Question

What are some of the potential problems global businesses face when they outsource or subcontract their manufacturing work to companies in other countries? (e.g., a U.S. sneaker company outsourcing the manufacturing of its sneakers to a separate company in China or Vietnam)? 250 words

Answer 1

Despite the fact that third party companies can often provide quality labour at a drastically reduced cost, there are sometimes moral issues that can accompany this type of labour.

Quality Risk

Outsourcing can expose an organization to potential risks and legal exposure.

As an example, if a car is recalled for faulty parts and that part was outsourced, the car manufacturer carries the burden of correcting the potentially damaged reputation of the car maker. While the vendor would need to make good on the faulty product by contract, the manufacturer still has the black eye from the incident and carries the burden of correcting the negative public perception.

outsourcing require putting large numbers of domestic workers out of work, which can be hazardous to the company’s global brand management. In an age of increasing social responsibility, firing five thousand domestic workers is not exactly great for a brand’s image. Displacing so many people from their jobs is a very significant decision. Also, the workers who are losing their jobs are often the people who have helped grow the company into what it is. So, transporting so many jobs can often create resentment from, and hard times for, domestic workers. Between 2001 and 2011, around 2.7 million jobs were outsourced from the United States to China. A large percentage of those jobs were from the textile industry. While textile companies saved on their bottom lines by relocating operations to China, millions of workers lost their jobs in America. That is a heavy social cost to pay. There are both pros and cons to outsourcing manufacturing. Ultimately, it is up to the individual company to decide whether or not using a third party company to meet its manufacturing needs is the right decision. If a company can find a third party company which can provide cheaper labour, less regulation and fewer taxes, but also treats its workers fairly and provides them with a safe working environment and better quality of life, as many do, it can be an excellent option. The negative brand implications for putting domestic workers out of the job, and the possibility of forcing foreign workers to work in what are sometimes harsh conditions, however, may lead other companies to continue their domestic manufacturing practices. In an increasingly globalized world, opportunities for third party manufacturing will surely increase. The extent to which these opportunities will be taken advantage of is yet to be determined.

Legal Compliance and Security

It is important that issues regarding legal compliance and security be addressed in formal documentation. Processes that are outsourced need to be managed to ensure there is diligence with legal compliance and system security.

An example of this is outsourcing the IT function and having an outsourced employees use their access to confidential customer data for their own gain.