I started off my career in the technology industry as an IT
consultant at a multinational firm in India.
We used to work extensively for clients located outside of the country.
This is what we would call as the typical “offshoring” model. Being in the service
industry, I really did not appreciate this system until March 2011, after which
I had a completely different take on globalization and souring of operations.
At that time I was working for a client based in Tokyo, Japan. We had parallel
setups running both in India and Japan as part of our “business continuity
plan”. On March 11th 2011, Japan was struck by the tragic tsunami
waves. This caused a complete disruption in operations for the Japan services
team. But since we had a parallel setup running in India, this caused little or
no damage to the overall services we were had to deliver to the client.
While the services industry had picked up rather quickly, many manufacturing companies struggled to get their
business together after the aftermath. Car manufacturer Toyota had reported by the end of June that it
had a lot of pieces still missing to complete their manufacturing process. As a
reaction, Suzuki announced that it would be spending about half a billion
dollars to relocate an electronics facility away from the sea. Impacts like
these affected the manufacturing industry value chain more deeply than the
services industry where recovery was quick due to a better offshoring model. So
how do the offshoring models for both these industries stack up against each
other? Lets take a deeper look.
There are a lot of similarities in the strategies that both
the industries have adopted. One major tool that they use to evaluate if an
operation should be outsourced (or off shored) is the Total Coast of Ownership
(TCO). Key supplier decisions are based on TCO and not on the price. TCO also
covers other regions that help evaluate strategic sourcing decisions. It
includes the cost of diversity selection, cost of sustainability and supplier
ethics. Both groups of industries have to agree on strong supplier
relationships for the sourcing operation to be successful.
A general notion about outsourcing is that there is a drop
in quality standards. This is not the case today. Companies are making informed
decisions by taking into consideration quality. Both the services and the
manufacturing industries converge on this.
On the flip side, there are factors on which both these
industries have a diverging view on strategic sourcing decisions. Cost is an
important factor to look into before making sourcing decision. In the services industry,
more tangible proof for off shoring can be seen in the past decade, where a lot
of multinational companies have offshored its services related to technology
and customer services to English speaking countries such as India. Though these
trends are faintly visible in the manufacturing sector, there is not enough
tangible evidence or cost reductions in those markets. Quality, as discussed
before, becomes at most important when off shoring decisions are made, especially
in manufacturing.
Though the offshoring model works for companies looking to
save on labor costs, it has brought about quite a debate in developed markets
like the USA and UK. Their argument, bring home the jobs. This argument would
work in the pre 1980’s era when developed countries controlled most of the
world’s economy. Today, emerging markets like China, India and Brazil have
changed the competitive landscape completely. To survive in the industry, be it
services or manufacturing, offshoring has become more of a necessity than an
option. Can you think of any company that has stuck to in house production
model, without outsourcing or offshoring? I am sure you cannot think of one. So
that leaves the developed countries only one option. Get aboard the off shoring
boat, and play along with the forces of nature!
Sources:
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.