Sunday, October 7, 2007

Outsourcing and Micro Multinationals

There are two main reasons for ANY small business in the industrialized world to go multi-national. The first and the most obvious one is to expand the market reach.  The 2nd one, less obvious but more important, in my opinion, is to increase efficiency and drastically reduce business overheads.

The former is more realistic for businesses like Heaven Fresh that heavily rely on the Internet to promote their products and services, but is not necessarily feasible for small businesses that need a brick and mortar presence e.g.  a restaurant, a grocery store, a barber shop or a clothing store.  The later, i.e. increasing efficiency, reducing overheads and maximizing profits by hiring overseas employees,  is something that even a home based business can take advantage of. To give a few examples, the daily bookkeeping and accounting is a mandatory chore for every business. Most of the small business owners end up spending a large chunk of their time on the bookkeeping .  This is a task that can be easily carried out by an overseas employees for the fraction of the cost. Certain routine marketing functions can also be outsourced, for example, creative writing, graphics design, coupon creation, distribution of the coupons using online tools, PR and sales analysis etc.  Other more complex functions that can be performed remotely may include e-mail/ telephone customer service, virtual inventory management, security monitoring, data entry and business consulting etc.

It would cost Heaven Fresh at least $10,000 / month (possibly more) in salaries to execute certain accounting, customer service web site development and  marketing functions if the employees are to be hired in Canada, UK or the USA.  But having qualified employees half way across the globe to perform the same functions has reduces the salary cost to only about $2500/month.  Not only that going "multi-national" increased efficiency and reduced overheads but it also freed the time of the local company employees to be spent on business expansion and growth activities.

Although large multi-national companies have been taking advantage of overseas outsourcing for almost two decades now, this trend has not caught up with small businesses. Even though, in my opinion,  small businesses are in a more desperate need of help due to limited resources and financing.

So, why is it that vast majority of the small businesses is not benefiting from this new trend?  Two of the biggest reasons that I see are as follows:

  1. The lack of global networking ability on the part of small business owners to find qualified and reliable people.
  2. Not having the resources to put a software infrastructure in place for collaboration among the geographically scattered team.

Providing both of the above is a monstrous opportunity for any software company. The introduction of low-cost software tools for remote collaboration combined with the "business social networking" can potentially turn every small business into a micro-multinational.

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