What are the pros and cons of outsourcing to China?
The Objective is to explore key factors and pros and cons in outsourcing to China. Research findings identify obstacles faced by both parties in outsourcing. Economic factors are motivational factors in outsourcing to China. Cost reduction, savings, and investment reductions are the main concerns. Benefits focus on core competence, flexibility, and market penetration. Companies in China have ran across several obstacles such as poor communication and lack of preparation.
There appears to be three commonly used approaches to outsourcing decisions (as also noted by Bolumole et al. 2007): transaction ...view middle of the document...
Service Provider Relationships
There are different relationships involving outsourcing such as efficiency relationships, enhancement relationships, and transformation relationships. Efficiency relationships are focused on reduction of cost while improving service delivery. Efficiency is effective by continuous process improvement. Enhancement relationships focus on being effective however, the main goal is to reach productivity improvements. They incorporate business process which makes them broader than efficiency relationships. Process improvement and re-engineering are the key focusing areas. Transformation relationships are focused on competitive advantage positioning. These relationships are less common and characterized by major innovation and new services. Business issues are the main focus and not operational issues. Managers have to figure out what their specific business needs are and understand what the required services are.
Sometimes originations half way through their outsourcing relationship realize their conditions are insufficient. They failed to develop the proper legal outsourcing contracts. The organization then has to wait for the contract to expire in order to correct the issues. Then they have to renegotiate issues to bring new services. To prevent this management should review the contract before signing. It is important to look over the terms and conditions. It would also be a good idea to have a third party give advice. In China a common issue with outsourcing contracts involves the SLAs with inadequate terms and penalty articles. The management team fails to realize the SLAs they agreed to do not meet their business needs. Managers accepting standards by their provider do not spend enough time reviewing the levels of service. It would behoove them to analyze their business processes so they can identify performance indicators. They should consider using a third party to handle issues between the company and service provider. In case the worse were to happen a letter of intent to terminate should be discussed.
Many companies outsource to china for many different reasons such as low rates, large pool of qualified candidates, excellent work ethics, flexibility, and well organized. By outsourcing to china a company could save 67%. A senior software engineer only makes US$21,800 based on one to four years experience. Inflation is rising in China and will increase the cost of goods. One the major advantages China has is its low cost. The Chinese labor Pool is excellent for outsourcing. The reason is that the delivery flexibility refers to the ability
of the system to shorten or lengthen its delivery lead time (Slack 1983) China was ranked 89th out of 169 countries by the Human Development Index. China has low cost and a large labor force.
“The reasons for locating facilities at a supplier park are: to enable sequential just-in-time deliveries(Larsson 2002); to increase...