This paper seeks to understand and discuss the corporate strategy of offshoring production increasingly seen among multinational corporations throughout the world and the success or sustainability it has effected for the firms involved. The first part of this paper introduces how the phenomenon came about through globalisation. The second part involves the success of this strategy and the third part seeks to evaluate these benefits. The final part of the paper hopes to bring a more critical view of both sides and the topic as a whole. So, is ‘innovation at home, production abroad’ a successful and sustainable strategy?
Globalisation and Production Abroad
Globalization can be ...view middle of the document...
58 for every dollar of spending on offshoring to India and that German companies save €0.52 making the same decision. These potential savings could be employed to reinvest in other potential high value-added opportunities, or increase volume growth through lower prices for clients or even passed along to shareholders. Theoretically, producing abroad has distinct cost benefits when supplier’s costs are so low that even after overhead, profit margin and transaction costs such as exchange rates and inflation, the supplier is still able to deliver a good or service at a low price(Harler 2000). This is mainly due to specialization and economics of scale to be able to produce at such a level of efficiency (Lewins and Peeters 2006). Having less employees can also generate more savings by less salary costs, physical infrastructure and so on (Fontes 2000). A classic example would be General Motors (Nichols 2009), it had to offshore it’s production jobs to Asia even after being bailed out by taxpayers simply because it is cost sustainable.
Secondly, flexibility. McCarthy, I., and Anagnostou, A. (2003) provide that the current outsourcing literature believes outsourcing allows firms to be more flexible in issues like buying on-going developing technologies, fashion goods, or even a variety of components in complex systems. (Harrison 1994) analyses that through a network of suppliers, a firm would be able to manipulate it’s production capability at a low cost in response to any sudden changes to market demand. This also helps in reducing product or process design cycle time as each supplier handles different components. Firms would be able to concentrate on their core competencies (Quinn and Hilmer 1994) as seen in
Acer, the Taiwan-based personal computer manufacturer. It has used its own capability sourcing to establish itself as the world’s second-largest PC manufacturer. The company’s executives understood their strength at branding and marketing therefore decided to outsource manufacturing which they struggled with. This led to Acer achieving faster-growing sales and gains in market share. The firm currently operates a lean and flexible operation with almost seven thousand employees, roughly less than a tenth of the workforce employed by its largest competitor.
Access to Technology and Infrastructure
Quinn and Hilmer (1994) suggests that collaboration with suppliers can provide access to high quality products and highly efﬁcient services without the otherwise required investment in human capital, processes or information technology to obtain the required level of proﬁciency. Take for example, Foxconn and Apple. Apple’s commercial success has largely been associated with the outsourcing of its electronic production to Asia most notably China. Foxconn, with an employee pool of about a million and more employs a production network where vertical integration, flexible coordination across different facilities and 24-hour continuous...