Apple Offshoring-Globalization Group 5, Paris

Since the development of globalization, offshoring has been a predominant factor in many large companies, especially in IT industry in US. Even we also focus on the disadvantages like US firms hasn’t led more US jobs, the risk, the difficulties on managing business processes. However, the offshoring has been an irreversible trend. Why isn’t more manufacturing taking place in USA? Apple’s answer: it is simple no longer possible to compete by relying on domestic factories and ecosystem that surrounds them.

Nowadays, the number of companies that have decided to offshore their production in emerging countries is still increasing. Thanks to a lot of positive effects for both parts, offshoring in the manufactured materials’ sector is rising since 20 years. At the opposite of the effects that people could imagine, the company which experiences offshoring can increase its domestic employment and improve the quality of its workers’ skills. On the other side, this partnership with SMEs in emerging countries contribute to their development and can play a important role in the country’s GDP. We will take the example of Apple, a billion-in-profit company ($37 billion for 2013) that has decided to offshore its production in the workshop of the world: China. The strategy of a partnership with the Taiwanese company Hon Hai Precision Industry Co., Ltd. – one of the worldwide leaders in electronics contract manufacturing- is without any doubt one of the keys that explain the company’s extraordinary turnover (which almost dobles every 2 years). Apple, the success story of a multinational company’s growth that seems limitless.

Foxconn Technology Group, a multinational electronics manufacturing company holding by Taiwanese, is the largest Apple offshoring manufacturing factory in China. The employees in Foxconn in China are about 230,000 last year, apparently it’s because the cheap labor force and other costs like logistics and raw materials. As it is explained in this video, offshoring is only used for low value added tasks.

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This business partnership is certainly the reason of Apple success. Otherwise we can notice a link between the net profit and the first years of partnership.

glob

But even if some scandals (working conditions, suicides…) casted a shadow over this American Chinese success story, Apple doesn’t only lie in their products but also in their branding. Apple doesn’t really sell a product but the brand. Indeed, people’s connection with the brand transcended commerce especially thanks to innovation, design and corporate ethics, which make them emotionally involved. Emotional fulfillment is often reflected in ads (see Iphone 4 commercial: https://www.youtube.com/watch?v=GniV1qdFYWg) through egocentric needs and happy feelings. This association drives a positive brand image despite some horror stories coming out of factories that could stain it.

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However under pressure (especially US government) and also attracted by a certain “made in USA” trend, Apple announced last year that it will open new manufacturing factories in US, due to the constantly increasing of the salary, which mostly result from the inflation rate. In this case, offshoring is gradually slowing down in China, also to avoid a possible (and dangerous) too much dependency vis-à-vis Foxconn

As an addition to the growth of labor costs in China, the cost for product freight is also increasing and has grown almost 4 times during last 5 years.
However, considering transportation costs it’s important to look at the key markets for Apple. Actually, now it’s not only the US, but also China which share in total Apple sales continuously grow and almost reached the same level as US sales. Moreover, the popularity of Apple products is improving fast in other Asian markets as Vietnam and also Eastern Europe. That means, that losing in freight costs to the US, Apple benefits a lot from transportation spending for other fast growing marketers.
Another important benefit that Apple’s offshoing to China provides to the company is the high flexibility of production in China plants and strong production ecosystem. Thus, production of the majority of Apple products’ components is located very close to each other. All that means high company’s agility and responsiveness of supply and meeting consumers’ needs.

Being in China is also a benefit due to its population. In fact China has a lot of possible workers (engineers as workmen) and it took 15 days to hire 9000 engineers there when it will take few months in USA.

Furthermore, a lot of minerals used in Apple’s screen are coming from China. Then, it is a time saving and time is money.

Overall, it can be concluded that Apple’s offshoring to China is an example how company can benefit from offshoring despite challenges that can always have place. From our point of view, Apple should continue to stick to its offshoring strategy to China but continuously track its production costs especially in terms of labor spending in order to catch possible opportunities that can occur especially in terms of manufacturing growth in other Asian countries; Indeed, fomer “low cost” countries are becoming more and more expensive as their economy grow. Some economists even highlight the “backshoring” theory, aluding to the offshore production risks, production etics and production costs on long scale.

