Global outsourcing and offshoring

Abstract

Introduction The activities of any enterprise can be broken down into a large number of discrete steps along its value chain, from research and design, to production, marketing and distribution, to customer service. Even these are but broad categories which can be micro-dissected into their component pieces. For instance, the “research” function can include creative design, requiring high technical skills and intelligent market feedback into the design process. But research also entails several mundane activities such as field testing, patent applications, and data compilation. This chapter deals with three broad trends affecting the reconfiguration of company functions, for which we propose an integrated approach for theory and strategy: (a) The increasingly finer micro-dissection of company functions all along the value chain. This enables a finer-grained evaluation of which of the micro-activities are best performed within the company, and which may be outsourced – in short, the organizational relocation of functions which previously may have been performed in-house. (b) Geographical relocation and the choice of foreign country and partner. (c) The greater outsourcing and offshoring of activities that used to be considered “core,” proprietary, or strategically crucial, such as Research and Development vital to the continued competitiveness of the firm. The chapter addresses a crucial global strategy question, “What is the optimal global and organizational configuration for each micro-activity or function for a company?” Although the driving forces of outsourcing and offshoring have recently escalated, the roots of geographical and organizational restructuring of economic activity can be traced back into prehistory.

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