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INTRODUCTION Although outsourcing becomes one of the options for original equipment manufacturers OEMs to reduce costs and increase returns it has advantages and disadvantages The following is a discussion on the IBMs decision on outsourcing computer assembly to some electronic manufacturing services EMSs It discusses the advantages and disadvantages of the decision and recommends some operations strategies to both IBM and EMSs ADVANTAGES AND DISADVANTAGES The main advantages from outsourcing IBMs computer assembly are focusing on core competencies reducing costs and accessing world-class capabilities However IBMs decision is associated with the disadvantages of losing control and knowledge and instability Advantage I Focusing on Core Competencies Focusing on core competencies is the most strategic objective that an OEM seeks from outsourcing It means that the OEMs core competence ought to be retained in-house whilst complementary resources can be purchased outside Brandes et al 1997 thereby enabling the OEM to maximise its returns on internal resources Quinn and Hilmer 1994 Form the perspective of IBM the decision is one more step in IBMs strategy of focusing on core competencies Lohr 2003 Spooner 2002 The agreement is designed to streamline IBMs supply chain and allow it to focus on research design new technologies and engineering Zarley 2003 Spooner 2003 Advantage II Reducing and Controlling Operating Costs A compelling advantage for outsourcing is that an EMS can supply a component more cost efficiently than an OEM can make it oneself Brandes et al 1997 By using this strategy outsourcing reduces costs of product development Nellorea and Soderquist 2000 For example a number of OEMs have taken advantage of the cost reduction that can be made by having software developed in India Pepper 1996 Form the perspective of IBM the company is looking to reduce costs in its effort to seek profits Spooner 2002 which is a part of IBMs continuing drive to reduce costs as it focuses on software and services Lohr 2003 Advantage III Accessing World-Class Capabilities Outsourcing
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