University of Twente Student Theses


International outsourcing

Klein Gunnewiek, Moniek (2012) International outsourcing.

[img] PDF
Abstract:The core activity of technological companies is the manufacturing of products. This research focused on the decision making of these companies concerning outsourcing part of manufacturing to international suppliers. Before engaging in any strategic practice a company has to assess its internal and external environment. Hence, the central research question of this thesis is: which internal and external factors influence the decision of Dutch technological companies to outsource manufacturing processes to international suppliers? To answer this question a conceptual outsourcing framework is developed, which incorporates internal and external factors that are derived from different theories. These factors help rationalize the decision making process and determine whether international outsourcing is a viable option for the company. The theoretical perspectives on which the framework is based, are Transaction Cost Theory (TCT), Resource Based View (RBV), Organisation Theory (OT), Knowledge Based View (KBV) and Location Theory (LT). The applicability of the conceptual framework and the used theories are tested in the context of Dutch technological companies. By means of the qualitative method of conducting semi-structured interviews with purchasing managers, rich data is gathered that increased the understanding of international outsourcing from the viewpoint of these companies. These data provided input to further develop the subsequent quantitative data collection method of an online questionnaire. This mixed design has the advantage of being able to interpret and explain the quantitative results with the results of the qualitative method. The obtained results indicated that the international outsourcing framework can be a useful tool to support the decision making processes since most factors are deliberated by the managers of Dutch technological companies. However, companies should implement the international outsourcing framework with caution as further research is needed to increase its validity. Outsourcing is a viable option when certain advantages can be realized by matching the manufacturing of certain components with country differences in external factors. The results of this research show that companies still embrace outsourcing as a means to become more cost efficient, which is the predominant reason of the TCT. Therefore, outsourcing is a viable option when it reduces costs. However, this theory also states that outsourcing is a viable option when no specific assets are needed for the manufacturing of the products. Even though this can be confirmed, this research indicated that Dutch technological companies also outsource products for which specialized machines and tools or skills and experience of employees is required. Outsourcing high asset specific components does increase searching and negotiation costs, but can be implemented in practice. Especially for these components, long-term relations with suppliers is vital and is perceived as beneficial since it increases commitment, trust and development of inter-firm routines. Regarding the RBV, this research confirms that outsourcing is a viable option when wanting to focus on core competences by outsourcing activities for which there is no strategic need to develop them in-house. However, Dutch technological companies do not seem to outsource because they lack unique resources and capabilities needed to manufacture a product. This theory states that this is a way to improve the quality of the products being manufactured, but in practice outsourcing can form a threat to the high-quality products of Dutch technological companies since some countries maintain a lower quality standard than is required. This, just like high asset specificity, underlies the importance of the location factors ‘technological knowhow and competences’ and ‘the available machines, equipment and materials’ in choosing an outsourcing location. The results of this research indicate that outsourcing is a viable option when companies want to improve their competitiveness by transforming their company into a flexible entity which is in line with the OT. Companies want to adapt more easily to changes in the environment. According to this theory, a virtual organisation is a suitable design for such companies. However, the Dutch technological companies keep the highly knowledge-intensive and creative activities like R&D, Design and Engineering in-house since these are a source of their competitive advantage. For these manufacturing processes, outsourcing is not perceived as a viable option. The KBV asserts that outsourcing is a viable option when a company lacks the unique knowledge needed to manufacture a product. However, access to specialized knowledge and innovations is not an important outsourcing motive for Dutch technological companies. The results do confirm that companies mainly outsource the manufacturing of components of which the required knowledge is of low strategic value. Moreover, mainly matured and explicit knowledge is transferred to the supplier. Through computer-aided designs, moulds or specifications it is easy to explain and state in detail what the company wants and how this should be manufactured by the supplier. For successful outsourcing it is important that the supplier has an extensive knowledge base, since it has to integrate the knowledge needed to manufacture the product. In addition, being able to communicate in a common language simplifies this knowledge transfer. Regarding the LT it can be said that companies want to outsource manufacturing to that location where the external factors are most beneficial to the manufacturing of a particular product or component. Although the order of importance differ per type of product, there are certain conditions that need to be prevalent to make outsourcing a viable option. In general, the supplier should be located in a low-wage country so that labour costs can be reduced. The supplier also needs to have the appropriate machines and equipment in place and must have access to the required materials. Moreover, the supplier needs to employ a workforce that is sufficiently large and is capable to manufacture the products in accordance with the predetermined specifications and quality standards. Next to these factors, the Dutch technological companies also consider the total costs of transportation; legalisation and enforcement; stability of a country; and the languages spoken by the employees of a suppliers.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:
Export this item as:BibTeX
HTML Citation
Reference Manager


Repository Staff Only: item control page