Michael Barbella, Managing Editor06.29.11
Most ardent fans of the television sitcom “Happy Days” are familiar with the episode in which the main character, Arthur Fonzarelli (Fonzie), dons water skis and jumps over a caged shark to prove his bravery. The episode became an instant classic after it aired in 1977, not for its superior storytelling or top-notch cinematography, but rather for its far-fetched plot and vastly divergent portrayal of the series’ original premise of family life in the 1950s. In the decades since Fonzie’s death-defying act, entertainment writers and pop culture enthusiasts have used the fictional feat to describe the moment in which a television program passes its peak of creativity and begins to decline in quality as well as popularity.
Hence the phrase “jump the shark.”
Jon Hein, creator of a now-defunct website that identified the point at which once-popular television shows “jumped the shark” and began their downward spiral, explained it simply: “It’s a moment. A defining moment when you know that your favorite television program has reached its peak. That instant that you know from now on…it’s all downhill. We call it ‘Jumping the Shark.’ From that moment on, the program will simply never be the same.”
For “All in the Family,” that moment came at the end of season eight, when the actors who portrayed Mike and Gloria Stivic left the show (their characters moved west with their son Joey). “Dynasty” jumped the shark the moment Moldavian terrorists opened fire in a church filled with wedding guests, and “Dallas” arrived at the tipping point the morning Pam Ewing woke up to find her long-presumed dead husband Bobby in the shower.
Over the last 33 years, the phrase “jump the shark” has been used in other industries to describe the point at which a brand, design, creative endeavor or business practice loses the essential qualities that once defined its success. As with television shows, business endeavors or products that “jump the shark” have no hope of recovery.
Such is the case with the Mini Countryman, a crossover SUV launched early last year by BMW. Pulitzer Prize-winning automotive journalist Dan Neil believes the vehicle’s chances of success are doomed because designers abandoned the essential quality that made the Mini brand popular with consumers: excellent handling in a nimble size. In a March review titled, “What Part of ‘Mini’ Did You Not Grasp, BMW?,” Neil wrote, “with the Countryman, tiny sharks have been jumped.”
Michael Kruklinski made a similar argument last month during a presentation about the revitalization of manufacturing. Addressing a crowd of more than 125 medical device contract manufacturers and suppliers in mid-May at the second Medical Product Outsourcing Symposium Costa Rica, Kruklinski argued that the practice of outsourcing is a concept long past its prime. He based his contention on published reports and a re-examination of the traditional reasons companies outsource parts of the manufacturing or product development process.
“My question to you is, has outsourcing jumped the shark? My response would be yes,” said Kruklinski, vice president, corporate development and strategy for Siemens Corporation, a global electronics and electrical engineering firm with U.S. headquarters in Washington, D.C. “One of the main reasons why companies go to different locations to make their product is labor costs. In some recent studies, more than 70 percent of companies said labor costs are still the main reason they go elsewhere to manufacture, but now they are also looking at the total cost of the supply chain—they’re looking at environment, things like currency risk and political risk. A lot of factors come into play.”
One of those factors is likely to take on a greater significance in the wake of Japan’s cataclysmic March 11 earthquake and tsunami. Companies with production facilities in the Land of the Rising Sun learned a hard lesson about site selection when a 9.0-magnitude earthquake and ensuing tsunami destroyed infrastructure and knocked out factories supplying everything from high-tech components to steel, forcing manufacturing titans such as Toyota Corp. and Sony Corp. to suspend production. South Korean electronics companies, which depend heavily on Japan for LCD glass, chip equipment, silicon wafers and other materials to make semiconductors, were among the most affected. Ford Motor Company felt the squeeze too: The automotive giant suspended production of black-colored vehicles due to a disruption in the supply of metallic pigments used in automotive paints.
It didn’t happen overnight, but Ford, Sony and other firms such as General Motors Company eventually fixed the supply chain links that Mother Nature so mercilessly destroyed in March. Merck KGaA, the German company that produces the metallic paint used by Ford and other major car manufacturers, resumed normal operations at Japan’s Onahama production site on May 8. Sony had all 10 of its Japanese factories up and running by the end of May, and General Motors resolved potential shortages of 113 products/components by the second week in May (only five products remain a challenge).
Hence the phrase “jump the shark.”
Jon Hein, creator of a now-defunct website that identified the point at which once-popular television shows “jumped the shark” and began their downward spiral, explained it simply: “It’s a moment. A defining moment when you know that your favorite television program has reached its peak. That instant that you know from now on…it’s all downhill. We call it ‘Jumping the Shark.’ From that moment on, the program will simply never be the same.”