 

 

Sources:

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=2&hp&

http://www.forbes.com/sites/stevedenning/2012/12/07/why-apple-and-ge-are-bringing-manufacturing-back/

http://www.economist.com/news/special-report/21569575-companies-need-think-more-carefully-about-how-they-offshore-and-outsource-herd-instinct

http://www.atlantico.fr/decryptage/iphone-ipad-production-usines-etats-unis-delocalisations-chine-obama-272650.html

http://venturebeat.com/2013/10/28/apples-170-billion-2013-amazing-and-amazingly-forgettable/

http://www.apple.com/…/22Apple-Reports-Third-Quarter

Group 52 @ Sophia: Rossignol’s offshoring experience

Rossignol is a former French company implanted in Sallanches in Haute-Savoie. This company is specialized in Alpin ski’s production. In 2000, Rossignol began to lose money so its CEO decided in 2007 to offshore the production to Taïwan but his decision has had more drawbacks than advantages.

The year the company decided to offshore the production of Alpin ski, they did so to make sure they will stay competitive regarding the main competitors (Ké, Völkl for example). They were sure it would reduce cost thanks to the cheap labour cost and subcontractor. Moreover Asian market might have represented a potential market due to the new purchasing power and the new middle class.

In 2011 Rossignol changed its strategy and relocated the plant in France.
They knew the savoir faire was better in France but they also realised that labour cost was less than 20% of production cost and was surprised by the 30% increase of average wages in Taïwan in just one year.
Others costs were bad calculating, one of the good example are raw materials (polyethylene) that represent 70% of production cost. It is only producing in Europe so they needed to send it in Taiwan to send it back in France and European countries.
In addition Taiwan represents some threats like the time you need to wait for your delivery (8 weeks), risks due to boat transport because of typhoons in the area of the world and of course the forecast you need to do to produce in Taïwan. France allows them to limit risks of too much production without forgetting the agility of production thanks to the localisation with R&D and others services.
In term of markets, it is important to notice that 60% of Rossignol sales are in Europe so it is better to be present in France.

All this article was made to show you that offshoring is not always a good idea. The example of Rossignol and its offshoring failure end to relocate the production in Sallanches, they now can use the term Made in France (not too bad !!).
The relocation of the plant is a success! Rossignol had a turnover of €208 million and a net income of €3 million (03/31/2013). They continue to hire people so let’s the success continue !!

 

Sources:

http://www.grouperossignol.com/FR_key-figures.html

http://www.lefigaro.fr/societes/2011/07/22/04015-20110722ARTFIG00607-rossignol-se-rapproche-de-sa-clientele.php

http://www.liberation.fr/economie/2010/11/01/rossignol-quitte-taiwan-et-revient-au-nid_690477

Staburcks Company in china – Success Story – groupe 90 @Sophia

Since Starbucks birth begins in 1987, Starbucks has continuously expanded into new markets like China to become one of the world’s most recognized brands within 26 years.A Company mission statement to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”

The success of Starbucks in China is a true surprise, indeed this country has thousands of years of history drinking tea. Since, Starbucks decided to enter China and opened the first store in Beijing in January of 1999. They found an opportunity to introduce a Western coffee experience for the Chinese large emerging middle class. How Starbucks planned to open 1500 stores by 2015 in a country who have a strong culture of tea.

But Once Starbucks decided to enter China. Starbucks had to create a demand. The strategy was focused on selecting high-visibility and high-traffic locations to project its brand image.

Than Starbucks introduce beverages using popular local ingredients such as green tea. Starbucks has highly localized menu of beverages that is particularly tailored to Chinese consumers. It gives each store the flexibility to choose from a variety of its beverage portfolio that fits the customers at its particular location.

The Starbucks ambiance always being part of their clear marketing strategy for the company are known in its Design: affordable luxury environment and selected music and serve beyond a cup of coffee. It’s a strong differentiator. The younger generations from the middle class are attracted by this trendy and cool lifestyle.

China is not one homogeneous market. So Starbucks utilized many allies to integrate the Chinese market: a joint-venture with Beijing Mei Da coffee company for the north, a partnership with the Taiwan-based Uni-president in the east and in the south Starbucks worked with Maxim’s Caterers. That helped Starbucks gain insights into the tastes and preferences of local Chinese consumers. “The number of stores will increase, profitability will come, but it is in taking care of our partners that we will be able to lay the foundation of the Starbucks brand for years to come. That is the challenge that I love.” Said Avani Davda, CEO of the joint venture between Starbucks and Tata Global Beverages Unlimited, a unit of the largest business group in India

The company has invested in employees because they are at the heart of delivering an experience to customers. For Starbucks the entry in the Chinese market is a long term commitment because it to educate the market and gain customer loyalty.

