Infosys-Oracle Blog : Should Hi-Tech Manufacturers increase outsourcing in these times of recession?

Let us examine the business drivers of a typical Hi-Tech manufacturer. Hi-Tech manufacturers are driven by the main factors of innovation and new product innovation, which are becoming increasingly evident now in the times of global recession. The Hi-Tech industry is characterized by declining product life cycles, falling prices which have an impact on any investments by these companies into any new machinery or new manufacturing technologies. Outsourcing provides the answer in such circumstances enabling these companies to push such risks on to their outsourcing partner.

Thus the following factors will determine the need for more outsourcing:

1. Cost : It is widely seen that there is a trend to move production of non-core components and products to cheaper countries like China, Taiwan, India, etc. since it provides a significant savings in costs. The improvements and predictability of logistics have helped a great deal to encourage companies to take this step.

2. Flexibility: In these uncertain times the manufacturers would not like to invest in costly machinery to manufacture products which have short product life cycles and which may obsolete is a short period. Also the company would want to concentrate on their core competencies and outsource all other non-core activities.

3. Special Skills & Tools: This helps the companies to engage outsourced partners and leverage special tools and special skills that these outsourced partners have. This helps the Hi-Tech companies since they do not have to invest on these tools and developing such skills in their workforce.

4. Responsiveness to Market: As mentioned before, the Hi-Tech companies work on very short time to market cycles and outsourcing helps in reduction of the NPI(New Product Introduction) cycle by leveraging the competencies of the outsourced partners to deliver components at a much faster rate than is possible to develop in-house.

Finally, it is felt that outsourcing of non-core activities will increase which will help the Hi-Tech manufacturers derisk themselves from the current environment and help them compete in this uncertain market. A company that outsources has much to gain. Yes, there are risks. But if you are able to master outsourcing or work with experts who have made outsourcing a core competency, the benefits far outweigh the risks.