For “All in the Family,” that moment came at the end of season eight, when the actors who portrayed Mike and Gloria Stivic left the show (their characters moved west with their son Joey). “Dynasty” jumped the shark the moment Moldavian terrorists opened fire in a church filled with wedding guests, and “Dallas” arrived at the tipping point the morning Pam Ewing woke up to find her long-presumed dead husband Bobby in the shower.
Costa Rica Fast Facts: AREA: 51,000 square kilometers LABOR FORCE: 2.12 million CAPITAL: San Jose POPULATION: 4.62 million GDP/CAPITA: $6,498 NUMBER OF UNIVERSITIES: 59 FOREIGN DIRECT INVESTMENT: More than $1.4 billion in 2010; has grown consistently at 13.5 percent over the last decade. EXPORTS: Last year, the country shipped more than 4,000 products worth $9.32 billion to more than 148 countries. Since 2001, exports have increased at an annual rate of 7.1 percent. MEDICAL DEVICE EXPORTS: From 2002 to 2010, annual growth was four times faster than other exports under the Free Zone Regime, reaching an average rate of 31 percent. TOTAL NUMBER OF MEDICAL DEVICE COMPANIES: 38 |
Such is the case with the Mini Countryman, a crossover SUV launched early last year by BMW. Pulitzer Prize-winning automotive journalist Dan Neil believes the vehicle’s chances of success are doomed because designers abandoned the essential quality that made the Mini brand popular with consumers: excellent handling in a nimble size. In a March review titled, “What Part of ‘Mini’ Did You Not Grasp, BMW?,” Neil wrote, “with the Countryman, tiny sharks have been jumped.”
Michael Kruklinski made a similar argument last month during a presentation about the revitalization of manufacturing. Addressing a crowd of more than 125 medical device contract manufacturers and suppliers in mid-May at the second Medical Product Outsourcing Symposium Costa Rica, Kruklinski argued that the practice of outsourcing is a concept long past its prime. He based his contention on published reports and a re-examination of the traditional reasons companies outsource parts of the manufacturing or product development process.
“My question to you is, has outsourcing jumped the shark? My response would be yes,” said Kruklinski, vice president, corporate development and strategy for Siemens Corporation, a global electronics and electrical engineering firm with U.S. headquarters in Washington, D.C. “One of the main reasons why companies go to different locations to make their product is labor costs. In some recent studies, more than 70 percent of companies said labor costs are still the main reason they go elsewhere to manufacture, but now they are also looking at the total cost of the supply chain—they’re looking at environment, things like currency risk and political risk. A lot of factors come into play.”
One of those factors is likely to take on a greater significance in the wake of Japan’s cataclysmic March 11 earthquake and tsunami. Companies with production facilities in the Land of the Rising Sun learned a hard lesson about site selection when a 9.0-magnitude earthquake and ensuing tsunami destroyed infrastructure and knocked out factories supplying everything from high-tech components to steel, forcing manufacturing titans such as Toyota Corp. and Sony Corp. to suspend production. South Korean electronics companies, which depend heavily on Japan for LCD glass, chip equipment, silicon wafers and other materials to make semiconductors, were among the most affected. Ford Motor Company felt the squeeze too: The automotive giant suspended production of black-colored vehicles due to a disruption in the supply of metallic pigments used in automotive paints.
It didn’t happen overnight, but Ford, Sony and other firms such as General Motors Company eventually fixed the supply chain links that Mother Nature so mercilessly destroyed in March. Merck KGaA, the German company that produces the metallic paint used by Ford and other major car manufacturers, resumed normal operations at Japan’s Onahama production site on May 8. Sony had all 10 of its Japanese factories up and running by the end of May, and General Motors resolved potential shortages of 113 products/components by the second week in May (only five products remain a challenge).
Page 2 of 4
Still, it could be quite a while before operations at these companies return to normal, if ever. Beyond the cleanup and the psychological scars and the division of life into pre- and post-quake eras lie challenges that significantly are more complex than merely finding replacement suppliers. The challenges, Kruklinski asserted during his 45-minute presentation, lie not in a company’s ability to successfully overcome a supply chain disruption, but rather in its efforts to prevent one from occurring in the first place. To do that, though, companies must re-examine their approach to outsourcing.
The crux of Kruklinski’s argument involves a change in philosophy. Historically, device executives have turned to outsourcing for several reasons: to reduce labor and material costs, to increase their supply chain efficiencies, or in recent years, to make the most of globalization. But going overseas no longer is as cost-effective as it once was.
