Magna Corp

Total Cost = Total Variable Cost + Total Fixed Costs

Total Variable Costs = (30.310 * 6200 * 12) + (0.824 * 6200 * 12) (5.9/100*10*6200*12)

TVC = 2,255,064 + 61,305.6 + 43,896 = 2,360,265.6

TFC = 8,200

TC = 2,360,265.6 + 8,200 = $2,368,465.6

Per unit cost = TC/Number of units

Per unit cost = 2,368,465.6/ (6200*12) = 2,368,465.6/ 74,400

Annual Per unit Cost = $31.8342

Sun Components and Assemblies

Fixed Costs = 4,300 + 20,000 = 24,300

Declared value = 19.52 *6,200 = 121,024 a month

1 cubic foot = 1,728 cubic inches

1 unit = 12 *12* 12 = 1,728 cubic inches = 1 cubic foot

Therefore, there are 6,200 cubic feet of units a month

Variable Costs = 12 [(19.52 *6,200) + (2.20 * 6200) + (200 *3) + 100 + (4,200 * 3) + (121,024 *0.5480/100) + 1,200 + (5/100 *121,024) + (19.3/100*10*6200) + 300 + (1.210 * 6,200) + (0.15 * 121,024) + 400 + (4 * 25)]

Variable costs = 12 [121,024 + 13,640 + 600 + 100 + 12,600 + 663.21152 + 1,200 + 6,051.2 + 11,966 + 300 + 7,502 + 18,153.6 + 400 + 100]

VC = 12 [194,300.01152]

VC = 2,331,600.13824

Total Annual Cost = 24,300 + 2,331,600.1382 = 2,355,900.1382

Annual Per unit cost = 2,355,900.13824/ (6200 *12) = 2,355,900/ 74,400 = 31.6653

Percentage difference

Percentage difference =  = 0.1689/31.8342 *100 =0.5306% difference

 

 

Additional Quantitative and Qualitative Issues to consider

When making an outsourcing decision, a business considers a number of factors, other than cost implications. To begin with, it is important to consider the technologies and resources possessed by the firm that the organization wants to outsource some functions to (Schniederjans, Schniederjans, & Schniederjans ). The outsourcing firm has to consider whether the vendor has the resources to handle the outsourcing needs. Basically, the vendor’s employees have to be sufficiently trained to fulfill the assignment. The selected vendor must have a physical office with state-of-the-art technologies to deal with the most painstaking outsourcing functions.

Another consideration is the vendor’s ability to meet strict deadlines. Failure to meet deadlines leads to major bottlenecks that nullify any projected cost savings (Vagadia). What’s more, the vendor has to comply with the expected quality standards. Therefore, if the company establishes that a vendor has poor quality control measures and lacks a solid backup plan in case it misses a deadline, it is prudent to not hire the vendor (Schniederjans et al.).

Before making an outsourcing decision, a firm has to look into the potential vendors’ past production records (Schniederjans et al.). From their history, the firm can establish which vendors are able to work under minimal supervision. It is imperative for the outsourcing organization to choose a vendor that is self driven and can work under minimal supervision. That would allow the business to concentrate on its core capabilities.

Outsourcing decisions should also take into consideration the effect an outsourcing decision can have on the brand (Schniederjans et al.). Some businesses derive their advantage from the uniqueness of the products they make. The decision to outsource might lead to the leak of business secrets. Therefore, a business must ensure that outsourcing does not risk exposing the qualities that make it unique and successful (Vagadia). That require due diligence to establish whether potential vendors have demonstrated a tendency to keep their business partners’ secrets.

Businesses also consider the time zones of potential vendors before making outsourcing decisions (Vagadia). Huge differences in time zones can make coordination between the two firms difficult. In contrast, it is easier to liaise with and coordinate activities with the vendor, when the time zones are close. While it is not one of the most important considerations, it is one that businesses considering outsourcing ought to critically look at (Schniederjans et al.).

Efficiency of communication is also critical to any prudent outsourcing decision. Undeniably, outsourcing alters communication efficiency between different organizational departments and management (Schniederjans et al.). That is partly because of language and cultural differences between the organization and the vendor. However, organizations have the responsibility to assess and outsource to a vendor with whom communication would be most efficient (Vagadia).

Businesses should consider whether the vendor they outsource to respects intellectual property rights (Vagadia). Some countries have a poor culture on intellectual property; they infringe on property rights, without any legal remedies. While it is possible to manage local outsourcing and near-shore alternatives with non-disclosure agreements and contracts, more comprehensive measures are needed when dealing with outsourcing alternatives that are located in distant corners of the globe (Schniederjans et al.).

