Analysis of the by Booi Hon Kam, Ling Chen, and Richard Wilding - Article Example

An analysis of the article by Booi Hon Kam, Ling Chen, and Richard Wilding (2011) Name Unit Title Introduction The article by Booi Hon Kam, Ling Chen, & Richard Wilding (2011), looks at outsourcing in the Chinese Apparel industry using case studies of two apparel retailers operating under different market environments. Outsourcing is an arrangement made between a firm and supplier. The agreement dictates what the supplier is supposed to deliver based on agreement. The delivered goods and services are what the firm can produce internally, but outsourced so that the firm can concentrate on its core competencies (Dominguez, 2006). Despite the expected advantages, not all firms are able to gain from partnership. Risk management forms a vital part in outsourcing. Firms choose different outsourcing strategies based on their circumstances. Primary motivations of the research and argument put forward in the study The article primary motivations arise from the interest to determine the strategies that are used by the Apparel retailers in China to manage their outsourcing risks faced by the market demands and specific products’ requirements. The authors have a motive to establish whether the retailers come up with specific types of processes in managing the risks. The authors are also driven by the urge to determine whether the operational processes used to manage risks are in any way linked to the concept of value protection. The research is also motivated to know the role played by Guanxi which is a traditional type of relationship management in China on outsourcing (Booi Hon Kam, Ling Chen & Richard, 2011). The author puts several arguments in their research. The author asserts that failure to manage the outsourcing risks appropriately can lead to huge losses despite the process being associated with profits. The main argument put forward is that current literature in outsourcing has mostly looked at the range of outsourcing strategies only. According to the article, the current literature has not addressed fully the circumstances under which a certain outsourcing strategy would be appropriate for a firm. The authors also argue that there is no enough literature on outsourcing risks that Chinese companies faces. Most of the literature has abandoned the Chinese firms’ mode of outsourcing. Lastly, the authors argues that the current outsourcing literature is one sided. This is due to fact that it looks at the outsourcing strategies in the perspective of achieving success, but does not look on how to prevent the failures (Booi Hon Kam, Ling Chen & Richard, 2011). To support their arguments, the authors use literature from other writers. To support their claims, the authors begin by giving insight on the issue of outsourcing risk management. According to the outsourcing agreement, the supplier is expected to provide goods and services which otherwise would have been produced by the firm. The main aim of outsourcing is to gain advantage of the supplier capabilities. Despite this, the process of outsourcing is risky and requires caution and well defined partnership (Duening & Click, 2005). To substantiate the claims, the authors look at the case studies on CL China and TY Apparel. Both companies have adopted different approaches to manage their risks. The authors prove that each mode of risk management that the companies used is related to what they perceive to be their threat. For CL China, quality is of paramount important in their operation while for TY Apparel, the speed of goods to market matters (Booi Hon Kam, Ling Chen & Richard, 2011). This makes the firms to use different risk management strategies in their partnership. The article supports the claims that each firm has a specific strategy in managing risks depending on their circumstances. TY Apparel utilizes Guanxi while CL China has a comprehensive contract spelled out. For CL Apparel, they have to be more vigilant to ensure there is quality in their products. This is unlike TY Apparel, whose main aim is to have the clothes reach market as fast as possible. This shows two separate circumstances in which the firms are operating in. The method that is used by the firms in managing their outsourcing risks is also determined by whet the firm perceives as the key drivers (Booi Hon Kam, Ling Chen & Richard, 2011). Through these proves the authors have been able to support their argument. The key contributions of the article and the applicability of the findings to supply chain management in general and outsourcing strategy in particular The research has been able to contribute to the topic of outsourcing risk management in an effective way. According to Oshri, Kotlarsky & Willcocks (2008), the potential benefits that are accrued from outsourcing are well known than the risks that are associated with it. This is also supported by the article which asserts that carrying out outsourcing require to effectively manage the associated risks. Being unable to manage the outsourcing risks can results to losses that are more that the expected benefits (Barrar & Gervais, 2006). The article gives the benefits that are associated with outsourcing as; capitalizing on the capabilities of the supplier, saving costs, fast response to market demands and the ability to focus on the core firm competencies. The article is able to confirm the point that not all firms that engage in outsourcing are able to reap these benefits. The article also contributes to literature on why firms use different risks management techniques. Using the case study, the authors have established that the companies use different approaches to deal with threat of delivery. The choice of outsourcing risk management is determined by the perceived firm core value drivers. This is supported by the fact that in outsourcing, there is considerable loss of control (Vashistha & Vashistha, 2006). The outsourcing firm thus becomes exposed to risks from the suppliers’ services. In order for a firm to retain what drives their business, they have to choose an appropriate risk management strategy that looks at their key business driver. The research has also contributed immensely on outsourcing strategies. This has been achieved by looking at the two case studies critically and determining why the firms use certain strategies in outsourcing and managing the risks associated. This is an area that have not been well looked by previous literatures. The authors have looked at the outsourcing strategies in the perspective of preventing outsourcing failures. From the article findings, it consolidates the facts outsourcing strategy used is determined by the product technical content (Patel & Aran, 2005). This concurs with the fact that the decision to outsource is driven with the organization core assets and attributes. For less technical products, the firms in china can use Guanxi while for technical products, rigid formal contract is required. The article also gives insight into the outsourcing decision making process. Before a firm