Neither are many of the other reasons to outsource, according to Kruklinski. Since 2002, he told symposium attendees, labor and transportation costs have increased in other countries. Wages for Chinese migrant workers, for instance, jumped 19 percent in 2008 and 16 percent in 2009, according to the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences. Last year, American Honda Motor Company Inc. offered a 24 percent pay hike to its auto parts workers in Foshan, Guangdong, to end a labor strike, and Shenzhen (China), a southern manufacturing hub where many device makers have built manufacturing facilities, raised the minimum wage by an average 15.8 percent. Fourteen other Chinese provinces and regions followed suit, with the highest wage hikes reaching 20 percent.
Wages also grew significantly last year in India, another favorite outsourcing locale. Consultants with IHS Global Insight estimated that manufacturing labor costs shot up nearly 20 percent and could soon eclipse those in China. “Rapid growth, productivity gains, and an explosion in outsourcing have put increasing pressure on wages in developing economies like India and China,” said Katherine Lewis, a director at IHS Global Insight.
Kruklinski didn’t limit his argument against outsourcing to rising labor costs, however. He also reminded the audience that cycle and delivery times can rise when outsourcing overseas, despite a mistaken belief that globalization and instant communication easily can bridge the gap. Outsourced operations, Kruklinski argued, considerably can limit companies’ agility when product demand fluctuates.
“Manufacturing location does matter,” he said. “Just as in residential real estate, it’s location, location, location that matters.”
Indeed it does. The extent of its relevance was evident in the list of advantages local outsourcing partners offer to device OEMs (which Kruklinski effortlessly rattled off to the audience): knowledge of the federal device regulations and technical requirements; assistance in reducing companies’ carbon footprints (less fuel expended for transportation, Kruklinski explained); improved communication, which can be of particular importance during setbacks in the manufacturing process; faster speed-to-market; and local/regional job creation.
As he extolled the virtues of onshoring (or near-shoring, as some industry experts have referred to it), Kruklinski reiterated the underlying message of his presentation—that companies must re-examine their approach to outsourcing in order to be successful. To prove his point, Kruklinski shared Siemens’ own four-pronged strategy for site selection, telling the audience the global firm prefers to locate its manufacturing facilities close to its customers, in places it easily can access highly-skilled workers (the company has locations throughout the United States and the world, including Oxford, England; Forchheim, Germany; and Bangalor, India). The company also uses Lean practices to keep production costs down, and links research and development to its manufacturing sites, which has enabled the firm to custom design products for select markets.
One of those products was a pocket ultrasound device, developed first in Siemens’ production plant in Shanghai, China, and then brought to the United States for further distribution.
“Most of our products are custom engineered. In emerging markets, we’ve started to look at creating new product lines,” Kruklinski noted. “The insights we gained from our research and development in China, for example, led us to design a handheld ultrasound device specifically for that [Chinese] market. But when we introduced it to developed countries, it created a new market for us, and now, you can equip an ambulance in the United States with a [handheld] ultrasound for about $5,000. For us, co-locating manufacturing with R&D creates new opportunities for us.”
A Difficult Decision
Consultant John E. O’Brien gave credence to Kruklinski’s arguments about outsourcing, offshoring and near-shoring with a presentation at the symposium that really was more of a reference guide for corporate executives pondering such a move. He began his lecture by defining the word “outsourcing” and then discussing the criteria for implementing the practice.
“Outsourcing to me can mean getting a part, or having something assembled, or part of something assembled by an outside firm, and that could be a company down the street,” said O’Brien, president of O’Brien Consulting LLC, a Lyons, Colo.-based firm that helps companies locate offshore opportunities. “Outsourcing isn’t necessarily going international to produce something. International outsourcing only comes into play when you look to partner with someone overseas.”
Like his predecessor, O’Brien questioned whether outsourcing/offshoring still is an economical move for companies. In one of his slides, O’Brien quoted a narrative on offshoring written by three employees of global management consulting firm McKinsey & Company. In the article, the trio urges managers of global supply chains to re-evaluate the benefits of offshoring, claiming changing economic conditions have undermined many of the factors that initially enticed manufacturers to move production overseas.
O’Brien didn’t spend much time discussing the pros and cons of overseas outsourcing or offshoring. Instead, he named some factors device manufacturers should consider when such partnering choices arise. Most importantly, he said, the decision to outsource should be a corporate strategic move, one that is made by a board chairman or collectively by a company’s Board of Directors. It should not be left to lower-level executives such as manufacturing manager, chief operating officer, plant manager or vice president of marketing, O’Brien advised.