The company ought to reflect on the lead time of the vendors’ production processes. Essentially, lead time affects the time the company will take to get its finished products into the market (Schniederjans et al.). Therefore, a company with long with shorter lead times would be a better outsourcing destination. It would enable the outsourcing company to make and deliver its products to the market within a shorter time (Schniederjans et al.).

Publicly traded companies have to consider the impact an outsourcing decision might have on the value of the company (Vagadia). Therefore, before outsourcing, it is imperative that such companies consider the perceptions of investors in case information leaks out. While it is not expected that information should leak out, it is always good to weigh in all aspects of the decision (Vagadia). For instance, if the company outsources to a vendor that has a poor reputation when it comes to human rights violations, investors would lose confidence in it and its stocks would plummet. In contrast, outsourcing to a reputable vendor, stocks are likely to go up.

The organizational culture is another factor that influences the choice of vendor or outsourcing partners. Organizations are always on the lookout for business partners who have organizational cultures that are similar to theirs (Vagadia). Therefore, a business with flexible work schedules and a calm, friendly working environment would not want to partner with another firm that has rigid schedules. That would be in contravention to organizational mission and values that inform the cultures (Schniederjans et al.). It would also negatively affect the outsourcing representatives that the company sends to assess and monitor some issues at the vendor’s facilities.

Strategies to Reduce Overall Costs

The Hong Kong option can be significantly reduced by reducing the shipping lead time. At two months, a lot of things can change in the market as the company waits to receive the materials from the outsourcing partner (Schniederjans et al.). That would lead to losses that will outweigh the cost benefits enjoyed due to the outsourcing process (Vagadia). Therefore, if the shipping lead time from Hong Kong can be reduced by two weeks or a month, it would reduce the overall costs incurred by the outsourcing company (Vagadia).

Cost reductions can also be reduced by choosing the Free on Board (FOB) option instead of the Cost, Insurance, Freight (CIF) option that is currently on offer. Under CIF, the seller assumes all costs and liabilities associated with shipping of the goods until they reach the buyer (Schniederjans et al.). On the other hand, under FOB, the buyer assumes responsibility of the goods and costs associated with them once the goods are shipped. Therefore, responsibility is transferred to the seller once the goods are loaded. However, using FOB, the buyer (outsourcing company) negotiates directly with the involved parties. Therefore, it can get cheaper insurance and freight costs (Schniederjans et al.). On the contrary, buyers can connive with insurers and shipping agents to increase costs so as to increase profits that can be shared between the two. Communication with the shipping agents, while the goods are on transit, is also improved by the use of FOB since the buyer and the shippers are in direct contact (Schniederjans et al.).

The outsourcing company can also reduce overall costs by liaising with and importing goods together with another company, in one shipment (Vagadia). While the costs that are dependent on the declared value and size of the cargo are unlikely to change, some costs such as ocean transportation costs, port handling charges, customs brokerage fees, foreign exchange hedging costs and inland container transportation costs can be shared out with another interested company. That would reduce the cost per unit significantly and allow the company to charge friendlier prices for its finished products (Vagadia, ). Even a one-dollar reduction in unit prices would give the company an edge against its competitors.

The Magna Corp overall costs can also be reduced by reducing the packaging costs. Since the goods are delivered to one client, for production purposes, each unit should not be packaged separately. That increases the space the products occupy and increase the cost of packaging the products (Schniederjans et al.). Therefore, the company can agree with the vendor to have the gadgets packaged in dozens or even 24 pieces. That would significantly reduce packaging costs. The impacts of the business on the environment will also be drastically reduced by the move. That would improve the company’s reputation in the eyes of customers and the general public (Schniederjans et al.).

Better stock control would also help improve overall costs incurred by the company (Schniederjans et al.). Through optimization of stocks, the company can either increase warehousing costs or decrease shipping costs. In some instances, it would be prudent to make larger shipments that would need more warehousing space. However, while the cost of warehousing and holding the stocks will be high, the goods will be shipped under fixed ocean transportation, travel and training costs, and port handling and container costs (Vagadia). It is, however, upon the company to establish the strategy that reduces costs; either increasing frequency of shipping or warehousing and holding costs (Vagadia). That can be achieved through some simple optimization equations.