Sources: Video on Starbucks grow its own coffee, Reuters,Nov 15, 2010 :https://www.youtube.com/watch?v=BYSiGomkGdg Video on the Interview of CEO of Starbucks by CNNMoney Channel : China is a Gold Rush; Dec 1, 2010 https://www.youtube.com/watch?v=Zx7mtG_mJPs Another Video by the CNNMoney regarding the impact of the tea culture <China effect> to be more implemented in Starbucks stores; CEO Howard Schultz discusses the company’s new tea venture. https://www.youtube.com/watch?v=cXvprirGTC0 Other sources:Forbes website, <Five things Starbucks did to get China right>, Dec 08, 2012Link address: http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/ CNBC, Why Starbucks succeed in China, Jan30, 2012 http://www.cnbc.com/id/46186635 Starbucks NEWS Website, March 19, 2014, Annual meeting: http://news.starbucks.com/2014annualmeeting/starbucks-growth-in-china-and-india

Starbucks website, Nov25, 2012, Starbucks strengthens china-commitment with opening of 100th store in beijin http://news.starbucks.com/news/starbucks-strengthens-china-commitment-with-opening-of-100th-store-in-beiji Starbucks website, Jul30, 2014, more than 19000 customers pay it forward in Starbucks South China stores http://news.starbucks.com/news/more-than-19000-customers-pay-it-forward-in-starbucks-south-china-stores http://www.starbucks.com/responsibility/sourcing/coffee

Group 112 – Sophia – Offshoring in Asia : the success story of Ikea

The world’s leader in furniture retailment is a great example of success. The company has included offshoring in its global strategy, step by step.

Ikea_logo

At the begining, the swedish firm chose to implement vertical offshoring.

From the 60’s to the 90’s, IKEA chose to get its supplies from Poland hence reducing purchase price by 50%. During the 90’s, it applied a new strategy firstly based on production offshoring towards low cost Asian countries. As a matter of fact, the firm developped purchasing departments in China, Inda, Pakistan, Bengladesh, Vietnam, Malaysia, Thailand et Indonesia. Thus, in 2000, 22% of IKEA’s global supplies came from Asia, among which 10% came from China.

Secondly, the firm decided to reduce the number of suppliers – 2,500 in 1990 to 1,120 in 2009. The advantages resulting in this decision were numerous: it became more efficient regarding logistics, transportation, productivity and control of quality. What we can also notice is that between 1990 and 2009, the firm’s revenue increased of about €18 billions.

Thirdly, Ikea reduced its prices and initiated more competition between pruchasing departments to rise emulation.

 

Since the end of the 20th century and the begining of the 21st century, the furniture company has established its horizontal offshoring strategy.

In 1999, there was just 4 shops in Australia and 2 in China, but it were huge potential markets. Thus, Ikea chose to create big concept stores in Asia. Although China was the first target for those kind of stores, the purchasing power level was too low to generate enough profit. That is why, while offshoring in China, the firm also did it in Japan. With this country’s high density of population combined with a considerable purchasing power, Ikea could settle in China – forecasting a rise in purchasing power- while making profit in Asia.

However, in the long-run offshoring in Japan was very risky: Japanese are very demanding on service and quality, they are not used to self-service and the Japanese culture is very different from the European one. Plus, the government set very strict rules regarding the presence of formaldehyde in furnitures. In fact, the maximum level allowed in Japan was equal to half of the one decreed in other countries. This meant that hundreds of IKEA products should be made especially for the Japanese market, and at a higher cost. It seemed unbearable on the long-run.
But IKEA decided to transform this issue into an opportunity. They made the bet that, sooner or later and for ecological reasons, all the other countries would adopt the same restrictions as Japan about formaldehyde in furnitures. So sooner or later IKEA would have to change their furnitures. Hence, they thought they might as well do it while entering the Japanese market !
 And this revealed to be very profitable. Today almost all the other countries in the world lined up on the Japanese norms. IKEA opened its first japanese store in 2006, in 2009 the company planned to open five more (three in Tokyo, one in Kobe and one in Osaka) and sold for 400 million of euros.