Still, it could be quite a while before operations at these companies return to normal, if ever. Beyond the cleanup and the psychological scars and the division of life into pre- and post-quake eras lie challenges that significantly are more complex than merely finding replacement suppliers. The challenges, Kruklinski asserted during his 45-minute presentation, lie not in a company’s ability to successfully overcome a supply chain disruption, but rather in its efforts to prevent one from occurring in the first place. To do that, though, companies must re-examine their approach to outsourcing.
The crux of Kruklinski’s argument involves a change in philosophy. Historically, device executives have turned to outsourcing for several reasons: to reduce labor and material costs, to increase their supply chain efficiencies, or in recent years, to make the most of globalization. But going overseas no longer is as cost-effective as it once was.
Neither are many of the other reasons to outsource, according to Kruklinski. Since 2002, he told symposium attendees, labor and transportation costs have increased in other countries. Wages for Chinese migrant workers, for instance, jumped 19 percent in 2008 and 16 percent in 2009, according to the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences. Last year, American Honda Motor Company Inc. offered a 24 percent pay hike to its auto parts workers in Foshan, Guangdong, to end a labor strike, and Shenzhen (China), a southern manufacturing hub where many device makers have built manufacturing facilities, raised the minimum wage by an average 15.8 percent. Fourteen other Chinese provinces and regions followed suit, with the highest wage hikes reaching 20 percent.
Wages also grew significantly last year in India, another favorite outsourcing locale. Consultants with IHS Global Insight estimated that manufacturing labor costs shot up nearly 20 percent and could soon eclipse those in China. “Rapid growth, productivity gains, and an explosion in outsourcing have put increasing pressure on wages in developing economies like India and China,” said Katherine Lewis, a director at IHS Global Insight.
“Manufacturing location does matter,” he said. “Just as in residential real estate, it’s location, location, location that matters.”
Indeed it does. The extent of its relevance was evident in the list of advantages local outsourcing partners offer to device OEMs (which Kruklinski effortlessly rattled off to the audience): knowledge of the federal device regulations and technical requirements; assistance in reducing companies’ carbon footprints (less fuel expended for transportation, Kruklinski explained); improved communication, which can be of particular importance during setbacks in the manufacturing process; faster speed-to-market; and local/regional job creation.
As he extolled the virtues of onshoring (or near-shoring, as some industry experts have referred to it), Kruklinski reiterated the underlying message of his presentation—that companies must re-examine their approach to outsourcing in order to be successful. To prove his point, Kruklinski shared Siemens’ own four-pronged strategy for site selection, telling the audience the global firm prefers to locate its manufacturing facilities close to its customers, in places it easily can access highly-skilled workers (the company has locations throughout the United States and the world, including Oxford, England; Forchheim, Germany; and Bangalor, India). The company also uses Lean practices to keep production costs down, and links research and development to its manufacturing sites, which has enabled the firm to custom design products for select markets.
One of those products was a pocket ultrasound device, developed first in Siemens’ production plant in Shanghai, China, and then brought to the United States for further distribution.
“Most of our products are custom engineered. In emerging markets, we’ve started to look at creating new product lines,” Kruklinski noted. “The insights we gained from our research and development in China, for example, led us to design a handheld ultrasound device specifically for that [Chinese] market. But when we introduced it to developed countries, it created a new market for us, and now, you can equip an ambulance in the United States with a [handheld] ultrasound for about $5,000. For us, co-locating manufacturing with R&D creates new opportunities for us.”
A Difficult Decision
Consultant John E. O’Brien gave credence to Kruklinski’s arguments about outsourcing, offshoring and near-shoring with a presentation at the symposium that really was more of a reference guide for corporate executives pondering such a move. He began his lecture by defining the word “outsourcing” and then discussing the criteria for implementing the practice.
“Outsourcing to me can mean getting a part, or having something assembled, or part of something assembled by an outside firm, and that could be a company down the street,” said O’Brien, president of O’Brien Consulting LLC, a Lyons, Colo.-based firm that helps companies locate offshore opportunities. “Outsourcing isn’t necessarily going international to produce something. International outsourcing only comes into play when you look to partner with someone overseas.”
Like his predecessor, O’Brien questioned whether outsourcing/offshoring still is an economical move for companies. In one of his slides, O’Brien quoted a narrative on offshoring written by three employees of global management consulting firm McKinsey & Company. In the article, the trio urges managers of global supply chains to re-evaluate the benefits of offshoring, claiming changing economic conditions have undermined many of the factors that initially enticed manufacturers to move production overseas.