The company can also significantly reduce the annual travel and training costs (Schniederjans et al.). For instance, instead of travelling, some meetings can be held through video conferencing. That would almost eliminate hotel costs that would be incurred if officials travel to Hong Kong for meetings. Basically, officials will only have to travel when they have to physically inspect the products being manufactured by the vendor; part of what Vagadia () describes as unavoidable costs in outsourcing. It, however, would be difficult to lower training costs as employees would still need to be trained on how to handle outsourcing functions and interact with the vendor’s representatives (Vagadia).

Works Cited

Schniederjans, Marc J, Ashlyn M Schniederjans and Dara G Schniederjans. Outsourcing and Insourcing in an International Context. London, UK: Routledge, 2015.

Vagadia, Bharat. Strategic Outsourcing: The Alchemy to Business Transformation in a Globally Converged World. New York, NY: Springer Science & Business Media, 2013.

 

 

Outsourcing Decisions in Business: Ford Motor Corporation

Executive Summary

The process of outsourcing entails transferring non-core activities and the relevant assets to another company to perform the activities for the benefit of the outsourcing company. To qualify as outsourcing, the activities must be transferred to a completely different company. Over time, companies have shifted from outsourcing physical parts only to outsourcing intellectually-based activities. At the heart of most outsourcing decisions is cost reduction.

In that vein, the Ford Motor Corporation considers the cost implications of outsourcing to two companies: the Magna Corps, based in Canada, 20 kilometers away from Ford facilities and the Sun Components and Assemblies based in Hong Kong, China. Analysis reveals that the Ford Motor Corporation would incur $2,368,465.6 and $2,355,900.1382 a year by outsourcing manufacture of the electronic navigation module to Magna Corps and Sun Components & Assemblies, respectively. That translates to $31.8342 and $31.6653 per unit. Hence, the Hong Kong option is 0.5306% cheaper that outsourcing to the Canada-based firm. However, the decision cannot be made on cost benefits alone.

The Ford Motor Corporation has to consider other factors such as ability to meet deadlines, possession of the requisite resources and technologies, past production records, communication efficiency, lead time, ability to protect intellectual property rights, time zone of vendor and the effect of outsourcing on organizational reputation. In addition, it is important to look into avenues for further cost reductions. Outsourcing to Sun Components presents opportunities for further cost reductions, but it also comes with its own disadvantages, such as increasing labor costs in Hong Kong, communication difficulties, incentive to protect intellectual property and unforeseeable maritime risks. The Magna Corps option is difficult to further cut costs but the risks involved are less. After considering all the factors, the paper recommends that Ford outsources to Canadian-based Magna Corps.

 

Introduction

In the last few years, outsourcing has gained traction in the business world. However, over the decades, even centuries, businesses have engaged in the outsourcing of practice (Schniederjans, Schniederjans and Schniederjans). Still, the scale and scope of the practice has exponentially increased in the technological era. Initially, it was very similar to vertical integration because larger companies bought-off their suppliers to reduce production costs. However, that evolved into the present day outsourcing that many businesses consider unavoidable. Actually, in the contemporary business world, some consider it a solution for most, if not all, companies (Vagadia).

In principle, outsourcing refers to the practice of relying on external resources to perform some of a company’s functions. An outsourcing company transfers out an activity, and the relevant asset, to outside suppliers (Vagadia). The outsourcing partners, also known as vendors, perform the tasks given to them and deliver the finished product or service to the outsourcing company.

Initially, companies only outsourced production of physical parts. However, that has shifted towards the outsourcing of intellectually-based activities, such as marketing, research and logistics. Still, no business outsources its core activity; it would deprive it of its ability to complete effectively. Therefore, they outsource peripheral activities and focus on their core competencies.

However, it is worth noting that outsourcing must straddle organizational boundaries (Vagadia). Therefore, starting another production plant or relocating some functions to another facility does not qualify to be outsourcing. It must involve transferring the activities to another organization that is completely independent of the outsourcing company (Schniederjans et al.). If it is within the same company, it is just relocation, not outsourcing.

Total Annual Cost and Cost per Unit

Most outsourcing decisions have been based on the desire to reduce production costs (Schniederjans et al.). Therefore, businesses consider a number of alternatives and settle for the one that offers it the highest cost reductions; total and per unit. However the latter is a more accurate means of measuring cost effectiveness of an option because it builds into the actual cost of the final product (Schniederjans et al.).

