Second Opinion: Sacrificing Relationships for a Bargain By: Jim Glidewell, Glidewell Laboratories

There has been much debate of late as to the affect offshore laboratories have on the dental profession. There are many of sides to this debate, and everyone’s point of view generally reflects how it personally impacts his or her own pocketbook.

If you operate a laboratory in the US, obviously you are against it. If you are a dentist, you might be all for the offshore competition because you want to control your overhead costs, so you can keep fees down for your patients. Dentists are driving the demand for low-cost restorations and that demand is being driven by insurance companies. If you are a patriotic US citizen, you might rail against the loss of manufacturing jobs to countries like China while wearing pants, shirts and shoes all made in China. Today, some Honda cars are built in Ohio, while Ford assembles trucks in Mexico. Mercy, that is confusing.

People normally vote for their own selfish interests. If they can buy a similar product cheaper, they will buy it no matter the country of origin. And yes, eventually jobs tend to be lost to countries that have cheaper labor forces. It’s the normal cycle of a free society and our country may be on the back side of the bell curve. This slide away from our position as the dominant economic world power seems irreversible at this time.

What about offshore laboratories? If you can reduce your laboratory costs by 40% or more, you might have to consider it. We felt that we were losing a lot of our business to low-cost offshore competitors, so from a self-defense standpoint we wanted to create alternative facilities. Glidewell has two offshore laboratories: Pacific Edge in Tijuana, Mexico and Smith-Sterling in Cartago, Costa Rica. We cover a large part of the market, from upper-middle pricing to upper-low pricing. Our lowest price for an offshore crown is $65. Our offshore labs serve both dentists and other laboratories.

These offshore facilities have a completely different name and identification from our US operation. They operate independently and share no operational areas except the use of our marketing team. We never send work from our facility to theirs. They have produced some sample crowns for us for a marketing campaign. Other than that, total independence. Their prices are about 30–40% less than ours.

I cannot say that I am “pro-offshore labs” or “anti-offshore labs.” I own two, but they are not yet profitable and I am not sure about the return on investment that others may be having. I think that the Chinese labs that are the source of concern are probably doing very well in China. I am not sure how the companies that are doing the distribution of the cases are going to fare. So, from a business owner’s position, it is too early to tell how profitable this market segment will be. This may end up a failed attempt in the history of dental technology. China has always been the lowest cost producer of items with long lead times. This is the first real foray into a time sensitive service business.
As a dentist, what you gain in cost reduction you may pay dearly for with a decrease in communication, a loss of a close professional relationship with your local technician, maybe even the loss of your local lab that handles emergency, rush cases and many other things we now take for granted.

Now, you may be wondering about the dental technicians’ education in offshore labs. Everywhere in the world, most labs have the same type of over-the-shoulder training. Very few have extensive video training courses or qualified instructors to do formal presentations. China has a few dental technician training programs in their dental schools and more will be coming.

However, these labs are not just for budget-minded dentists. These labs provide very nice crowns. We surveyed five laboratories in 2004 by sending about six units to each one and evaluating the end result. The results were that each case returned to us had fit and esthetics that were acceptable by our standards. They were not even just marginally acceptable, they passed easily. It was not the result that we wanted to see. We wanted unmitigated disasters and found only success. It was a sobering moment. Our expectations and reality were painfully different.

Offshore laboratories have very low labor, maybe only $5 of total labor in a crown. The material costs are about the same, but there are increased shipping costs. The materials used in offshore facilities could be termed “substandard” by US standards. It is a little bit of the Wild West in China today, so I would expect some counterfeit products to be used. However, many labs use the same FDA registered products found in the US. Turnaround times are usually about a week longer, though some are getting faster. This phenomenon will only become smoother and more efficient. You might want to give one a try, but don’t forget your trusted lab tech.

I don’t see offshore labs replacing truly high-quality labs. And when I use the term, “high-quality” I know that is very subjective, but when you think of high communication, high touch, high case consulting – that is not the offshore lab’s strong suit. With offshore labs, low price is their only attractive suit.

In closing, if you’re interested in a significant savings on your casework, you should consider offshore laboratories as an option. Try sending one case to test the workmanship and value you receive from this type of facility. However, if you are comfortable with the price and quality you are receiving from your current lab, don’t sacrifice the relationship for a bargain.

Editor’s Note: To discuss your thoughts on offshore laboratories, or to read what your colleagues are saying about it, visit this thread on the Dentaltown.com Message Boards. Search: Sacrificing Relationships