O’Brien didn’t spend much time discussing the pros and cons of overseas outsourcing or offshoring. Instead, he named some factors device manufacturers should consider when such partnering choices arise. Most importantly, he said, the decision to outsource should be a corporate strategic move, one that is made by a board chairman or collectively by a company’s Board of Directors. It should not be left to lower-level executives such as manufacturing manager, chief operating officer, plant manager or vice president of marketing, O’Brien advised.
Page 3 of 4
Determining whether outsourcing is the right option for a company is not always an easy task. But corporate chieftains can help simplify the decision-making process by asking a series of questions that loosely can be compared to the six-question inverted pyramid model that journalists typically use to write news stories. The first question—and most important one— according to O’Brien, is simple.
“Why do you want to do this? The decision has to be based on the answer to that question,” O’Brien explained. “Will it help serve customers more efficiently? Will it help lower your production costs? Will it enhance or replace your U.S. operations? These are all questions you have to answer before you make the decision to outsource.”
Other questions that should be answered include:
• How will outsourcing influence capabilities and services?
• How will outsourcing affect lead times?
• How will outsourcing affect product quality (if at all)?
• How will outsourcing affect customer service (if at all)?
• What effect (if any) will outsourcing have on costs/prices?
• What influence will outsourcing have on internal morale?
• Is your company prepared to enter into an outsourcing partnership? If so, will employees need training?
• How “global” are your employees?
• Does your corporate culture complement your outsourcing partner’s local culture?
• If you’re setting up shop in a foreign country, consider factors such as the political stability and safety of the nation. What is the risk of a coup? How high is the crime rate? Is the country under military rule?
• Consider the political, economic, social and financial forecasts for your chosen offshore site. Is the country’s economy primed for long-term growth? Is the leadership expected to remain in power for the near future?
• Does the country offer a Foreign Direct Investment (FDI) incentive? How can that help with production costs?
• What kind of general management and engineering talent exists?
• How educated is the workforce (for all skill levels, from managers to line workers)?
• Will raw materials and/or services need to be imported to make your product? If so, how will that impact profits?
Site selection can be just as nerve-wracking as the decision to outsource, but company executives can ease that burden as well by familiarizing themselves with the various geographic markets and their earnings potential. O’Brien provided a quick overview of the worldwide device markets for his audience, giving manufacturers his best estimate of their worth, potential for growth and their ability to develop a major medical equipment sector. One of the best options in the $7.4 billion Latin American market, O’Brien told symposium attendees, is Costa Rica, thanks to its well-established medical device core (38 companies have set up shop there over the last decade), its high FDI rate (more than $1.4 billion), superior literacy rate (ranked first in Latin America) and strong commitment to education (6 percent of the country’s budget goes to the schools). Countries such as Brazil and Nicaragua have good potential, while Chile is handicapped by its location (the distance can be a problem) and Mexico currently is more renowned for its violence than its manufacturing centers.
There are few options in Europe other than Ireland, which has a good medical device core, according to O’Brien. In Asia, China has become the manufacturing behemoth, outmuscling most of its neighbors to become a major outsourcing destination over the last decade.
“China has become a huge market. They’ve had a little trouble with inflation of late, but the internal market is huge and has great potential,” O’Brien said. “Plus, they’re moving to a consumer-driven economy and that bodes well for companies that market their products to consumers.”
Once the decision to outsource has been made, companies must then choose a partner. James Shore from Boston Scientific Corp. peppered his 45-minute lecture with tips and best practices in picking a teammate. Some were based on common sense: Experience counts. Thoroughly assess risk. Communicate clearly.
Other tips were not as obvious: Prioritize needs. Conduct reference checks. Develop a clear set of objectives.
“You have to figure out what your needs are,” noted Shore, principal quality engineer at the Natick, Mass.-based device giant. “My old boss used to tell me ‘if everything is a priority then nothing is a priority.’ Choose the most important elements that you want in a supplier and figure out if that supplier can meet those needs. It’s very important as an OEM to vocalize your need because not everyone is going to be a match. The nature of the device and the quality associated with the product should determine how you look at suppliers and how you select them. Look at what the device is, where it is manufactured and the risks involved, and make a decision [about suppliers] based on that data.”
Nothing about supplier selection is easy, though choosing an outsourcing partner can seem elementary compared to developing and managing a relationship with a foreign supplier or contract manufacturer. Several symposium speakers offered their expertise on ways to overcome this challenge, imparting their wisdom to audience members during a concluding panel discussion. Representatives from Tegra Medical, Hologic Inc., ArthroCare Corp. and Helix Medical LLC shared secrets and suggestions for relationship building that can traverse oceans and international time zones.