Magna Corp

Total Cost = Total Variable Cost + Total Fixed Costs

Total Variable Costs = (30.310 * 6200 * 12) + (0.824 * 6200 * 12) (5.9/100*10*6200*12)

TVC = 2,255,064 + 61,305.6 + 43,896 = 2,360,265.6

TFC = 8,200

TC = 2,360,265.6 + 8,200 = $2,368,465.6

Per unit cost = TC/Number of units

Per unit cost = 2,368,465.6/ (6200*12) = 2,368,465.6/ 74,400

Annual Per unit Cost = $31.8342

Sun Components and Assemblies

Fixed Costs = 4,300 + 20,000 = 24,300

Declared value = 19.52 *6,200 = 121,024 a month

1 cubic foot = 1,728 cubic inches

1 unit = 12 *12* 12 = 1,728 cubic inches = 1 cubic foot

Therefore, there are 6,200 cubic feet of units a month

Variable Costs = 12 [(19.52 *6,200) + (2.20 * 6200) + (200 *3) + 100 + (4,200 * 3) + (121,024 *0.5480/100) + 1,200 + (5/100 *121,024) + (19.3/100*10*6200) + 300 + (1.210 * 6,200) + (0.15 * 121,024) + 400 + (4 * 25)]

Variable costs = 12 [121,024 + 13,640 + 600 + 100 + 12,600 + 663.21152 + 1,200 + 6,051.2 + 11,966 + 300 + 7,502 + 18,153.6 + 400 + 100]

VC = 12 [194,300.01152]

VC = 2,331,600.13824

Total Annual Cost = 24,300 + 2,331,600.1382 = 2,355,900.1382

Annual Per unit cost = 2,355,900.13824/ (6200 *12) = 2,355,900/ 74,400 = 31.6653

Percentage difference

Percentage difference =  = 0.1689/31.8342 *100 =0.5306% difference

 

Therefore, outsourcing to Sun Components and Assembly, Hong Kong, is 0.5306% cheaper than outsourcing to Magna Corps, Canada. Therefore, if the business is looking for a purely cost effective alternative, it would settle for the latter option. However, in the real business world, cost effectiveness is just but one of many factors that are considered.

Additional Quantitative and Qualitative Issues to consider

When making an outsourcing decision, a business considers a number of factors, other than cost implications. To begin with, it is important to consider the technologies and resources possessed by the firm that the organization wants to outsource some functions to (Schniederjans, Schniederjans, & Schniederjans ). The outsourcing firm has to consider whether the vendor has the resources to handle the outsourcing needs. Basically, the vendor’s employees have to be sufficiently trained to fulfill the assignment. The selected vendor must have a physical office with state-of-the-art technologies to deal with the most painstaking outsourcing functions.

Another consideration is the vendor’s ability to meet strict deadlines. Failure to meet deadlines leads to major bottlenecks that nullify any projected cost savings (Vagadia). What’s more, the vendor has to comply with the expected quality standards. Therefore, if the company establishes that a vendor has poor quality control measures and lacks a solid backup plan in case it misses a deadline, it is prudent to not hire the vendor (Schniederjans et al.).

Before making an outsourcing decision, a firm has to look into the potential vendors’ past production records (Schniederjans et al.). From their history, the firm can establish which vendors are able to work under minimal supervision. It is imperative for the outsourcing organization to choose a vendor that is self driven and can work under minimal supervision. That would allow the business to concentrate on its core capabilities.

Outsourcing decisions should also take into consideration the effect an outsourcing decision can have on the brand (Schniederjans et al.). Some businesses derive their advantage from the uniqueness of the products they make. The decision to outsource might lead to the leak of business secrets. Therefore, a business must ensure that outsourcing does not risk exposing the qualities that make it unique and successful (Vagadia). That require due diligence to establish whether potential vendors have demonstrated a tendency to keep their business partners’ secrets.

Businesses also consider the time zones of potential vendors before making outsourcing decisions (Vagadia). Huge differences in time zones can make coordination between the two firms difficult. In contrast, it is easier to liaise with and coordinate activities with the vendor, when the time zones are close. On the other hand, different time zones can be advantageous because the cooperation is akin to running 24-hour production. When it is daytime in Canada, it would be night in Hong Kong, and vice versa. The vendor will then be able to take instructions from the outsourcing organization and act on it, while enjoying the benefits of the time difference.  While time zone is not one of the most important considerations, it is one that businesses considering outsourcing ought to critically look at (Schniederjans et al.).

