Midterm #3 in class essay

Midterm #3 in class essay - Dr Trance Prof Fruin M idterm#3...

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Dr. Trance Prof. Fruin 11/24/2009 Midterm #3 Business 189 – Strategic Management Corporate Level Strategy Short Answer Questions: 2) More and more American firms, including Silicon Valley firms, are outsourcing. In your estimation, what are the 2-3 best reasons and the 2-3 worst strategic reasons to outsource? If there are good and bad reasons to outsource, how do firms choose between one or the other? There are many good and bad reasons to outsource. As we have seen in the past 10 years the good outweigh the bad in most cases and almost every large company in the world outsources some part of their business functions: from IT and HR to accounting and product development. Let us first start this out with defining outsourcing as taking something from your value chain and hiring someone else to fulfill that requirement. At no point in that definition does it state that outsourcing is taking a function and sending it overseas to be completed. Sending processes overseas has a different name – off- shoring. I feel that too often outsourcing is confused with off-shoring in our society. So there is the truth of it, hiring someone else to do the work for you who is not part of your company is outsourcing, whether it be to another country or not. So let us talk about the top 3 reasons to outsource in my opinion. The first reason, the most obvious reason, is lowered cost. As of May of 2006, Chinese employees made an average wage of $.57 per hour. i Compare this to the federal minimum wage in the U.S. of $5.15 in 2006. That is nearly 10 times more expensive to manufacture your goods in the U.S. compared to abroad. The second reason I pose that it is wise to outsource is to take advantage of a 24 hour work day. A dedicated employee can work for 10-12 hours per day year-in and year-out, but can they work for 24 hours a day? Maybe one day if we find some magical pill that allows our bodies to rest while we are awake, but at this point we cannot afford to not sleep. So how do we get a 24 hour workday? Easy, we hire people
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in other countries like India, Denmark, or China to work while we sleep. We can work our 7 to 7 and when we go home they can work their 12 hours. What does this give us? It gives us a competitive advantage, for while the competitors are sleeping we are busily working towards faster deployment of our next software or product. Branching off of the idea of faster deployment of our product we see the third reason for outsourcing arise – specialization. Say for instance you are building your own company and want to build a five-star website to draw people into your new idea. You do not write code, so do you learn how to program or do you hire someone else to do it for you? Chances are you outsource. Why? Because there are people out there that are specialists at certain functions of your value chain and it saves you time and resources if you hire them to do it for you.
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Midterm #3 in class essay - Dr Trance Prof Fruin M idterm#3...

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