Globalization in Executive Business Education

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Offshoringand the Globalization of the Value
Chain
Torben Pedersen Professor Center for Strategic
Management and Globalization Copenhagen Business
School
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Sourcing (onshore-nearshore-offshore)

• .

Nearshore
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Offshore outsourcing Boings dreamliner
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What is driving the offshoring?

• New information and communication technology
  makes it easier to codify and standardize
  activities
• New technology makes it possible to disconnect
  and disaggregate activities
• e.g. e-business, e-learning, library services
• New important markets like China and India is
  opening up and claiming their role in the world
  economy

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A value chain approach

• Change from dispersed to concentrated
  configuration strategies in which global sourcing
  plays a vital role

Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound logistics
Outbound Logistics
Operations
Marketing and sales
Service
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A dispersed value chain configuration with low
interaffiliate coordination
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A concentrated value chain configuration with
high inter-affiliate coordination.
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The starting point
Value Chain
Input
Process
Output
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Fine-slicing of the value chain
Value Chain
Input
Process
Output
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Location and organization
Choice of location and organization ?
Value Chain
Input
Process
Output
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Danish textile-companies outsourcing/offshoring
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Smiley of the value chain..
Branding and marketing
Design
Quality Control
Logistics
Packaging
Procurement
Sewing
Processing
Cutting
Value chain
Input
Output
Processing
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Smiley of the value chain..
Danish textiles
Design
Branding and marketing
Quality Control
Logistics
Packaging
Procurement
Sewing
Processing
Cutting
Value chain
Input
Output
Processing
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Location of ECCOs value chain activities

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Mubambi (2008)
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Strategies for control
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Disaggregation af banking activities
Brands
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Disaggregating activities
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• In Novo Nordisk 90 percent of our research and
  development is sweat and only 10 percent are
  really creative
• Lars Guldbæk Karlsen, Vice-president of RD
• Novo Nordisk

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The Wind-turbine company Vestas disaggregation
of the value chain in RD
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Quinn Hilmer Strategic Outsourcing

• Concentrate investments and energies on what the
  enterprise does best core competencies
• Focus resources and time on core
• Full utilization of external suppliers core
  competencies
• E.g. Cost advantages or Accces to new knowledge
• A joint strategy decreases risk and lowers
  investments etc.
• Less capital-intensive

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• A company and its value needs a gravity and
  some DNA that needs to be nurtured, while
  everything else should be globalized
• Torben Ballegaard Sørensen, CEO BO
• Back offices by definition will never be able
  to attract your best. We GE converted ours into
  someones front office and insisted on getting
  their best
• Jack Welch, former CEO of General Electric

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• What are the disadvantages
• of offshoring?

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Disadvantages

• Linkages e.g. production design/development
• Loose critical skills and knowledge
• Loose flexibility
• Quality control

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Is this sustainable?

High-cost countries
Low-cost countries
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• thanks for your attention, so far!

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2006 Offshoring Research Network Survey
Demographics
Duke University / Booz Allen Hamilton 2006
Offshoring Survey Demographics
Percentage of Forbes companies in US sample

• 537 firms surveyed in US, UK, Germany,
  Netherlands and Spain. Excludes third party
  service providers
• 55 currently offshoring
• 18 considering offshoring
• 27 not considering offshoring
• 1498 offshore functional implementations
• Major industries represented Financial Services,
  Manufacturing, Telecom, Technology, Consumer,
  Media, Energy, Aerospace Defense, Automotive
• Functions Offshored Includes IT, Customer
  Service, Business Processes, Engineering,
  Marketing, RD, Product Development and Design

Forbes 100
Small (Not Ranked by Forbes)
Forbes 250
Forbes gt1000
Forbes 500
Forbes 1000
Source Duke University/Booz Allen Offshoring
Research Network 2006 Survey
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IT remains the most highly offshored function.
The next offshoring frontier, however, is
globalizing product and process innovation
Cumulative Percentage of Firms Initiating
Offshoring by Function
Cumulative Percentage of Firms Initiating
Offshoring
Source Duke University / Booz Allen Offshoring
Research Network 2006 Survey
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Access to qualified personnel and improving
speed to market are growing faster as
offshoring drivers than cost reduction
Growth Rate of Offshoring Drivers Over Time
Cost Reduction
Access to Qualified Personnel
Competitive Pressure
Business Process Redesign
of Responses Rating Driver as Very Important
and Important
Increased Speed to Market
Access to New Markets
Survey Year
Source Duke University / Booz Allen Offshoring
Research Network 2006 Survey
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Managerial and organizational risks are growing
while risks associated with external factors are
declining.
Perceived Risks of Offshoring 2004 - 2006
Operational Challenges
Lack of Acceptance by Internal Clients
Loss of Managerial Control
Lack of Acceptance by Customers
of Firms Citing Risk as Very Important or
Important
Cultural Differences
Political Backlash
Political Instability
Survey Year
Source Duke University / Booz Allen Offshoring
Research Network 2006 Survey