Each participant in the panel discussion had a different recipe for success, though their respective formulas all shared one common ingredient: mutual respect for both partners’ corporate and societal cultures. Costa Ricans, for example, generally are courteous, non-confrontational and live their lives without timetables (known locally as “Tico” time). Foreign companies unfamiliar with Costa Ricans’ lack of punctuality might consider the practice disrespectful, failing to realize that Tico time and residents’ standard reply of “ahora” (meaning “now” in standard Spanish) are part of the country’s culture.
“It’s like a marriage,” Dora Soto, executive vice president of global business development at Helix Medical, reminded the audience during the panel discussion. “A manufacturing relationship is really a joint venture between cultures. It’s not a matter of “you” or “me,” it’s “us.” We’re not working for our own good, we’re working for the good of the company. If we know what to expect from the start, working together is easier.”
Good working relationships, however, don’t happen overnight, particularly in countries such as Costa Rica, where the medical device industry is still in its infancy (it has existed for merely a decade). Like most relationships, outsourcing partnerships require good communication, patience and, perhaps most importantly, trust.
“Trust is one of the key aspects of building a successful business in Costa Rica,” noted Alexander Unfried, general manager of Costa Rica operations for Helix Medical. “Big corporations usually communicate by email, but email can be interpreted in many different ways. Expressing your intent and emotions helps build trust, but you can’t do that by email. When you’re setting up a new operation or you are working with new people, you have to set up your expectations and force people to talk. Get on the phone and build that trust. Once you get to know your people better, then go to email.”
Determining whether outsourcing is the right option for a company is not always an easy task. But corporate chieftains can help simplify the decision-making process by asking a series of questions that loosely can be compared to the six-question inverted pyramid model that journalists typically use to write news stories. The first question—and most important one— according to O’Brien, is simple.
“Why do you want to do this? The decision has to be based on the answer to that question,” O’Brien explained. “Will it help serve customers more efficiently? Will it help lower your production costs? Will it enhance or replace your U.S. operations? These are all questions you have to answer before you make the decision to outsource.”
Other questions that should be answered include:
• How will outsourcing influence capabilities and services?
• How will outsourcing affect lead times?
• How will outsourcing affect product quality (if at all)?
• How will outsourcing affect customer service (if at all)?
• What effect (if any) will outsourcing have on costs/prices?
• What influence will outsourcing have on internal morale?
• Is your company prepared to enter into an outsourcing partnership? If so, will employees need training?
• How “global” are your employees?
• Does your corporate culture complement your outsourcing partner’s local culture?
• If you’re setting up shop in a foreign country, consider factors such as the political stability and safety of the nation. What is the risk of a coup? How high is the crime rate? Is the country under military rule?
• Consider the political, economic, social and financial forecasts for your chosen offshore site. Is the country’s economy primed for long-term growth? Is the leadership expected to remain in power for the near future?
• Does the country offer a Foreign Direct Investment (FDI) incentive? How can that help with production costs?
• What kind of general management and engineering talent exists?
• How educated is the workforce (for all skill levels, from managers to line workers)?
• Will raw materials and/or services need to be imported to make your product? If so, how will that impact profits?
Site selection can be just as nerve-wracking as the decision to outsource, but company executives can ease that burden as well by familiarizing themselves with the various geographic markets and their earnings potential. O’Brien provided a quick overview of the worldwide device markets for his audience, giving manufacturers his best estimate of their worth, potential for growth and their ability to develop a major medical equipment sector. One of the best options in the $7.4 billion Latin American market, O’Brien told symposium attendees, is Costa Rica, thanks to its well-established medical device core (38 companies have set up shop there over the last decade), its high FDI rate (more than $1.4 billion), superior literacy rate (ranked first in Latin America) and strong commitment to education (6 percent of the country’s budget goes to the schools). Countries such as Brazil and Nicaragua have good potential, while Chile is handicapped by its location (the distance can be a problem) and Mexico currently is more renowned for its violence than its manufacturing centers.
“China has become a huge market. They’ve had a little trouble with inflation of late, but the internal market is huge and has great potential,” O’Brien said. “Plus, they’re moving to a consumer-driven economy and that bodes well for companies that market their products to consumers.”
Once the decision to outsource has been made, companies must then choose a partner. James Shore from Boston Scientific Corp. peppered his 45-minute lecture with tips and best practices in picking a teammate. Some were based on common sense: Experience counts. Thoroughly assess risk. Communicate clearly.
Other tips were not as obvious: Prioritize needs. Conduct reference checks. Develop a clear set of objectives.
