Chapter IC, Problem 1.1CDQ

Summary Introduction

Case summary:

In the early days, Company A usually manufactures its products in their own backyard. In 2004, they have started to turn into a foreign manufacturing. They have shifted their manufacturing process to offshore. Ninety percent of the manufacturing was done in foreign countries. In the home country, they have kept almost 43,000 people to do the important tasks. Their in-house activities include marketing, product design, and software engineering.

Company A decided to assemble the smartphone in Country C, as the labor cost is lower in Country C when compared to Country U. The advantages of assembling in Country C is further discussed in the case.

To determine: The benefits and risks of outsourcing to Company A.

Explanation of Solution

Determine the benefits to Company A from outsourcing the assembly of a smartphone to Country C and the potential risks and benefits:

In most of the products of Company A, there will be a statement saying that the components of the product were manufactured in City C of Country U and it was assembled in Country C. Recent research state that Country U does not have enough workforce to assemble the products.

For assembling the products of the company, Country C approximately uses 230,000 people. Only 50 cities of Country U have more than 230,000 people as an overall population. Hence, they cannot survive in assembling the product. They will face the scarcity of labor. Hence, the mobiles of Company A are assembled in Country C.

The potential costs and risks of outsourcing to Company A are unexpected delays, miscommunications, complex production process, and mismatched parts.