Efficiency of communication is also critical to any prudent outsourcing decision. Undeniably, outsourcing alters communication efficiency between different organizational departments and management (Schniederjans et al.). That is partly because of language and cultural differences between the organization and the vendor. However, organizations have the responsibility to assess and outsource to a vendor with whom communication would be most efficient (Vagadia).

Businesses should consider whether the vendor they outsource to respects intellectual property rights (Vagadia). Some countries have a poor culture on intellectual property; they infringe on property rights, without any legal remedies. While it is possible to manage local outsourcing and near-shore alternatives with non-disclosure agreements and contracts, more comprehensive measures are needed when dealing with outsourcing alternatives that are located in distant corners of the globe (Schniederjans et al.).

The company ought to reflect on the lead time of the vendors’ production processes. Essentially, lead time affects the time the company will take to get its finished products into the market (Schniederjans et al.). Therefore, a company with long with shorter lead times would be a better outsourcing destination. It would enable the Ford Motor Corporation to make and deliver its products to the market within a shorter time (Schniederjans et al.).

Publicly traded companies have to consider the impact an outsourcing decision might have on the value of the company (Vagadia). Therefore, before outsourcing, it is imperative that such companies consider the perceptions of investors in case information leaks out. While it is not expected that information should leak out, it is always good to weigh in all aspects of the decision (Vagadia). For instance, if the company outsources to a vendor that has a poor reputation when it comes to human rights violations, investors would lose confidence in it and its stocks would plummet. In contrast, outsourcing to a reputable vendor, stocks are likely to go up.

The organizational culture is another factor that influences the choice of vendor or outsourcing partners. Organizations are always on the lookout for business partners who have organizational cultures that are similar to theirs (Vagadia). Therefore, a business with flexible work schedules and a calm, friendly working environment would not want to partner with another firm that has rigid schedules. That would be in contravention to organizational mission and values that inform the cultures (Schniederjans et al.). It would also negatively affect the outsourcing representatives that the company sends to assess and monitor some issues at the vendor’s facilities.

Strategies to Reduce Overall Costs

The Hong Kong option can be significantly reduced by reducing the shipping lead time. At two months, a lot of things can change in the market as the company waits to receive the materials from the outsourcing partner (Schniederjans et al.). That would lead to losses that will outweigh the cost benefits enjoyed due to the outsourcing process (Vagadia). Therefore, if the shipping lead time from Hong Kong can be reduced by two weeks or a month, it would reduce the overall costs incurred by the Ford Motor Corporation (Vagadia).

Cost reductions can also be reduced by choosing the Free on Board (FOB) option instead of the Cost, Insurance, Freight (CIF) option that is currently on offer. Under CIF, the seller assumes all costs and liabilities associated with shipping of the goods until they reach the buyer (Schniederjans et al.). On the other hand, under FOB, the buyer assumes responsibility of the goods and costs associated with them once the goods are shipped. Therefore, responsibility is transferred to the seller once the goods are loaded. However, using FOB, the buyer (Ford Motor Corporation) negotiates directly with the involved parties. Therefore, it can get cheaper insurance and freight costs (Schniederjans et al.). On the contrary, buyers can connive with insurers and shipping agents to increase costs so as to increase profits that can be shared between the two. Communication with the shipping agents, while the goods are on transit, is also improved by the use of FOB since the buyer and the shippers are in direct contact (Schniederjans et al.).

The outsourcing company can also reduce overall costs by liaising with and importing goods together with another company, in one shipment (Vagadia). While the costs that are dependent on the declared value and size of the cargo are unlikely to change, some costs such as ocean transportation costs, port handling charges, customs brokerage fees, foreign exchange hedging costs and inland container transportation costs can be shared out with another interested company. That would reduce the cost per unit significantly and allow the company to charge friendlier prices for its finished products (Vagadia, ). Even a one-dollar reduction in unit prices would give the company an edge against its competitors.

The Magna Corp overall costs can also be reduced by reducing the packaging costs. Since the goods are delivered to one client, for production purposes, each unit should not be packaged separately. That increases the space the products occupy and increase the cost of packaging the products (Schniederjans et al.). Therefore, the company can agree with the vendor to have the gadgets packaged in dozens or even 24 pieces. That would significantly reduce packaging costs. The impacts of the business on the environment will also be drastically reduced by the move. That would improve the company’s reputation in the eyes of customers and the general public (Schniederjans et al.).

