American Dye House - Essay Example

Final Paper: American Dye House Most of what we buy in stores in recently years has been tagged as made in Japan, Mexico, or China. Rarely can one find a label that reads made in America. This is caused by outsourcing which as a trend has become quite common. During the course of this quarter, I have had the chance to intern at American Dye House shadowing the company CEO, Adam Vanunu. I have learnt a lot bout the advantages and disadvantages of outsourcing. During my ventures at the company, I have learnt a lot about the fashion industry, and about an operational company which is determined to keep its operations based out of LA. This got me thinking that if as a country we could bring back industrialization to the US, rather than act as a service based country, then we could create more jobs. I also considered the counterarguments against this. Lower costs associated with outsourcing are probably the prime benefit that a company could get from outsourcing of business (Greaver 65). The company gets the work done at only a fraction of what it would have had to invest locally, all the while receiving products of high quality. Due to the difference in standard of living as well as pay that exist between the US and such countries as Mexico and China, outsourcing ensures lower labour costs. By outsourcing to these countries, companies can be guaranteed at least 60% savings on costs. Another advantage of outsourcing is the distribution of risk. When a company outsources certain functions, they also do away or distribute the risk inherent in running the particular function (Greaver 65). An example: if a company feels that management of the payroll is claiming operational money and time, then it can outsource the function to a service provider. Outsourcing also improves the quality of customer service. Outsourcing allows the company service their clients faster, decrease turnaround time, and give better quality. It allows the company to achieve better people management (Greaver 66). Since outsourcing ensures the necessary skills needed to run particular functions are taken care of, the company achieves greater flexibility in key resource investment. Instead of working toward hiring for back office operations, the company focuses on acquiring resources for core competency growth. Outsourcing to China has the advantage of time zone difference. While business is closed in the United States, Chinese operations could get work done. This is beneficial for industries which provide all hour customer support (Greaver 67). With the struggles of the US economy, however, outsourcing decreases jobs for American citizens in the country. “The United States loses about 230,000 jobs annually due to outsourcing” (Hira & Anil 13). Outsourcing also leads to managerial control loss, since the service provider exists as an entity that is separately managed. Certain factors may be overlooked by the contract between the client and the service provider. For example, a design house that contracts work out to a manufacturing firm, say in China, has no way of knowing what working conditions exist in these locations. This lack of oversight for the outsourcing company could potentially damage the company’s reputation if it is exposed that their outfits are manufactured by underage labourers working under poor conditions and pay. The company also loses the chance to nurture in-house talent (Hira & Anil 13). By outsourcing, the company’s employees are denied the opportunity to develop experience and skills in the task that the company chooses to outsource. Apart from this, outsourcing also incurs increased expenses especially with hidden costs (Hira & Anil 14). While the idea of outsourcing is mainly advised by a desire to enhance profits for company, little attention is given to the costs incurred when engaging the service provider. For example, if a company obtains consultant services for hiring a vendor, they would have to pay the consultant a handsome figure. Coordination between the client and the service provider also involves drawing up of contract reviews and renewals, with both sides having unrealistic expectations. This incurs legal fees which eat into the bottom line. In addition, the vendors recruited may require training in order to sharpen skills and become more competitive. This requires funding from the company through the service provider. Another disadvantage is inflexibility. The service provider may be inflexible to business environment changes. Outsourcing causes a greater risk of the company outsourcing a function becoming entangled in the outsourcing nation’s politics, as well feel the effects of the regions political instability (Hira & Anil 15). This could hinder smooth operations for the outsourced function. Differences in culture are also a hindrance to efficient outsourcing. Differences in language and diction could cause misunderstandings. Finally, the company risks threats to its security and confidentiality. Service providers contracted to deal with a company’s finances are expected to respect high levels of secrecy and confidentiality (Hira & Anil 16). Any breach of this could lead to damage of the company’s reputation. It is thus clear that outsourcing is inherently not safe, and that it should be done only when necessary. While working at American Dye House, I had the opportunity to meet employees from diverse backgrounds and races. It struck me the company would have been very different if Adam did not have personal relationships with his employees and staff. It would, for example, be unlikely that he would know most of what happened in his company. I also