Today, IKEA has 43 manufacturing units in 12 countries. China now represents 22% of its global purchases – about 300 suppliers. In this country, the firm decided to locate their first local production base at Nantong. As this city is near the Yangtze River – numerous resources – and near Shanghai – where IKEA has its biggest warehouses, it allowed to reduce logistic costs.

As a result, the furniture company lowered its prices in China by 50% between 2000 and 2012. Moreover, urbanization has grown rapidly in this country, which has increased the demand. Therefore, IKEA has not stop growing and making profit in China.

 

Since the begining, the furniture company has offshored in countries with either market potential or reduction cost potential. They took risks but enshured back up plans and certain limitations. At the begining of the 21st century, IKEA bet that Chinese people’s purchasing power would rise while making shure to settle in another country with actual and wide market (Japan). We can conclude that the firm’s offshoring strategy was profitable, and well planned.

Sources :

Group 107 – SOPHIA (WMIPM) – Dacia’s success story in Morocco

RENAULT decided to acquire DACIA in 1999, as DACIA had big economic difficulties. Then, RENAULT tried to re-launch the brand in Europe by opting for a new positioning: the low cost.

In this strategy, the main choice of RENAULT was relocating the production factory in Africa, and more precisely in Morocco. The idea was to reduce significantly the production cost in order to propose a car that is simple, cheap, but that keeps a correct quality level.

Indeed, the labor force is less expensive, and in order to re-launch its economy Morocco decided to offer a tax exemption for 5 years to foreign companies that relocate their activities in the country1. Moreover, this factory is the biggest in Africa on the car market. Hence, it is a success not only for the French company, but also for the region where the unemployment was very huge and RENAULT adapted the working conditions to the culture of Morocco: Break-time for the 5 prayers, working hours are reduced compare to many other Moroccan companies, etc2.

This off-shoring is such a success that RENAULT has double the production between 2012 and 2013 which has made DACIA the most dynamic brand in Europe on this market in 2013.

In a nutshell, RENAULT has completely managed his outsourcing strategy. In one hand, it was benefic for DACIA RENAULT in terms of economic growth. In the other hand, it was benefic for Morocco in terms of economic activities and employment (more than 5000 jobs created²). Moreover, it made the automotive low cost market a reality in France, and in Europe. And this should continue with the new production site created by DACIA in Oran².

Sources:
1 – http://quoi.info/actualite-economie/2012/02/08/desindustrialisation-pourquoi-renault-sinstalle-t-il-au-maroc-1122956/
2 – http://videos.tf1.fr/jt-20h/2013/renault-dans-les-coulisses-d-une-usine-de-fabrication-au-maroc-8324259.html
3 – http://www.usinenouvelle.com/article/l-usine-renault-de-tanger-a-double-sa-production-a-plus-de-100-000-vehicules-en-2013.N239987
4 – http://www.lepoint.fr/auto-addict/business/renault-profite-du-rebond-europeen-et-des-ventes-de-dacia-07-07-2014-1844017_649.php

Group 1 @ Lille (MSc PPMBD Centrale) : An horror story for Mattel in China..

   Mattel inc. is the world biggest toy maker with some of the renowned brands like Barbie, Hot wheels, Matchbox and Fischer Price. Mattel used outsourcing, offshoring as a major tool in its value chain management with China becoming a favored destination since 1980. Indeed 65% of Mattel’s products are made in China. However, in 2007, Mattel made several recalls of products that had been manufacturing in China. The recalls led not only to a reduction in Mattel’s sales but also to public hearings, which significantly affected Mattel’s reputation. On August 2007, Mattel recalled nearly 19 million toys worldwide. The toys were all made in China, posed a choking hazard and contained unsafe levels of lead. Following the recall announced, the boss of Chinese factory that produced the lead-tainted Fisher Price toys had committed suicide. Mattel characterized the magnet problem as a design issue and blamed a Chinese subcontractor for the presence of lead paint. The recall was the latest development in the crisis over the safety of Chinese products. Chinese officials have gone out of their way to stress the safety and quality of its exports, blaming the problems on small number of companies. The product recalls show that quality control continues to be an issue that even Mattel which is known for having a tight quality control procedure with a sophisticated inspection and testing system in its supply chain of subcontractors.

