There is a significant difference between offshoring and outsourcing. Offshoring is when an entire company relocates for financial reasons. Outsourcing, on the other hand, is when a company purchases a good or service from an outside supplier, rather than using internal resources. In terms of offshoring, it makes perfect sense that a company would re-locate to where it could build its product(s) at the cheapest rate possible, but it absolutely baffles my mind that moving an entire company across an ocean, producing the product, and then shipping the product back to the U.S. could be cheaper than just producing the product here. My brother is in the accounting department of a company in the Freeport Center, and his company is planning on re-locating to a larger building, literally across the street. When I asked him how much the move would cost, he told me “tens of millions of dollars.” Tens of millions of dollars to move across the street! Imagine how much, then, it would cost to move to a different country! Are materials and labor really that expensive here? I guess so!
One of the lines in the reading that stood out to me most was the statement that Oded Shenkar gives to American companies: “If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won’t work. You need an entirely new business model to compete.” This correlates with my thoughts above: that the U.S. just can’t compete with what China has to offer. The ‘flattening’ process has made a lot of industries almost impossible to compete in here in America.
A supply chain is pretty simple to understand, as it is almost self-explanatory. It is the journey of a given product from a supplier to a retailer to a customer. However, in spite of being a simple idea, it is very difficult to create a supply chain that is as streamline and efficient as Wal-Mart’s. I really liked the way the reading demonstrated how difficult it is to create. It pointed out that Wal-Mart doesn’t make a single thing, and yet it is the biggest retailer in the world due to its supply chain. This struck me as to how powerful an efficient supply chain can be. Wal-Mart has used its supply chain to climb to the top, and has done so through information technology that offers real-time information across the world.
On a critical note, I want to point out one thing that I don’t think Friedman describes effectively. The whole point of an efficient supply chain is to avoid large amounts of inventory. Friedman does dance around this idea, but the main reason he gives is that products go in and out of fashion fast, and this is why an efficient supply-chain is important. This isn’t even close to the main reason, as even Wal-Mart doesn’t completely avoid over-stocking. As an accounting major, I can assure you and Friedman that the main reason for an efficient supply chain is to free up cash. Inventory costs money – a lot of money. Not only does inventory require huge amounts of storage space, which costs a lot of money to provide and maintain, but also, the inventory itself ties up vast amounts of cash. If a grocery store has a million dollars in inventory sitting in its back room, that is a million dollars that it can’t use to reinvest into the business today. It might not seem like that big of a deal to have money tied up in inventory, but the time value of money is critical, and companies today absolutely can’t afford massive inventories if they want to remain competitive.
Like supply-chain economics, Google has affected business in a significant way. Because Google is so prevalent, businesses are offering products and services online more and more. In fact, many companies are solely online companies. I use Google often to search for products that I want, and as Google becomes more and more of a powerhouse, businesses compete more and more in cyberspace, using Google to their advantage, not because they have to, but because it is necessary to do to compete.