Better stock control would also help improve overall costs incurred by the company (Schniederjans et al.). Through optimization of stocks, the company can either increase warehousing costs or decrease shipping costs. In some instances, it would be prudent to make larger shipments that would need more warehousing space. However, while the cost of warehousing and holding the stocks will be high, the goods will be shipped under fixed ocean transportation, travel and training costs, and port handling and container costs (Vagadia). It is, however, upon the company to establish the strategy that reduces costs; either increasing frequency of shipping or warehousing and holding costs (Vagadia). That can be achieved through some simple optimization equations.

The company can also significantly reduce the annual travel and training costs (Schniederjans et al.). For instance, instead of travelling, some meetings can be held through video conferencing. That would almost eliminate hotel costs that would be incurred if officials travel to Hong Kong for meetings. Basically, officials will only have to travel when they have to physically inspect the products being manufactured by the vendor; part of what Vagadia describes as unavoidable costs in outsourcing. It, however, would be difficult to lower training costs as employees would still need to be trained on how to handle outsourcing functions and interact with the vendor’s representatives (Vagadia).

The overall costs of both options can be diminished by reducing damage during transit (Vagadia). It is fundamentally very difficult to get all products from one point to another while in good condition. However, efforts must be put to reduce the number of damaged goods per shipment (Schniederjans et al.). The first step is limiting movement of the products inside the container while on transit. That would mean filling the container to limit space for movement or tying up the goods in position. As a result, even as the vehicle, ship or truck, moves, the goods will still be held in position. That will eliminate the likelihood of the products colliding while in the truck (Vagadia). Another option would be using soft material to shield the products and absorb any shock emanating from the natural movement of the vehicle.

Recommendations

To begin with, the Sun Components and Assemblies, Hong Kong, option is cheaper by 0.5306% than the Magna Corps option. Hence, outsourcing the function to the Hong Kong would be cheaper, in terms of the cost per unit. However, such a distant option would have some hidden costs that the Ford Motor Corporation is unlikely to foresee before taking the decision (Vagadia). For instance, turbulence at sea is unforeseeable but it can affect maritime activities if it happens.

Still, the Hong Kong vendor presents more options though which overall costs can be reduced. The options include switching from FIC to FOB, reducing traveling costs, reducing shipping lead time, better stock control, and liaising with other importers to import together and share some costs (Schniederjans et al.). On the other hand, only two viable options exist that can be employed by Magna Corps; reducing packaging costs and reducing risk of damage while goods are on transit. Therefore, the Sun Components and Assemblies option can further reduce costs, thus diminishing the cost per unit of outsourcing the service.

Despite the cost-saving options available to Sun Components and Assemblies, higher tariffs in the future and increased custom duty rates would increase the option’s costs significantly (Schniederjans et al.). What’s more, it poses more risks on the intellectual property of the Ford Motor Corporation than the magna Corps options (Schniederjans et al.). Like the Ford Motor Corporation, the latter is also found in Canada and, hence, operates under the same jurisdiction. For that reason, it has more incentive to preserve intellectual property rights than the Hong Kong- based option.

What’s more, owing to its closeness to the Ford Motor Corporation, magna Corps can get the goods to the outsourcing company on a shorter notice than Sun Components and Assemblies. In addition, they can make products that satisfy the company’s demand at that time. In contrast, the Hong Kong based vendor has to manufacture a lot of products in advance. Consequently, while the company can ask Magna Corps to make subtle alterations to the product on a short notice, Sun Components and Assembly requires early notification because it has to manufacture the products in advance for shipping (Vagadia).

Therefore, while the Hong Kong option is cheaper and has the potential to become even cheaper, it is very susceptible to changes in tariffs, natural disasters at sea, more rigid, long shipping lead time and is a risky option when it comes to protection of intellectual property rights (Schniederjans et al.). In addition, labor costs are going up at a very high rate in China (Vagadia). Hence, very soon, the cheaper labor that attracts outsourcing companies to the country will no longer be available. As a result, I would recommend that the company outsources the production to Magna Corps, Canada. It is marginally more expensive but is less risky and flexible to modern day business needs. For instance, if simple modifications are needed, they would be implemented faster through Magna Corps. In short, the marginal difference in per unit cost is outweighed by the other factors that the business ought to consider.

 

 

 

 

 

 

 

 

 

Works Cited

Schniederjans, Marc J, Ashlyn M Schniederjans and Dara G Schniederjans. Outsourcing and Insourcing in an International Context. London, UK: Routledge, 2015.

Vagadia, Bharat. Strategic Outsourcing: The Alchemy to Business Transformation in a Globally Converged World. New York, NY: Springer Science & Business Media, 2013.