  More recently, another scandal has affected Mattel’s reputation. In China, where 65% of Mattel’s products are produced, the China Labor Watch (CLW) and the National labor committee in support of the human rights and worker rights released a report documenting conditions for workers making the toys. The report found forces labor of up to 90 hours per week and pay as low as 46 cents per hour. The Chinese subcontractors of Mattel use illegal methods in order to reduce the wage costs. Indeed, they don’t pay any national insurance contribution and extra hours to their employees. The report shows also that in one year 6 Chinese subcontractors of Mattel cut from 6 to 8 million euros of employee’s wages.

  Theses different facts show how the changes due to globalization can lead to bad reputation and horror stories if just do globalization for globalization and don’t pay attention to your company standards.

Link :

http://www.democracynow.org/2007/10/30/gap_mattel_speedo_wal_mart_products

http://karmallama.hubpages.com/hub/How-Mattel-discovered-modern-manufacturing-is-not-all-fun-and-games

http://money.cnn.com/2007/08/14/news/companies/mattel/?postversion=2007081415

http://hbr.org/product/mattel-s-strategy-after-its-recall-of-products-mad/an/HKU810-PDF-ENG

http://gestion-des-risques-interculturels.com/pays/asie-pays/chine/barbie-en-chine-mattel-mise-sur-linfluence-apres-plusieurs-maladresses-interculturelles/

Group19- Sophia Antipolis. Outsourcing horror story – Boeing’s disastrous decision to outsource most of the work for the Dreamliner to 50 different companies which ended up by costing the company an estimated amount of $600m

The US aircraft maker, Boeing, was losing market share and they needed to figure out what steps to take for a great comeback.  They could have tried to reduce costs and regain market share by selling cheaper aircrafts. Their dream however was to make a better aircraft allowing passenger to enjoy every single minute of their flight and at the same time an aircraft that would need less fuel with the ability to fly to every destination without needing to refuel on the way….they decided to create the „Dreamliner“.

While designing and producing the Dreamliner, Boeing enthusiastically embraced outsourcing, both locally and internationally, as a way of lowering costs and accelerating development. The approach was intended to“reduce the 787′s development time from six to four years and development cost from $10 to $6 billion.”

The end result was the opposite. The project was billions of dollars over budget and three years behind schedule. “We spent a lot more money,” Jim Albaugh, Chief of Commercial Airplanes at Boeing, explained in January 2011, “in trying to recover than we ever would have spent if we’d tried to keep the key technologies closer to home.”

Boeing also lost sight of the whole production and they did not include steps to mitigate or eliminate the predicted costs and risks that have already materialized.Even with proven technology, there are major risks in outsourcing that components won’t fit together when the plane is being assembled. “In order to minimize these potential problems,” wrote Dr. L. J. Hart-Smith, a Boeing aerospace engineer, in a brilliant paper presented at a 2001 conference, “it is necessary for the prime contractor to provide on-site quality, supplier-management, and sometimes technical support. If this is not done, the performance of the prime manufacturer can never exceed the capabilities of the leastproficient of the suppliers. These costs do not vanish merely because the work itself is out-of-sight.”

Boeing did not plan to provide for such on-site support for its suppliers. In fact, it explicitly delegated this responsibility to sub-contractors. When the subcontractors didn’t perform the necessary coordination, Boeing had to provide the support anyway. “Boeing sent hundreds of its engineers to the sites of various Tier-1, Tier-2, or Tier-3 suppliers worldwide to solve various technical problems that appeared to be the root cause of the delay in the 787′s development. Ultimately, Boeing had to redesign the entire aircraft sub-assembly process.” The result? Huge additional expense, that should have been planned for and included in the project’s costs from the outset.

On top of all the extra costs and delays it turned out to be a disaster as the aircrafts experienced battery probems which caused all of their Dreamliner aircrafts to be grounded in January 2013 for 123 days until Boeing finally found a solution to the battery problem.  The cost for Boeing is estimated around $600 million even though the figure has not been confirmed by Boeing.

While there is nothing in principle wrong with necessary offshoring, the cultural and language differences and the physical distances involved in a lengthy supply chain create additional risks. Mitigating them requires substantial and continuing communications with the suppliers and on-site involvement, thereby generating additional cost. Boeing didn’t plan for such communications or involvement, and so incurred additional risk that unfortunately materialized in the end.

