This means that as additional activities are outsourced, the supply chain turns from a single integrated process, performed within the boundaries of traditional corporations, to a fragmented and disintegrated process, a collection of separate and disjointed activities performed across several independent subcontractors. And although such a fragmentation and disintegration of the value chain offers companies a number of well publicized advantages, it has an unintended consequence: It eases the entry of new competitors to the industry easier, intensifying competition, shortening product cycles, and squeezing return on invested capital.
In 2006, for instance, Dell decided to expand its ties in the Indian outsourcing market, building on the contact center and R&D operations it already has established and a customer contact facility in Gurgaon to complement its existing operations in Bangalore, Hyderabad and Mohali. The same is true for outsourcing marketing or distribution, and R&D. As I discuss in The Business Strategy in a Semiglobal Economy, for instance, outsourcing of manufacturing is feasible only if it can be separated from other supply chain activities: product development, branding, marketing, distribution, and after sales services.
#HP VS DELL MARKETING STRATEGY PC#
Outsourcing PC manufacturing allows HP to focus on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.”Ĭompounding the problem, outsourcing leads to the fragmentation and disintegration of the supply chain, inviting new competitors into the industry, and undermining pricing power and profitability. In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements. This move will allow HP to take advantage of the flexibility and cost benefits associated with using non-dedicated factories. “Hewlett-Packard Company (NYSE:HWP) today announced it is planning additional outsourcing of its PC manufacturing facilities worldwide, in keeping with its longstanding strategy to decrease operations costs and improve profitability. That’s what eventually happened in the PC industry.Ī press release by HP back in 2002 says it all: Worse, outsourcing nurtures corporate complacency whereby leadership fails to address competitive threats from alternative products. Once this happens, outsourcing is no longer a source of competitive advantage. It cannot be patented, thereby preventing others from ad0pting it. Outsourcing, the transfer to third parties of activities that used to be performed in-house, provides certain competitive advantages to early-movers – that is, to companies that adopt it first - but it isn’t proprietary. The trouble is that some companies give this advantage away, piece-by-piece, through outsourcing. Competitive advantage, the way companies differentiate themselves from their competitors, is what it takes to survive and thrive in a competitive market environment.
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