A tipping point for foreign outsourcing economics

Abstract

Purpose

The paper sheds light on the changing economics of foreign outsourcing, and the risks being run by companies that engage in the practice.

Design/methodology/approach

The author surveys the history of foreign outsourcing over the last several decades and the disastrous impact that it has had on manufacturing in the USA. The paper also reviews more recent developments reported in the press.

Findings

Given rapidly rising costs and risks in host countries, the “outsourcing dividend” is now questionable. At the same time, firms can take advantage of new opportunities in digital fabrication.

Research limitations/implications

Further research is needed on methodologies for accounting for the full costs and risks of foreign outsourcing.

Practical implications

Firms should think long and hard before launching foreign outsourcing. Firms should also re‐examine the root cause of the practice, i.e. pursuit of short‐term profits rather than delighting customers through continuous innovation. Some firms will need to consider retrieving manufacture that was previously outsourced in a foreign country. Firms should also be exploring the new opportunities represented by digital fabrication.

Originality/value

The paper summarizes what is known about the economics of foreign outsourcing and questions the continuance of this widespread business practice, which has devastated manufacturing in many developed countries. It presents a further reason why firms need to shift from traditional management to radical management.

Citation

Denning, S. (2012), "A tipping point for foreign outsourcing economics", Strategy & Leadership, Vol. 40 No. 1, pp. 8-15. https://doi.org/10.1108/10878571211191648