learnt that since American Dye House was established 15 years ago, most of his employees have remained loyal to his company. The employees at the company are committed to loyalty and believe that hard work and good quality of work comes with benefits, especially at American Dye House. Sitting down to talk to some of the employees, I was struck by how diverse they were yet all were thankful for the position that they are allowed to hold in the company offices. In the knowledge that employment figures are falling and jobs becoming scarce, they all seemed to have a sense of ownership about their job. They did this without feeling like they were on the ledge and about to let go. It is obvious that in the corporate world, employees are scared of losing their position or job and do not have enough security to attain a sense of ownership about their positions. The internship experience has taught me just how crucial it is to have an excellent employer and how this works to create a feeling of family loyalty in the company. This drives the employees toward more quality work without having to stress out over the security of their job. This point leads me to discuss American Apparel, a company which I became very close to while interned at American Dye House. American Apparel moved from South Carolina to Los Angeles in 1997. On moving, its owner Dov Charney sub-contracted Sam Lim for his sewing function. At that point, Sam Lim had 50 employees. The two entered a partnership months later. The company continues to primarily grow primarily in wholesale, making blank tees and selling them to fashion brands, uniform companies, and screen printers (Fisher 4). The company then shifted to retail and ranked three hundred and eighth of the five hundred fastest growing companies (Fisher 4). The company in 2006 reverse merged with Endeavour Acquisition Corp. bought them out for $360 million. Charney became company CEO and president of the new company American Apparel Inc., as well as remaining as the company’s majority shareholder. American Apparel has the distinction of being among the few clothing enterprises that exports goods labelled “Made in the USA”. In the year 2007, the company sold approximately $125 million worth of clothing manufactured locally outside the country (Fisher 6). American Apparel also champions progressive policies which it christens sweatshop free. American Apparel operates and owns its own knitting facility, garment dye house, and fabric dye house. The company does not outsource any of its functions including labour and pays employees +$12 an hour, which translates to $100 and over per day. To counter its lack of outsourcing, the company utilizes team manufacturing, where the strongest workers are pooled for orders which are a priority. Every team is autonomous and is able to determine its production schedule and have a say on hourly wages. Garment production tripled after the structure was rolled out and only required a staff increase of below 20%. American Apparel, as a company, is vertically integrated. Its integration is extensive of over two hundred and sixty retail storefronts. All the stores are company owned. Through integration of all production aspects, and steering clear of outsourcing, the company has managed to, from concept of design to finished designs, achieve a fast turn-around time (Fisher 6). Founder Dov Charney claims that it only takes a short time to get a bathing suit to the floor of the store from an idea. According to him, a garment designed on Tuesday could be sold the following week in London. Due to this vertical integration and model of domestic manufacturing, the company’s gross margins are significantly much higher as compared to the rest of the apparel brands like GAP. According to American Apparel, its margins after blending are approximately seventy percent, as compared to GAP’s average of approximately thirty percent, as well as that of such luxury brands as Prada which range between sixty five and seventy percent (Fisher 15). Throughout the internship, I was in the position to gain a lot of knowledge pertaining outsourcing and what benefits could be gleaned from it. I also pursued counterarguments proving the disadvantages of the same. Is it possible that America can manufacture goods and items that will outweigh the benefits of outsourcing? This question is one that came up in my mind many times during the course of my internship. I watched people of all backgrounds work in an industrial setting, wondering, why can’t there be factories like this all over the country? There are many counter ideas and arguments that go against the notion of America moving from a service country back to an industrial one. As we know, there are health issues and many other problems that America faced during a time of industrialization. Work Cited Budde, Rebecca. Mexican and Central American L.A. garment workers globalized industries and their economic constraints. Münster Lit: NewYork, 2005. Print. Fisher, W Halder. The American apparel industry; an economic profile with extensive comparative data on the American textile industry. Washington,: American Apparel Manufacturers Association, , 2008. Print. Gereffi, Gary. Free trade and uneven development : the North American apparel industry after NAFTA. Philadelphia : Temple University Press , 2002. Print. Greaver, Maurice F. Strategic outsourcing : a structured approach to outsourcing decisions and initiatives. New York: AMACOM, 2009. Print. Hira, Ron and Anil Hira. Outsourcing America : whats behind our national crisis and how we can reclaim American jobs. New York: American Management Assoc , 2005. Print. Read More