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Outsourcing is a tricky conundrum for many New Zealand businesses. On the one hand, getting an external party to work on a part of your product or service, or some other aspect of your business can free up time for you to focus on what you do best. But, on the other hand, you will usually be increasing your expenses by getting someone else to do work you can do yourself. Therefore, you could lose some control over that part of work.

This article sets out three tips for you to think about when thinking about outsourcing in New Zealand. They include focusing on your comparative advantage, retaining control over your product or service, and getting good value when outsourcing.

Focus On Your Competitive Advantage

Your business’ competitive advantage is whatever your business does better than its competitors. This could be all manner of things, from a trusted brand to a product with additional dimensions at the same price point compared to competitors. The key thing when thinking about outsourcing in New Zealand is to weigh up whether outsourcing some part of the business will enhance or detract from your business’ comparative advantage. 

New Zealand businesses are ordinarily outsourcing some part of their operation or workstream to focus on something else. Indeed, suppose you can dedicate time to enhancing your business’ competitive advantage (through saving time in another part of the business that is not so vital to your competitive advantage). In that case, outsourcing can make a lot of sense. Think strategically about your business’ point of difference. Perhaps you can free up resources spent elsewhere so you can double down on that point of difference. 

Outsourcing is a question of resources in terms of time but also in terms of money. An important part of the puzzle is how much it will cost to actually outsource the work. Even if it frees up time, if it costs a huge amount of money, outsourcing may risk your competitive advantage. This is because it may restrict the capital or money you have available to enhance your point of difference.

Make Sure To Retain Control Over Your Product Or Service

A common challenge with outsourcing part of the production of your product or service is losing control over its quality and management. No matter the nature of your product or service, you should select the external provider carefully. You should emphasise quality control both at the point of selection and on an ongoing basis. Indeed, you should be checking the work that is being outsourced is up to standard. 

You also want to ensure you have strategic control of your business’ key processes and intellectual property, including any secrets. Having a non-disclosure agreement (NDA) in place with your external provider is a very common step to alleviate these concerns. An NDA is useful whenever you need to share information about production or volumes with another party. Again, you can get expert advice from a lawyer on the extent to which your existing intellectual property protections will protect you. Indeed, you may need to supplement existing protections with a non-disclosure agreement. 

Getting Good Value From Outsourcing

Finally, you should do a holistic review at two points. First, when you are considering outsourcing. Secondly, you should review a few months or years into outsourcing. This way, you can ensure outsourcing is good value for your business. Indeed, you may be freeing up cash flow to some extent. However, you will usually be paying some sort of premium when outsourcing compared to doing the work yourself. Importantly though, sometimes this can be advantageous from a capital expenditure perspective. 

Rather than acquire equipment or tools to do that part of the production, you may be able to outsource to a provider with that equipment already. You should complete a cost-benefit analysis factoring in these different considerations to see if you are getting sufficient value from your business’ outsourcing. 

Key Takeaways

Outsourcing can be a great option for your business to focus on its competitive advantage and free up valuable time and resources to do what you do best. On the other hand, there are some challenges and potential pitfalls that come with outsourcing any part of your business’ operations. You should ensure you retain control over the quality of your product or service and that you are receiving good value after factoring in the cost of the external provider. 

If you would like more information about outsourcing, contact LegalVision’s commercial lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a competitive advantage?

A competitive advantage is something that sets your business’ products or services apart from the rest of the market (your competitors). This is often a cheaper price point or a better product or service.

What is quality control?

Quality control is the process of ensuring that the quality of a product or service is of a particular standard. This is typically an important part of building a successful brand. 

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