Why Direct-To-Consumer Brands Should Think Twice Before Outsourcing
For many brands, selling directly to consumers allows for hyper-personalization and revolving opportunities to engage potential, first time and regular buyers. Direct-to-consumer (DTC) companies are able to make more intelligent decisions about their efforts because they receive instant customer feedback.
And as per Stephen Diorio’s How Leading Brands Are Winning The ‘Direct-To-Customer’ Conversation, going the DTC route is gaining in popularity. ”The number of manufacturers selling directly to consumers is expected to grow 71% this year to more than 40% of all manufacturers. And over a third of consumers report they bought directly from a brand manufacturer’s web site last year.”
Moreover Diorio writes that “direct-to-customer innovation is coming from a wide range of industries – from traditional packaged goods, to apparel, building products, travel services, consumer electronics, and financial services.”
However, many of these direct-to-consumer businesses outsource tasks to overseas companies. According to Smart CEO “more than 2 million U.S. jobs were outsourced in 2013, including call center (12%), research & development (38%), and IT services (43%).”
Is the lure of cheaper overhead, lower labor cost, and reduction in taxes really a more profitable option in the long run? At one time or another, we’ve all had the frustrating experience of interfacing with a company representative based in another country who was poorly equipped to handle a problem. Businesses outsource everything from call centers, to travel services, to product manufacturing.
But sometimes those cost savings have adverse effects which impact entire industries and regional economies.
Outsourcing offshore is popular among corporations and is increasingly popular among brands. But companies need to be wary. The regulatory environment in many of the countries which U.S. corporations outsource to is weak. As a result, intellectual property theft, trademark infringement, and copyright violations can occur and leave the U.S.-based business with little recourse.
According to the Organization for Economic Co-operation and Development, counterfeit items, millions of which enter the U.S., cost the global economy more than $250 billion per year.
Changing The Status Quo
Outsourcing is no longer a panacea for SME or DTC brands, they need to deeply evaluate resources available domestically before choosing to outsource. Arguing that ‘the rest of the industry is outsourcing, so we should too’ is not a sufficient reason to overlook the risks.
UpWork specializes in crowdsourced work, so it’s no surprise the company was built using a team largely made up of contractors. The company is the product of a merger between the two largest freelancing platforms, ODesk and Elance. As Stephane Kasriel, CEO of Upwork, pointed out, 150 of the site’s 200 product and engineering workers are freelancers they hired through the ODesk marketplace.
Your Product Is Your Brand
Poor or inconsistent quality will lead to consumer mistrust and a tarnished image that can be difficult to bounce back from. Specifically with direct-to-consumer enterprises, the repercussions from a poor product can be disastrous.
Negative reviews have a powerful impact on a DTC company. 95 percent of people who had a bad experience with a medium-sized business said they told someone about it, compared to 87% who shared a good experience, according to the corporate technology market research company, Dimensional Research.
“Consumers sourcing online are Internet savvy, and if they’re dissatisfied with a product, there is a high likelihood they will share that opinion through outlets such as Yelp, Facebook, or YouTube,” says Jamie Reardon, CEO and co-founder of SaaS influencer marketing platform Find Your Influence. “In today’s digital marketplace, anyone can be an influencer, and opinions matter. That means quality control is integral to any business model, especially when you’re looking to scale both your brand and your reputation.”
Potential For Human Rights Violations
The brand disadvantages of outsourcing are not confined internally, they affect the country as well. The working conditions in countries such as Cambodia are typified by the “work fast or get out” motto. Both the garment industry and the jewelry industry are frequent perpetrators of sweatshops and human rights violations.
Manufacturing and producing onshore guarantees workers have limits on their work day, are paid a minimum wage, and are not subject to offshore governments weakening the rules under the guise of “global competition.”
Risk vs. Reward
As Diorio astutely points out DTC ”can pay off for almost every brand. But it’s difficult and risky.” He also wisely that it takes a village, literally. “Without CMO or CEO level vision, leadership, commitment and ownership it will be impossible to coordinate the business units, customer touch points and enterprise processes needed to execute a Direct-to-Customer strategy.”
All of this spot on but become even more important and vital when considering to outsource especially to a foreign country as I laid out above.