Category Archives: Outsourcing

Playboy Goes Offshore … Is The American Lifestyle Going to Follow?

Shortly after I encountered that appalling article telling us we should “outsource thinking” until all we’re left with is white trash auctioning their junk at the bargain barn, I found this article on Global Services on how “Playboy [is] to Rely on Outsourcing”.

According to the article, Playboy has outsourced production of its monthly magazine and struck a deal to outsource its Asia operations to IMG Licensing Worldwide and expects that outsourcing will trim the Chicago company’s staff by 50% this year. Europe is next. Afterwards, the only cost saving will be lavish parties and the lifestyle Hugh Hefner is famous for … which has been part of the American dream since he launched Playboy back in 1953. Is the end of an era near at hand?

And if it is, what will replace the iconic bunny?

Was it Nearshoring? Or Bullwhip Effect?

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

China’s exports in February were up 45% from last February. (LA Times)

My opinion: the rapid decline and unsustainable increase in Chinese exports were from the bullwhip effect of a long supply chain. A small change in final demand can cause huge swings in upstream supply.

This mainly applies to those using ships to transport from China. If you can use air, China isn’t much further (in hours) than Mexico.

Dick Locke, Global Procurement Group and Global Supply Training.

The Tiger is Beginning to Roar … but the Eagle is beginning to Snore!

I was appalled to see this recent headline on the SSON site asking “2010: The Year For Outsourced Thinking?” (membership required) as well as the statement that organizations are increasing willing to outsource complex, higher value-added pieces of the “end-to-end” process.

Why? Because we’ve outsourced everything else. Raw material collection? Check. Processing? Check. Product Manufacturing? Check. Distribution? Check. Value-added services? Check. If we outsource thinking, and innovation, what’s left? Nothing of value! So while we should take advantage of reverse innovation at every opportunity, and partner with talent where we can find it, we should never, ever, outsource thinking. Because then all we have left is sales and marketing, which are totally useless if you don’t have a consumer base to market and sell to … which we won’t have if there are no jobs left — and there won’t be any jobs if we outsource the last few jobs we have! So unless you want to see an economy where the majority of us are unemployed while the remaining few are selling and marketing junk no one wants to each other, I’d make it a point to keep using our brain cells to their full potential. Otherwise, I predict that the 22nd century will see North America become the new third world.

The short story is that it doesn’t take long for a civilization to fall. The Egyptians, Greeks, Romans, Teoithuacans, Mayans, Incans, Aztecs, Vikings, Byzantine, and early Chinese Dynasties [Sui, Yuan, Qing] all fell in less than a century, and some in half a century or less. If we stop thinking, I can’t see us lasting very long at all.

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To Russia with Hope?

A month or so ago, I asked North American Nearsourcers is Brazil in your future, referencing a special report on business and finance in Brazil in the Economist that noted that, for the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation.

Today, I’m asking European Nearsourcers if Russia is in theirs? In a recent Harvard Business Review article on “The Promise and Peril of Russia’s Resurgent State” (subscription required), we are told that there is money to be made in Russia, as long as companies play by the rules imposed during Putin’s tenure as president and that it is just as promising as other members of BRIC; it is no more corrupt, violent, or prone to institutional upheaval. Furthermore, the recent high oil prices have helped to propel economic growth, which has been strengthened by improved tax administration and energy company taxes, and resulted in recent fiscal surpluses.

Of course, with the good come the bad. The Kremlin’s apparently infinite appetite for power represents a growing threat, as do the complexities of doing business in Russia. The current fluctuations in commodity prices, of which Russia is largely dependent on, can make things uncertain as well and Russia isn’t rising to the centre stage in the same way that Brazil, India, and China are. And it’s current president has warned time and time again that Russia will be doomed unless both the economy and the society modernize, hand-in-hand.

But balancing everything out is the fact that Russia’s economic situation will improve with the economy, when oil prices again stabilize (in the $80+ range according to most projections). (European) Energy companies have no choice but to invest in Russia. Inflows will surpass $100 B annually, the nouveaux riches will devour luxury products, and the middle class, that will have an average income of $16K, will expand. During the eight years Putin was President, he did everything he could to enforce the Kremlin’s power to achieve his goal of developing a market system and integrating Russia into the global economy — including the creation of a prudent macroeconomic management policy. (In Putin’s government you did not get involved with politics, did not buy politicians, and paid your taxes. If you were a business who played by the rules, everything was fine, and you were free to get rich if you could. If you didn’t, you were in trouble.) And Putin’s handpicked successor, Dmitry Medvedev, has repeatedly said that tackling remaining corruption is his top priority. Plus, dealing with Russia’s state led capitalism is often easier than coming to grips with China’s single party, multi-level authoritarianism or India’s multi-party, chaotic democracy.

Anyone have any thoughts to share?

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The Elusive Right Path to Engineering Offshoring

A recent article in Strategy+Business attempted to address The Elusive Right Path to Engineering Offshoring. They proposed a five step plan to making it work, and while the advice was okay, I think the article missed the point. In my view, the right path to engineering offshoring is not to do it at all if you are developing products for the local marketplace.

While I will freely admit that there is innovative talent in the outsourcing hotspots of India and China, it’s not necessarily the right innovative talent for you. As a for-profit enterprise, an innovative product alone is not enough — you need an innovative product that will sell in your target market, and, frankly, just because something is hot in India or China does not mean it’s going to be hot in North America (and vice versa). In terms even a layman could understand, just like most of the population in India would not buy a Big Mac, most of the population of North America would not be that interested in a McVeggie or a Lamb Maharaja Mac (although the doctor would prefer if his local MacDonald’s served a cheese-free Chicken Maharaja Mac instead of a Big Mac and a McAloo Tikki Burger instead of a Junior Hamburger).

Taking a more technical focus, while sales of a low-cost affordable car like the Tata Nano will probably skyrocket in India, such a small, cheap car would never even leave the showroom for a test-drive in North America as long as fuel prices are half of what they are in Europe. And clone merchandise will never reach the mass market in North America that it has in China (and not just because of much better intellectual property laws, but because of the high status North Americans bestow upon to brand name goods).

However, on the flip-side, if you are trying to create innovative products for international markets, you should certainly, at the very least, augment your R&D organization with a local-team on the ground in the target market. An experienced engineering or development shop in China or India would be much more adept at producing killer products for the local market than you would be thousands of miles away in the midst of a different culture. In this circumstance, the advice of the article applies, and I encourage you to read the article and take its advice.

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