How a small, mid-sized and big entrepreneur should take a decision between in-house manufacturing and outsourcing. Small companies at their initial stage and big companies like Apple Inc. at the peak, always look for outsourcing their manufacturing in order to reduce their cost. On the other hand, most of the mid-sized companies prefer in-house manufacturing. To help the entrepreneurs take a better decision according to their requirement and capacity, Prof. Gupta shared this below information about the risks and benefits of self-manufacturing and outsourcing as below: # **#1: Factors of Outsourcing and Self-Manufacturing** Outsourcing and self-manufacturing /production depends on the following factors: **Save Cost:** A small entrepreneur while starting a business do not have a plant, machinery and technology. As such he outsources the manufacturing to an expert to start the business at a low cost. In this, they provide their own material to the manufacturer and sell the product. **Component Outsource:** In this, an entrepreneur assembles the complete product himself, but outsource the different components and sub-components to different manufacturers. To manufacture the sub-components, he has to do backward integration in the business. # **#2: Why to Choose Self-Manufacturing** **Economical Manufacturing:** When you choose to self-manufacture the product you have to ensure economies of scale in manufacturing to reduce the cost. It means when you increase your scale of manufacturing, your production cost automatically comes down. **Regular Requirement:** When you set up a plant, it should be your regular requirement. Make sure that your plant and machinery do not remain unused for most of the months in a year. If you set up a plant but run it for just 2 months in a year then it will increase your cost instead of decreasing. **Master the Technology:** When you decide to self-manufacture your product, you should be the master of the technology, otherwise it will be difficult to maintain the quality. # **#3: Benefits of self-Manufacturing** **High profitability:** The person who you are outsourcing your manufacturing part will take away 10-15% of the profit, reducing your profitability. But the self-manufacturing will reduce your cost and increase profitability significantly. **Good Quality:** As compared to outsourcing, you can produce a good quality of product through self- manufacturing even at a lower cost. **Innovation:** you can bring innovation in your business through self-manufacturing and have control over product quality, which is not possible in outsourcing. Your requirement will be under your control as your cost of inventory will be less. # **4#: Requirements of Self- Manufacturing** When you self-manufacture the product: - You have to set up plant and machinery - you need a big chunk of investment - you need to increase the labour force Therefore, you have to do cost-benefit analysis of these factors and strike a balance in your equation before finalizing the best option for you. # **#5: Legal Documentation in Outsourcing to Prevent Piracy** What should a small business owner, who does not have manufacturing capacity, do legal documentation to prevent his product from being copied from outsourcing? Following are the legal documents need to be prepared while outsourcing the manufacturing to avoid your technology from being copied: When you start a business: - prepare a non-disclosure document when you transfer your technology to the manufacturer - prepare a supplier-purchase agreement, mentioning the name of the owner, possessing the intellectual property rights (IPR) of the technology. This will make the manufacture legally bound to the contract. - If you have created a design or technology, you have to register it as your IPR to prevent piracy Once these documents are prepared, you will be legally protected from any 3rd party copying your business. # **#6: tackle the Piracy from Destroying Your Business** Only products of popular brands are copied e.g. Rolex watch, which is the most copied brand in the world. To protect your product from being copied, you should have intellectual property right of it. When someone copies your product, it becomes difficult to catch them as they do not leave any trace. Even if you capture a small trader and penalise him, it does not benefit you that much. You have to catch the manufacturer, the main culprit, to stop the duplicity of your product. You can stop piracy of your product in the following ways: - Build a strong investigation and raid mechanism to catch the fake manufacturer - Keep doing the investigation to create a fear among duplicate operators People stop copying your product when people are caught and penalised continuously. You can also avoid duplicity of your product by: - Changing your model frequently - Upgrading your technology frequently If you keep changing your product, no one will be able to copy your product at the speed you upgrade your product.