“You have to figure out what your needs are,” noted Shore, principal quality engineer at the Natick, Mass.-based device giant. “My old boss used to tell me ‘if everything is a priority then nothing is a priority.’ Choose the most important elements that you want in a supplier and figure out if that supplier can meet those needs. It’s very important as an OEM to vocalize your need because not everyone is going to be a match. The nature of the device and the quality associated with the product should determine how you look at suppliers and how you select them. Look at what the device is, where it is manufactured and the risks involved, and make a decision [about suppliers] based on that data.”
Nothing about supplier selection is easy, though choosing an outsourcing partner can seem elementary compared to developing and managing a relationship with a foreign supplier or contract manufacturer. Several symposium speakers offered their expertise on ways to overcome this challenge, imparting their wisdom to audience members during a concluding panel discussion. Representatives from Tegra Medical, Hologic Inc., ArthroCare Corp. and Helix Medical LLC shared secrets and suggestions for relationship building that can traverse oceans and international time zones.
Each participant in the panel discussion had a different recipe for success, though their respective formulas all shared one common ingredient: mutual respect for both partners’ corporate and societal cultures. Costa Ricans, for example, generally are courteous, non-confrontational and live their lives without timetables (known locally as “Tico” time). Foreign companies unfamiliar with Costa Ricans’ lack of punctuality might consider the practice disrespectful, failing to realize that Tico time and residents’ standard reply of “ahora” (meaning “now” in standard Spanish) are part of the country’s culture.
“It’s like a marriage,” Dora Soto, executive vice president of global business development at Helix Medical, reminded the audience during the panel discussion. “A manufacturing relationship is really a joint venture between cultures. It’s not a matter of “you” or “me,” it’s “us.” We’re not working for our own good, we’re working for the good of the company. If we know what to expect from the start, working together is easier.”
Good working relationships, however, don’t happen overnight, particularly in countries such as Costa Rica, where the medical device industry is still in its infancy (it has existed for merely a decade). Like most relationships, outsourcing partnerships require good communication, patience and, perhaps most importantly, trust.
“Trust is one of the key aspects of building a successful business in Costa Rica,” noted Alexander Unfried, general manager of Costa Rica operations for Helix Medical. “Big corporations usually communicate by email, but email can be interpreted in many different ways. Expressing your intent and emotions helps build trust, but you can’t do that by email. When you’re setting up a new operation or you are working with new people, you have to set up your expectations and force people to talk. Get on the phone and build that trust. Once you get to know your people better, then go to email.”
Page 4 of 4
Hitting a Home Run
The 45-minute panel discussion on managing manufacturing relationships was the final presentation of the three-day symposium. The event began on May 11 with one-on-one meetings that paired suppliers and contract manufacturers with medical device firms. Executives from Allergan Inc., Hologic and Hospira Inc. spent three hours meeting clients and potential customers inside several rooms of the Costa Rica Marriott Hotel in San Jose. For some companies, such as Helix Medical, the meetings were an opportunity to discuss issues face to face, without the typical distractions of email, ringing cell phones (or landlines) or various office-related crises.
“Having a dialogue outside either of our facilities was important,” Wendy A. Hinchey, Helix’s vice president of sales and marketing in the Americas, said after sitting for roughly 30 minutes with Roy E. Calderón, materials director, and Christian Cordero, purchasing supervisor at Allergan, an Irvine, Calif.-based multi-specialty healthcare company. “It allowed us to see how our goals are aligned strategically for the next few years.”
“Plus, you get the full attention. You don’t get pulled away by something,” added Unfried. “It’s nice to talk to your customers face to face.”
Representatives with Polymer Solutions, a Blacksburg, Va.-based independent testing laboratory, had the chance to talk to Boston Scientific’s Shore face to face, though he wasn’t part of the one-on-one meetings. The group spoke outside the exhibit hall, with Polymer Solutions bigwigs touting the company’s materials capabilities. The company also met with Hologic officials, and while Polymer Solutions executives did not disclose many details of the encounter, they said the meeting allowed both companies to learn more about each other.
Such a quick (but effective) education was the motivating factor for a handful of contract manufacturing firms that did not have scheduled one-on-one appointments but lingered outside the meeting rooms nonetheless in hopes of creating their own impromptu business opportunities. Two employees of Vante waited patiently for the meetings to end, as did Robert T. Alvarez, technical sales consultant for Priamus System Technologies Inc., a Brunswick, Ohio-based provider of control systems solutions.
“As a subcontractor or contract manufacturer, being able to reach key individuals inside an organization in a country like this is very difficult,” Alvarez said, his business cards and sales pitch ready to go at a moment’s notice. “This kind of face-to-face meeting is super important. It’s really very hard to meet with people—they’re always busy. Even if I can hand one of these guys my card and ask to talk to them at the reception tonight or sometime tomorrow morning, boom—there it is. I just hit my home run.”