Sources:

http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/

http://www.thestar.com/…/outofcontrol_outsourcing…

 Boeing: Dreamliner 787 battery problem is solved (http://www.youtube.com/watch?v=rEAKtr7C8PU)

http://www.cnbc.com/id/100749368

http://www.businessinsider.com/dreamliner-trouble-has-cost-boeing-600-million-2013-4

Team #8 BCISM: Apple’s VS Zara’s offshoring strategies

Concerning the offshoring phenomenon, it can be source of issues, risks and threats. However, one should bear in mind that it can also and definitely be a fantastic success story that can lead some companies to increase their market share in one given industry.

As a famous example, we can refer to the offshoring strategy adopted by Apple with Foxconn in China. From a strategic point of view, the partnership could not be more successful. Remember: in 2010, Foxconn successfully invested billions of dollars in building enough capacity in China to manufacture Apple’s iPhone on the scale required. Consequently, it built a uniquely flexible and responsive supply chain for the American firm. On one recent occasion, according to a report in the New York Times, Apple redesigned the iPhone’s screen at the last minute and Foxconn woke up its workers in the middle of the night to get the job done in time. According to many specialists, one of the reasons Apple is what it is today is Foxconn. Throughout time, the two companies have been inextricably bound to each other.

However, if the “Apple-Foxconn” began as a success story, in the long-term run, conditions have increasingly changed and has led Apple to adapt its own strategy and be less dependent on Foxconn. After a spate of reports of poor working conditions for the firm’s employees, Apple’s chief executive, Tim Cook, ordered an investigation: then, Foxconn has had to adapt itself to the changing conditions and the new work framework (stricter legal conditions, riots and suicides of employees, increase in oil prices that make transportation costs higher). In December 2012, Mr Cook took an important decision and announced that Apple would bring some production of Mac computers back from China to America. “Made in America” is (maybe?) back !

In a nutshell, an offshoring strategy may definitely be a success story if the home company is continuously adapting its strategy to the changing conditions in a given industry. Last but not least, the home company should diversify its strategy in order not to be dependent on one single “offshoring actor). Otherwise, a offshoring “horror story” could definitely happen and impact the home company in a larger scale.

However, one should bear in mind that a “non offshoring” story can be a success story as well, even in labour-intensive industries. Zara, the main clothing brand of Inditex, has adopted this strategy by making its high-fashion clothes in Spain itself and in nearby Portugal and Morocco. By having a short and flexible supply chain, Zara can respond quickly to changes in customer tastes and has made this « close-to-home » decision its main source of competitive advantage!

Zara’s limited offshoring strategy:

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Sources:

Apple’s VS Zara’s offshoring strategies : offshoring or non offshoring, that is the question !
http://www.economist.com/news/special-report/21569575-companies-need-think-more-carefully-about-how-they-offshore-and-outsource-herd-instinct

Apple’s offshoring strategy in China: coming back to the “Made in America” (or “Made in Mexico”) ?
http://cmuscm.blogspot.fr/2013/02/apples-offshoring-in-chinatime-to.html

Group 85 @ Sophia: Atol: an example of business offshoring strategy failure

Nowadays reshoring its activites for a company is more and more common. Facing different issues playing on the total performance of the company (not only quantitative but also qualitative), some companies have questioned their strategy to decide to control again partly or totally the production process.

This presents the case of Atol that decided in 2003 to outsource parts of its activity, more precisely with production processes. In 2005, they questioned their strategy and have observed numerous failures in outsourcing in Thailand and China.

Indeed, offshoring led to major issues for Atol.

Quality issues appeared concerning products: meeting the customer’s needs was difficult. The reactivity time was way too long. From the prototype creation to the final delivery, over 6 months were spent. Overall consequences on the company’s performance were noticed.

At some point Atol had the desire to reduce the distance with outsourced companies: An example is the project of a call center based in Morocco (French speaking country,cultural proximity and in the same time zone). Companies are questioning the possibility to outsource in companies and analyze more the total cost (and qualitative issues). By doing so Atol is upgrading its products. Investments are done in innovation, R&D, and innovation costs are increasing. As a consequence, the total cost of production is getting higher, thus the labor cost is decreasing.

Reshoring will have a limited impact on the production location and will enable to focus on high skilled labor.

Obstacles undergone by Atol in China were many. The time to develop a new range of products was longer in China than France for a lot of products: lack of expertise in China, technological issues. 2 months were enough from the prototype to the final delivery (taking into account the tooling creation, industrialization etc.) while it needed 6 months in Asia.

