Exploring outsourcing as a source of competitive advantage

• Main Author: Hayler, Dennis
• Published: Kingston University 2015
• Subjects: 338.4; Business and management studies
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.713134

This research explores how a firm in the electronics industry may achieve competitive advantage through the relationship created with a manufacturing partner when outsourcing manufacturing operations. Semi-structured interviews were carried out with senior decision makers with responsibility for outsourcing in a cross section of companies in the European electronics industry, and with senior executives in contract manufacturing companies based in South-East Asia, to investigate the decision making process and the amount of strategic choice available, and then to investigate what benefits were perceived to have been achieved by the outsourcing firm. The research questions what extent do decision makers consider competitive advantage when deciding to outsource, what competitive advantages, or partnership value, can be created by and can be attributed to the outsourcing partnership and to what degree competitive advantage has been achieved through outsourcing and how sustainable is it likely to be. The research found that the decision to outsource was normally made in order to save costs and/or to enable a firm to focus on core competencies. It was also found that expected cost savings were often not achieved and that some key capabilities were irretrievably lost. What some firms did find, however, was that they achieved some level of competitive advantage from working with their manufacturing partner that they did not expect when they made the decision to outsource, these advantages evolved over time and are grouped into three areas, classified as ‘values’: - Sourcing value - Technology value - Market value Collectively the researcher has termed these as ‘Partnership Value’. Partnership value is the competitive advantage a firm achieves in the marketplace through outsourcing manufacturing and working with its manufacturing partner. The research concludes with a framework that can assist decision makers considering to outsource manufacturing so that they may achieve greater value from the relationship with their chosen manufacturing partner by evaluating factors related to the external and competitive environment and achieving Partnership Value.