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Understanding Offshore Lab Resurgence

Last month, a friend of mine told me his revenues were 30% over last year. He isn’t a technician and has almost no equipment. In fact, his 10 person sales force outnumbers his technical team, 10 to 1. His single technician only performs small corrections because my friend sends all cases offshore.

In the past 10 years, the number of dental labs has fallen more than 50%, lab fees have remained mostly flat or down, while the percentage of units sent offshore has continued to rise. Certainly, many are doing better this year due to lab attrition and the improved economy. But, why are some offshore labs outgrowing domestic labs?

Why the Revenue Shift

Dental technology has given every high production lab an edge, especially offshore, where dentists can find “Good enough” restorations for 30 – 50% cheaper fees.

Dental technicians are a part of healthcare, making “body parts” (medical devices) to help patients restore and maintain their health. However, unlike larger, more sophisticated “medical device” companies and their industries, unorganized, and generally unregulated dental laboratories are forced to compete with well-run, FDA and ISO certified offshore labs that produce lower cost “Good enough” from the same materials and equipment as domestic labs. Furthermore, when intra oral scanners gain larger market share, there’s a risk this disparity could increase.

Why it is Happening

There are four reasons why offshore labs are growing revenues 20 – 30%. First, digital technology and globalization has made offshore restorations more consistent and largely indistinguishable from domestic restorations.

The second reason is due to large dental office chains, DSOs. Their increasing numbers of locations and marketing are eroding private practice revenues in much the same way pharmacy chains have destroyed small pharmacies, and Home Depot has forced small hardware stores to close. Additionally, and unlike lab and dentist professional associations, the DSOs coordinate sophisticated marketing and political support through a highly effective national DSO organization, that unlike our organizations, is making strides with a laser-like focus on business. While some DSO offices work with domestic labs, much of their work goes offshore.

The third reason stems from insurance influence. Insurance companies own, control, and distribute up to 75% of dental patients, forcing 90% of dentists to join PPOs and agree to set fees at 1996-2002 levels. Insurance companies increase their profits by forcing a reduction in the number and value (fees) of clinical procedures, essentially controlling the flow [reduction] of revenue for the entire dental industry, including manufacturers and distributors. The combined effects of DSOs and insurance has helped lower annual dentist income to 1976 levels, and influenced their laboratory decisions.

With income pressures at an all-time high, it should not be surprising that more work is being sent offshore, especially if restorations are meeting the same or better standards at a lower cost. But there is a fourth reason that offers the most opportunity. To seize it, we must first get past Einstein’s definition of “insanity,” and stop continually doing the same things and expecting different results.

How to Fix It

Many would like to blame dental organizations, such as the American Dental Association (ADA) and the National Association of Dental Laboratories (NADL). While we can argue they have provided little help on the business side of things, especially compared to DSOs and insurance organizations, we need to consider that we are the ADA and the NADL, even if we aren’t members. Whatever they are or become, we either caused it or allowed it.

Einstein’s comments about insanity suggests that if we don’t like what is going on, we need to change. In contemplating change, there are three questions each of us must answer:

  1. What do I need to do?
  2. How will I do it?
  3. Will I do it?

We’ll begin to answer these questions in our next monthly article. Until then, please remember this: Improvements are the result of change. Without change, nothing will improve.

3 thoughts on “Understanding Offshore Lab Resurgence”

  1. Excellent post! I still think you should look at and consider joining me in building a new kind of website – dentalconsumeradvocate.com

    1. Hi, Joe, thanks for reading this and posing your question. We know there is always a market for skilled and knowledgeable dental technicians. The challenge is, the market for those who will pay more has shrunk. Technicians who want to work in that market need to be active within it, talking with dentists and meetings, writing articles, lecturing, constantly promoting. You have to go and be where the market goes and is. It is not a matter of regaining your value to the market. It is more a case of finding and attracting the market that values what you do. We are working to help our labs bring added value by supporting their customers in ways traditional labs have never been able to. We are focusing on helping dentists build their practices. That doesn’t fit the traditional “dental technician” model. That is the value we bring to members, doing what they (and you), are not trained to do, creating scale in doing it to make it cost effective.

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