China is changing Handy’s work model. The middle ring includes suppliers providing products and contractors providing services. Over the years, many companies outsourced in China. This may grind to a halt over the next few years as trade war and tariffs increase. China’s Digital Curtain is replacing the Soviet Union’s Iron Curtain.
The Handy work model logic goes like this: If a company has core capabilities and competencies (inner ring) then it would make the product. If it does not, then it buys (middle ring) the product from ‘world class’ suppliers in China with complementary core process competencies.
The ‘make or buy’ decision is ‘Do we have the expertise to manufacture a quality product and deliver it at a competitive cost?’ Since many industrial tasks cannot be effectively accomplished in-house because of lack of equipment, trained personnel, or material, the answer to the question is often ‘no.’ This ‘make or buy’ decision is complicated due to Chinese price increases, IP theft, and Chinese politics. The ‘make or buy’ decision matters because it determines the level of investment the business will make internally as well as with suppliers. If the decision is made to outsource and offshore, work and jobs go to the offshore supplier.
Let’s look at a few ‘make or buy’ examples: In general, high tech companies such as Intel and Microsoft competitively position themselves based on their core competencies so internal development (‘make’ decision) provides the most competitive advantage. In areas away from their chip design and software development, they outsource, license, or purchase required competencies.
On the other hand, Gucci sells expensive products, such as multi-thousand dollar handbags and leather goods. Gucci decided to expand its internal capabilities and competencies to assure its quality reputation through internal design, manufacturing, and distribution. It’s revamping and redesigning its supply chain model to make products internally and to integrate vertically.59
Work Lesson Earned: Outsourcing calculus is changing due to continuous trade wars. How are you impacted? Do you work for a company whose products and services are obsolescent or can be outsourced? Do you offer professional services that can be outsourced or offshored? If ‘yes’ to either question, what’s hindering the company from outsourcing your job? Do you see this challenge as a risk opportunity (upside risk) or a threat (downside risk)?