Unlimited Partners

Fast-changing markets are forcing companies to redefine the art of subcontracting.

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Ron Dickey drives to work in a Rolls-Royce these days, but he came up the hard way. Starting at 17 with a job sweeping a garment factory floor, he worked his way through the industry ranks as a cutter, a sewing-shop foreman, and eventually head of production for major southern California manufacturers.

Thus, when Dickey decided to go off on his own in 1979, the thing he knew best was production. In an industry dominated by fast-talking salespeople and high-flying designers, Dickey believed that he could succeed by putting out a superior product for the high end of the women's budget-garment market. "There is so much garbage out there," he says quietly, sitting behind a Mickey Mouse telephone in his office at So What! of California Inc. "Everyone else tries to be number one in sales, but I figured that if you went for the quality and offered it at budget prices, you could make it."

But with only $25,000 from the second mortgage on his house, and an additional $25,000 from a partner (who later left the company), Dickey knew he could not finance his own sewing operation. For that, he would need $100,000 to cover start-up costs alone. So, like hundreds of other Los Angeles garment manufacturers, Dickey went looking for subcontractors -- small, independent shops that perform much of the sewing work in California's multi-billion-dollar garment industry.

Today, So What! boasts sales of $15 million, and the 43-year-old Dickey could easily afford to bring his sewing in-house. Yet he still prefers to contract it out instead. Mainly, Dickey says, he uses subcontractors (referred to simply as "contractors" in the garment trade) so he can focus his own efforts on such other areas as quality assurance, product design, and marketing. "If I had another one of me to run the factory, I would do it myself and make money with it," he explains as he inspects garments arriving from the adjacent sewing shop of Kee Kwon, his top subcontractor. "But there's only one of me, as far as I can see."

Less Can Be More

Dickey's reliance on such independent contractors as Kwon, who employs more than a hundred workers in his sewing operation, reflects a growing trend among entrepreneurs in diverse industries. Indeed, some observers believe that in today's markets, it is more important than ever for an entrepreneur to build strong working relationships with subcontractors.

"This is one of the ways for a small company to maintain its competitive advantage of speed and flexibility, one of the ways it can be creative," says Paul M. Kelley, managing partner of Zero Stage Capital Equity Fund, a seed venture capital firm in Cambridge, Mass., that specializes in investments of less than $150,000. In addition, Kelly points out, subcontracting allows a young company to leverage its capital and human resources, thereby minimizing the need for outside equity or bank debt while facilitating the management of growth. "Less can be more if you have good instincts," he concludes.

This is particularly true in the brave new world of microelectronics, where product cycles get shorter every year and the ability to move quickly into new markets is crucial. Safi Qureshey, president of AST Research Inc., an Irvine, Calif.-based maker of microcomputer add-on boards, uses subcontractors to assemble most of his company's products. Despite skyrocketing sales -- $12.7 million in 1983, $63.8 million last year, and $58 million in just the first two quarters of fiscal 1985 -- Qureshey thinks that using subcontractors for the labor-intensive printed circuit board assembly process helps AST retain its entrepreneurial character.

"To survive, we have to be a $100-million company that work like a $10-million company," says the bearded, 33-year-old native of Pakistan. "We can't afford to build a huge labor force and management bureaucracy and still keep on top of our market. Our subcontractors give us the freedom to do that."

Similar reasoning applies to older but still volatile industries, such as jewelry. Jewelry manufacturers rely heavily on subcontractors for soldering, prepackaging, and other services. Fully half of the estimated 800 to 900 jewelry establishments in the Providence metropolitan area -- where nearly a quarter of all the nation's precious jewelry is made -- perform these crucial subcontracting tasks.

By contracting out specialized jobs, says Steven Brown, president of Bazar Manufacturing Co., in Cranston, R.I., manufacturers can limit the hiring of new employees who might be subject to layoffs during the industry's seasonal fluctuations. "It's a kind of risk-spreading," explains Brown. "Some people hire everyone and then just lay them off when times get bad. I wouldn't do that. I use subcontractors instead."

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