Contract manufacturers such as Alvarez had several opportunities to hit their home runs during the symposium. More than 100 attendees gathered at a welcome reception in the Marriott’s open-air plaza on May 11, and the exhibit hall enabled companies to familiarize themselves with each other during a networking break and luncheon on May 12. More fraternizing took place during afternoon tours of four medical device manufacturing facilities and later that evening at dinner. The four companies that hosted tours included BeamOne LLC, Boston Scientific (its Endoscopy and Cardiovascular operations are housed in two separate facilities), Hologic and Hospira. The symposium (and networking opportunities) culminated on May 13 with an early-morning golf outing at Valle de Sol.
“This was a great opportunity,” Alvarez said. “All the key players are here. And, more importantly, I was able to find out the truth about what is happening in this country in regards to the medical device industry. I’m hearing that companies are moving down here faster now because it’s a good place to set up shop. Soon there will be a whole tier of contract manufacturers setting up support systems for the larger companies, and it would be good to get in on the ground floor of that movement. Meetings like this go a long way in allowing a company like mine to do that.”
Hitting a Home Run
The 45-minute panel discussion on managing manufacturing relationships was the final presentation of the three-day symposium. The event began on May 11 with one-on-one meetings that paired suppliers and contract manufacturers with medical device firms. Executives from Allergan Inc., Hologic and Hospira Inc. spent three hours meeting clients and potential customers inside several rooms of the Costa Rica Marriott Hotel in San Jose. For some companies, such as Helix Medical, the meetings were an opportunity to discuss issues face to face, without the typical distractions of email, ringing cell phones (or landlines) or various office-related crises.
“Having a dialogue outside either of our facilities was important,” Wendy A. Hinchey, Helix’s vice president of sales and marketing in the Americas, said after sitting for roughly 30 minutes with Roy E. Calderón, materials director, and Christian Cordero, purchasing supervisor at Allergan, an Irvine, Calif.-based multi-specialty healthcare company. “It allowed us to see how our goals are aligned strategically for the next few years.”
“Plus, you get the full attention. You don’t get pulled away by something,” added Unfried. “It’s nice to talk to your customers face to face.”
Representatives with Polymer Solutions, a Blacksburg, Va.-based independent testing laboratory, had the chance to talk to Boston Scientific’s Shore face to face, though he wasn’t part of the one-on-one meetings. The group spoke outside the exhibit hall, with Polymer Solutions bigwigs touting the company’s materials capabilities. The company also met with Hologic officials, and while Polymer Solutions executives did not disclose many details of the encounter, they said the meeting allowed both companies to learn more about each other.
Such a quick (but effective) education was the motivating factor for a handful of contract manufacturing firms that did not have scheduled one-on-one appointments but lingered outside the meeting rooms nonetheless in hopes of creating their own impromptu business opportunities. Two employees of Vante waited patiently for the meetings to end, as did Robert T. Alvarez, technical sales consultant for Priamus System Technologies Inc., a Brunswick, Ohio-based provider of control systems solutions.
“As a subcontractor or contract manufacturer, being able to reach key individuals inside an organization in a country like this is very difficult,” Alvarez said, his business cards and sales pitch ready to go at a moment’s notice. “This kind of face-to-face meeting is super important. It’s really very hard to meet with people—they’re always busy. Even if I can hand one of these guys my card and ask to talk to them at the reception tonight or sometime tomorrow morning, boom—there it is. I just hit my home run.”
Contract manufacturers such as Alvarez had several opportunities to hit their home runs during the symposium. More than 100 attendees gathered at a welcome reception in the Marriott’s open-air plaza on May 11, and the exhibit hall enabled companies to familiarize themselves with each other during a networking break and luncheon on May 12. More fraternizing took place during afternoon tours of four medical device manufacturing facilities and later that evening at dinner. The four companies that hosted tours included BeamOne LLC, Boston Scientific (its Endoscopy and Cardiovascular operations are housed in two separate facilities), Hologic and Hospira. The symposium (and networking opportunities) culminated on May 13 with an early-morning golf outing at Valle de Sol.
“This was a great opportunity,” Alvarez said. “All the key players are here. And, more importantly, I was able to find out the truth about what is happening in this country in regards to the medical device industry. I’m hearing that companies are moving down here faster now because it’s a good place to set up shop. Soon there will be a whole tier of contract manufacturers setting up support systems for the larger companies, and it would be good to get in on the ground floor of that movement. Meetings like this go a long way in allowing a company like mine to do that.”