquardt, Crest increased its work capacity and the quality of work is “equal to or better than what it was getting in the United States. Our margins are also higher because we don’t need as much money to operate, and we can offer more competitive pricing while still preserving good margins because we’re using cheaper labor.” Consequently, Crest’s customers are more satisfied, and the company is saving $5,000 to $20,000 a month, depending on the workload.
Crest’s competitive standing in its market also improved. “We’re more competitive in our space based on turnaround time, quality, and price. That would not have been possible without outsourcing,” says Marquardt.
Lessons from the Outsourcing Journal:
- Labor arbitrage using an offshore supplier can help an SMB survive tough economic times. In addition, the supplier’s work can improve customer satisfaction, which will help raise the firm’s competitive standing in its local marketplace.
- With the rise in the rupee versus the dollar and wage inflation, Indian suppliers are now charging significantly more than in the early outsourcing years. Some buyers now consider offshore outsourcing in countries such as the Philippines, where the savings are significant enough to achieve cost reduction.
- Offshore outsourcing relationships work best when the buyer knows exactly what it wants, engages in interactions, reviews the work, and communicates clearly when the supplier needs to make changes.