By producing overseas ,transport costs were necessarilly higher as it had to import the glasses from Asia.

In 2005, Atol relocated its activities in France to get a better control over the production and marketing processes.

Reshoring its activities let Atol noticed a better and faster innovation

The lack of skilled profiles (technicians and managers) was a problem, even more when it needed to be controlled. By relocating, Atol saw the quality of its products improved. The proximity with the final customer was better, it let to develop more C2C services, with a better customer focused aproach. The relationshop with the local suppliers was thus also enhanced, with long-term contracts without focusing only on the product cost. The subcontractors were also better managed, things almost impossible when you offshore.

A transfer of technology for their own use was possible: investment in new machines (digital printing for example) playing on productivity and quality of products; high skilled labor for machines maintenance, employees with very specific and technical knowledge, know-how, and training.

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Eventually, the failure in offshoring can be pointed out with following key indicators:

Scope of the project

It must be clear to have a good vision of the objectives to be set by the outsourced company. That is not always the case, and companies sometimes prefer not to follow processes and work as they prefer.

Focus on total cost

We have to take into account the total cost of the product, and the total cost of change if we want to change the business. Some unexpected charges may impact the final cost of the product and play on the final price and the margin. The objective is to get the right product at the right location at the right time.

Time and Delivery

Transportation issues on the other side of the globe happen. The simplification of the supply chain with a local partner will shorten the delays and increase reactivity .

Government Regulations may also have an impact on the strategic decision to keep the business in a country or not

Cultural Differences

It may misleads to the different projects, which is a major problem in offshored businesses.

Communication Problems

The issue will not be the same if we decide to contact Chinese people speaking in difficult English rather than contacting Moroccan speaking French. There is a big difference of productivity and efficiency to solve the different issues.

 

>Link:

http://www.la-fabrique.fr/Actualite/atol-pourquoi-relocaliser-la-production-en-france

 

Group 25 @Sophia : The return of the Boomerang

Is it possible to talk about globalization without mentioning the word “offshoring”? Well probably not since the highly globalized economy, as well as a dramatic increase of the global competitiveness with the emerging countries, pushes Western firms to use their best trump card in order to still remain competitive: offshoring!

Since 1980’s offshoring has become a trendy word. In fact, in a crumbling European economy where the annual GDP growth nearly reaches 1%, offshoring offers the possibility to many MNCs, as well as SMEs to produce in countries like China for instance, where the costs of labor, taxation and plats are way cheaper than in the developed countries. However, since the past few years the reverse phenomenon is being observed. Companies that transferred their production units to more cost effective developing countries are coming back to their countries of origin. In fact, some economists predicted this to happen; nevertheless it is interesting to see the reasons through the case study of a French SME: Bellier Automobiles, a manufacturer of no-license, commercial and electric vehicles since 1968, that offshored most of its production units to China in 2010 that led the company into a very difficult financial situation. What are the reasons behind this failure?

Well, first of all offshoring is not always a better alternative to the higher labor cost. In the case of Bellier Automobiles, it was difficult for the company to create a sustainable and trustworthy long term working relationship with its local Chinese subcontractors. Not only that, the daily headaches due to the lack of quality, as well as to the slow reactivity in the delivery delays were small things but added all together generated an additional cost for the company.

Moreover, since perfecting a vehicle component is easier to do when the production chain is located near the conceptors, and not 8000kms far away, the company was slowly losing the technical control over the product. Proximity and adaptability are in fact key factors in order to be able to innovate in such an industry. The relocalisation was made in response to those problems and it should help the company to offer a better, higher quality product to the customers. Neuvessel group, which owns Bellier Automobiles, came up with a further development and redynamization plan for the Talmont-Saint-Hilaire production unit by relocating the Bellier Automobiles in Vendée region and investing 3 million euros backed up by the French public organizations. This investment and relocation of the company will triple the production and unable the company to export and develop a new type of electric vehicles, which plays a huge role in supporting the sustainable development. The plan will also create 85 new jobs in France.

The case of Bellier Automobiles shows that offshoring can sometimes be more challenging than expected. It showcases the importance of quality and productivity in the manufacturing process in order to be competitive in this highly globalized economy. We can ask ourselves the following question: Isn’t France offering the best environment for French companies to produce and implement their business?