Outsourcing has been a way for firms to reduce their cost of production and enabling them to focus on their core competencies for decades. As the total costs for manufacturing in China – the most prominent outsourcing location, are increasing due to unfavorable market changes, which in turn leads to loss of the competitive advantage, European companies are more and more often realizing and pursuing the benefits of ‘near-sourcing’ their manufacturing operations to Eastern European countries.
This paper is a study of outsourcing decisions related to specific products in the Swedish manufacturing industry, how the product characteristics identified through the Portfolio Model of Supplier Relationships, and how the dimensions of the CAGE Dimensions Framework affects such decisions.
Primary data was collected through three qualitative, semi-structured interviews with re-spondents from Swedish manufacturers currently outsourcing to China and/or Eastern Europe. The data was analysed through categories obtained from thorough literature re-view, where theoretical models were found as a foundation for the research questions that were established.
The research revealed that companies do follow the advised sourcing strategies for specific product characteristics. It serves as a good starting step, but can be developed into different directions. The leverage products were outsourced to China and Eastern Europe, while strategic items were also outsourced to Eastern Europe.
However, some leverage items outsourced to both countries had some of the characteristics of a strategic item. The bene-fits from economic distance were the main advantage of production in China, whereas cul-tural and administrative distance had a negative impact. The economic distance for Eastern Europe provided benefits as well, even though these benefits were not as substantial as in China. The political distance served as both a positive and negative factor in Eastern Europe – positive due to its membership in European Union (for some of the countries) and negative due to high levels of corruption.
Source: Jönköping University
Author: Laursone, Gunita | Domeij, Emelie