Making Offshore Engineering Pay Off
Updated: Nov 21, 2021
How some companies send design work overseas without fear of diminished quality or intellectual property theft.
Published by Booz Allen Hamilton | TECH & INNOVATION | strategy+business | May 2007 Issue 47 by Serge Lambermont and Anil Verma
Most manufacturers can easily tick off any number of practical reasons either for building new factories in China, India, Vietnam, and other low-cost nations or for buying parts from suppliers based in those countries. Simplified supply chains, better inventory management, and sharply reduced costs are among the obvious benefits. But the same group displays less enthusiasm for offshoring design and engineering.
On the face of it, that’s a logical response. For one thing, compared to manufacturing and materials, engineering typically accounts for a tiny portion of the total cost of a product and therefore tends to merit little attention from top management. And perhaps more importantly, many manufacturers view engineering as the company’s “crown jewel” — and they thus desire to keep it close to home, where it can be sheltered from intellectual property theft.
These rationales, however, overlook a critical but seldom recognized fact: As with factory operations, not all engineering tasks are created equal. Some design tasks are complex, continually evolving, or proprietary, and require sophisticated skills, a high degree of consultation with customers, or protection from piracy. Consequently, these activities are usually best maintained in-house. But other endeavors, such as engineering simple, modular parts, are the equivalent of commodities and can be handled advantageously in low-cost regions.