Over the course of the past two
decades, most industries in the US have found themselves targeted by lower-cost
off-shore providers. For the most part,
we now live in a ‘free trade’ world, where your products can be made more
cheaply, and your services can be delivered at less cost, from someone who may
have never even been to your city or state.
You would think that some industries might be immune from off-shoring. You would be wrong.
Consider your corporate lawyer. Lawyers have to know US federal, state and local laws, must interact with clients and courts, and deliver highly confidential services. Certainly Lawyers could never be off-shored. Right?
Lou Dobbs predicted in 2004 that 8-10% of all legal new hires would be located in ‘lower-cost countries’, working for 20% of current US wages. Forrester Research predicted that by 2015, some 489,000 US lawyer jobs would move to lower-cost countries. Even the Harvard Business School noted in their Jan/Feb 2004 article, “Bye-Bye Billable Hours – Strategy and Innovation” that much of this country's legal research would be delivered from off-shore providers.
If you make a commodity product, like rivets, or tires, or even major component assemblies, you’re probably already competing with off-shore suppliers. If you provide almost any kind of professional service, it is highly likely that you are competing with well-financed low-cost off-shore suppliers, whether you know it or not.
So how do you compete in an open Global Economy? From my experience, there are two reasonably good strategies that you can employ.
Strategy #1: Get behind a legal barrier. The best example of this approach is to pursue US Defense contract work. Defense contracts are often covered by export control regulations, such as ITAR (International Trade in Arms Regulations) and EAR (Export Administration Regulations). If you can build a product or deliver a service that falls under ITAR defense rules, then you can go a long ways towards blocking access to that work by your off-shore competitors. This is not absolute, as it is possible for a defense contractor prime to secure an export license enabling an off-shore player to participate, but in general, export controls are your friend from an off-shore competition standpoint.
Strategy #2: Establish strong IP barriers. Intellectual Property (IP) is that unique ‘secret sauce’ that only you have. It could be a patented technology, a unique manufacturing process, a secret coating or lubricating chemistry, or even a proprietary delivery process that allows you to deliver faster and with higher quality than anyone else. If you don’t already have well-defined IP, then you should start an internal initiative to develop or acquire some.
If you do have IP, you need to protect it from loss, continue to innovate around it, and promote it heavily to your target customers as the thing that strongly differentiates you from all of your competitors.
For long-term growth, you need to find a path that will position your firm as #1 or #2 in its space. If you have no intention of becoming #1 or #2, then you should not expect strong growth, because your goal is to be more of a 'lifestyle company' (though there’s certainly nothing wrong with that).
If you do strive for sustainable growth but do not have a legal barrier to entry nor any well-differentiated IP, then your best option will be to innovate like crazy and generate a lot of marketing ‘buzz’ about your fast-moving research, your strongly creative innovation, your product-leading development process and/or your efficient operations. Essentially, you create a marketing ‘aura’ of strong IP where none actually exists, a strategy that can help you to overcome (or cover up) a fundamental weakness in your business model; the lack of IP.
Best strategy for growth: position your business as #1 or #2 in its space, and look to develop or acquire IP to establish a strong defensive barrier around your business.