August 03, 2005
Erroneous Study Denounces Importance of Outsourcing
A recent study reveals what we all already know, that outsourcing alone is not sufficient to sustain an ailing business. The report was conducted by the Center for Automotive Research which concludes that managers feel that proper execution of business basics such as developing innovative products and customer service are far more important that cheap labor.
This is a fantastic example of a useless survey. Of course people will feel as though developing a good product and marketing it effectively is more important to their success than cost cutting. But that's not the issue. The issue is whether in today's competitive global marketplace a company can survive solely by producing a good product and marketing it effectively. As far as this author is concerned, the answer far more often than not is, no. A company must constantly embrace cost cutting because the value placed on quality does not compensate for the higher labor costs necessary to achieve such quality. Rather, there exists a floor above which all products are considered virtually equivalent. The key is to reach that floor by spending as little as possible and avoiding all legacy costs. This, almost by necessity, means more outsourcing. Forbes.com reports:
For instance, when executives were asked to rank a variety of factors on a scale of 1 to 5 in terms of their impact on the companies' long-term future success, "developing engineering and intellectual property unique to their firm" was ranked number one. Somewhat less important were "pursuing increased engineering and design responsibility" and "optimizing (their) supply chain," with mergers and acquisitions, and outsourcing ranked last.
Read More: Major US Auto Suppliers See Execution of 'Business Basics' as Key to Their Future Success
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