Global Outsourcing

Global Outsourcing: trends, Nike Offshore strategy

This article discusses global outsourcing trends and strategy adoption with a clear example of Nike Company. The article provide a clear understanding of what global outsourcing is all about and strategy often adopted by organisation outsourcing drawing lesson from Nike global outsourcing strategy.

According to Business dictionary global outsourcing means, business strategy where organization engage in the search of the most efficient place/country to manufacture their product regardless if the location is a foreign country.  For instance, if a phone manufacturing company finds it cost efficient producing and delivering its products in foreign counties largely due to cheap labour cost in the foreign country. In such case the organization establish its plant in foreign country and ship its product to the market from such country.  

Global outsourcing therefore means a cost strategy where companies or organization look for locations  outside their domestic country to establish their production plants or looks for markets for their products other than where it is produced. The concept of Multinational Corporation and globalization is a bye product of global outsourcing. Global outsourcing makes a product not to be country specific or geography-dependent allowing for more flexibility in business operations.

Global outsourcing can be regarded as onsite, offshore and nearshore outsourcing. A recent global outsourcing survey conducted by “Delotte” on leading companies from 25 different sectors including Information technology, telecommunication, finance, beverages, and human resources revealed three key trends in global outsourcing:

  1. Outsourcing companies are increasing their method of outsourcing as they see outsourcing more than mere means of cutting down cost. The findings revealed that more respondents view service providers as key business enablers like banking industries. Other, respondents argued that innovation is a key component of the value derived from an outsourcing relationship.
  2. That outsourcing companies have started to redefine their goals and risk management approach in outsourcing relationship. From their survey it was revealed that some organization still struggle to define, track, and motivate innovation from their service providers, or that they are unsure how to do this formally within a contract.
  3. It was equally revealed that outsourcing organization have started to redefine and adopt different approach in managing outsourcing provider in order to fully optimize the organization goals. Their findings indicate that there is a strong business case for investing more in global outsourcing.

From the survey Delotte concludes that cost continues to play a leading role in outsourcing, although, capabilities, ability to deliver, service quality and cognitive process automation, cloud, and innovation are great determinant of the relationship.

From the analysis in current trends in global outsourcing, in terms of what defined the key players, Deloitte made some important forecast about trends global outsourcing:

  • They argue that the global market outsourcing will be driven by smart organization who will always buy the service of others in the face of technological development and rapid changing business environment to their own business growth advantage.   
  • Innovative products offered to the global market will provide ample opportunities for well-informed organization to take advantage of the global market to their own customer advantages.

A Review of Nike Offshore Outsourcing Strategy

Offshore global outsourcing has been a peculiar strategy adopted by some giant organization basically to cut cost. The production of goods in locations other than those in which they are sold has been an established strategy of multinational firms for decades.

For instance, a domestic firm sends some portion of its value-adding activities, whether manufacturing, business processes, or software writing, to another country while continuing to sell its output into the domestic market. It is a situation where organization establish some of its plant in foreign countries where labor are cheap and sell the product in the domestic market.

An example is Nike who moved their shoe manufacturing to mostly Asia continent where cheap labour can be found and later makes the sales in their domestic market. This situation has created different cost policy for the firm – sales and production cost analysis.

Nike has been transporting its products from foreign – i.e. South Korea, Italy, Philippines, and China to domestic market for over twenty five years now. Nike constantly compete with Reebok and Adidas but has embrace the competition and aims to provide quality products to its customers.

The company through offshore outsourcing has gained efficiencies in the form of shifting of risk, cost minimization in terms of low wages, and focus on their completive advantages which has strongly outweigh all other competitors.Their offshore strategy has improved better communication and improve their activities to do more easily and finally to source intermediate goods from the most efficient location in the world.

In conclusion, offshoring has been explained by the concept of comparative advantage, and resource base theory. Onsite is largely driven by technology driven countries who outsource consumer market in countries other than their local market. The market place dominates today with the popular saying, “Think global” looking beyond the domestic market to the global market.

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References

Delotte (2016). Global outsourcing survey outsourcing accelerates forward.

Ghemawat, P. (2007). Redefining global strategy: Crossing borders in a world where differences still matter. Boston, MA: Harvard Business School Press. Check educacinfo

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