makes the decision to outsource, they have to weigh the risks and expected returns. The firms should look at outsourcing in both perspectives of gaining success and preventing failure. According to Patel & Aran (2005), risk assessment should be the first step before a firm decides to outsource or not. The decision to outsource should be in line with the firm strategic direction and the overall business strategy. There is also need to continually assess the risks as the contract continues. The service providers should be selected using due diligence before engaging them. According to Lileeva & Biesebroeck (2008), the aspects of the providers that should be looked at are: background, reputation, finances, operations and internal controls. This shows the importance that the firms should attach to the selection of their partner. The article gives evidence of scrutinizing the partner by the case of CL china. The company had to be careful in selecting their partner to avoid risk of poor quality which can undermine its business. For a business to retain their market, they have to safeguard their reputation especially if quality is their business driver. Making a wrong choice of partnership can lead to business failure. The partnership agreement should be made in such a way that it caters for the firm and supplier interests to avoid the relationship failure. The article contributes to this by explaining why a firm can choose a non formal partnership, such as Guanxi instead of a comprehensive formal agreement. For companies that are technological intensive, having a non formal contract, such as Guanxi can lead to business failure (Patel & Aran, 2005). The lessons learnt and implications of its findings to outsourcing strategy in the future global supply chain environment Due to globalization, there is a need for the firm to concentrate on their core competencies. This can be done through outsourcing where the firm can benefit from; reduction of internal costs, increased market demand, save costs and respond faster to consumers. The firm should enter into an outsourcing partnership contract where each party should be able to mutually benefit (Vashistha & Vashistha, 2006). Most of the firms have engaged in outsourcing especially in a bid to save the production costs. For the firm to outsource there is a need for clear analysis partner. Firms should be aware that outsourcing includes risks that ought to be managed. Failure to manage the outsourcing risks can lead to loss of business and eventual closure. Outsourcing risks range from, high costs, loss of jobs, lack of flexibility, poor control and outsourcing the firm core activities among others. There is need for a comprehensive risks management strategy that can help during partnership (Barrar & Gervais, 2006). The strategy should be based on what the firm sees as the core value drivers. This is through looking at the main threat to the firm value drivers and acting to protect if. For example, the article asserts that in the apparel industry, the value drivers can be quality or speed to market. The risk management strategy should be based on these value drivers. Analysis as a tool to be used before venturing into an outsourcing partnership is very important (Barrar & Gervais, 2006). The firms are required to look at the partnership more critically before venturing. This should help them to come up with partnership that will be able to last and increase their success. As seen in the case of CL china and AY Apparels, they had to examine their partners before committing to the relationship. The screening should be determined by the firm main business drive. After screening, the firms should not commit to long term partnership without first testing the partner. According to Kavčlč & Tavčar (2009), short term contracts are required to engage the partners into test so as to monitor their reliability. Before committing to a partnership, the firm should determine whether to use a comprehensive contract or a formal agreement such as Guanxi (Booi Hon Kam, Ling Chen, & Richard, 2011). This should also be driven by what the firm perceives to be the key driver in their business. Not all firms are in the same circumstances, hence their choice of relationship differs. This is best portrayed by the type of partnership used by the two companies in the case study. For future global supply chain, there is a need to understand that outsourcing is a complex decision making process and should not be looked at as a casual relationship. This requires the firms to be more vigilant in making the contracts and focusing on both preventing failures and achieving success. As the world becomes more globalised, outsourcing will increase and most firms will be engaged only on what they can do best and outsourcing the rest. This leads to the fact that firms should be able to look at the concept of outsourcing risk management more seriously and look at the strategy that fits them best based on their circumstances (Barrar & Gervais, 2006). Conclusion In conclusion, the strategy that a firm uses in outsourcing should be directed by the circumstances that it faces. Different firms have different outsourcing strategies and risk management. There is also need to look at outsourcing in both perspectives of achieving success and preventing failure. The threat of delivery failure may lead to firms adopting different risk management approaches as seen in the article. The firm will act to protect what it sees as a threat in their partnership and choose the appropriate technique to manage it. Relationship management should also be exercised in a partnership based on product technical content. These are valuable lessons for any firm that wants to outsource their production. References Barrar, P., & Gervais, R 2006, Global outsourcing strategies: an international reference on effective outsourcing relationships, Aldershot, England, Gower. Booi, Hon Kam, Ling Chen, & Richard, W 2011, ‘managing production outsourcing risks in China's apparel industry: a case study of two apparel retailers’, Supply Chain Management: An International Journal, Vol.16, no. 2, p. 428-445. Dominguez, L 2006, The manager's step-by-step guide to outsourcing, New York, McGraw- Hill. Duening, T & Click, R 2005, Essentials of business process outsourcing, Hoboken, N.J., John Wiley & Sons. Kavčlč, K & Tavčar, M 2009, ‘ Most outsourcing is short-term - what can we learn from it?’, International Journal of Business and Systems Research, Vol. 3, no. 1, p. 58-77. Lileeva, A & Biesebroeck, J 2008, Outsourcing when investments are specific and complementary, Cambridge, Mass, National Bureau of Economic Research. Oshri, I., Kotlarsky, J & Willcocks, L 2008, Outsourcing global services: knowledge, innovation and social capital, Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. Patel, A & Aran, H 2005, Outsourcing success: the management imperative, Basingstoke [England], Palgrave Macmillan. Vashistha, A& Vashistha, A 2006, The offshore nation: strategies for success in global outsourcing and offshoring, New York, McGraw-Hill. Read More