Outsourcing
Outsourcing decisions are strategic because they change the basis of the firm. For a number of decades the practice of moving manufacturing plants to low wage countries has been a growing trend. Not only that, many European and American companies outsource part of their production to firms in low wage countries, especially in South East Asia. The first countries to benefit from this trend of outsourcing were Taiwan, Thailand, South Korea and later China.
The same goes for Mexico which, being a low wage country, benefited from its closeness to the USA. After Poland, Hungary and Czechoslovakia joined the European Union in 2004, many French and German companies established new production facilities in these European low wage countries. And not only that, but also business processes like call centres and administrative processes moved to other countries, especially to India because of their command of English. Moving production and business processes from advanced industrialized countries to developing economies, i.e. low wage countries, or outsourcing these processes, has a number of motives such as being nearer to growing future markets or to lower production costs or both. Firms can establish their own factories in other countries but can also leave production to subcontractors or specialized manufacturers in these countries (like Solestron and Flextronic). Outsourcing decisions are strategic because they change the basis of the firm; it is an irreversible choice and often manufacturing skill is lost.
Therefore some companies always keep the production of vital parts in their own hands, their original basis. Han van der Zee & Hans Strikwerda94 summed up a number of motivesfor companies to outsource some of their activities:
• Sharpening the company’s focus on core competences;
• Gaining access to specific expertise that
• Making operating cost variable (especially for asset and people intensive businesses); is not available in its own company;
• Reducing operating costs and inventory;
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• Reducing investments;
• Improving scalability by having ready to-use solutions available.
There is always another side of the coin; for instance, outsourcing creates a longer and often more complex supply chain which demands constant monitoring and a lot of management effort.
Not only natural disasters and political unrest in far away countries endanger the supply chain but also unexpected quality fluctuations or technological breakdowns are some of the risks that endanger the dependability of the supply chain and thus the quality of the endproduct. Outsourcing has created a new kind of management skill. From a strategic viewpoint, the objective of outsourcing is to increase return on investment, whilst remaining in control.
In the military world outsourcing also happens. Sometimes, countries, for reasons of political motives, decide to let others do the fighting and support them with money, weapons and training. For example, from 1980 until late 1990 the USA supported the Nicaraguan anti-communist Contras against the Sandinistas both financially and with arms.
Another example is the USA’s supply of sophisticated Stinger anti-aircraft rockets to the Afghan warlords when they where fighting the invading Soviet troops. Later the same weapons were used against the American helicopters when they, in their turn, invaded Afghanistan.
The Peninsular campaign (1808 - 1814)
This campaign was notable for the development of another method of warfare which went largely unnoticed at the time, but would become far more common in the 20th century. That was the aid and encouragement the British gave to the Spanish guerrillas who forced the French to squander most of the assets of their Iberian Army in protecting the army's line of communications. This was a very cost effective move for the British, because it cost far less to aid Spanish insurgents than it did to equip and pay regular British Army units to engage the same number of French troops.
