Reference no: EM13915916

Feasibility Report: Should We Continue to Outsource Personal Computer Manufacturing Jobs to India?

You are a senior analyst for the prestigious Cyberdynamic Systems Corporation (CSC), a multinational computer company. Its core products are servers and workstations, but it also manufactures personal computers (PCs). During the past three years, as the economy has slumped, overall CSC profits have slipped by 44 percent. When the economy slumps, companies outsource more activities and jobs to cut costs.

Two years ago, CSC started outsourcing PC manufacturing to India, an initiative the company calls Project India. The problem is that lay- ing off employees and outsourcing their jobs to foreign countries is unpopular with the public. It also slightly lowers the morale of the remaining employees. In a recent Gallup survey, 74 percent of the American public had a negative opinion of outsourcing, 19 percent had a positive opinion, and 7 percent were neutral.

Your boss asks you to recommend whether CSC should continue to outsource PC manufacturing to India. As part of the study, your boss also wants you to evaluate alternatives to outsourcing and potential savings in operating costs that the company is trying or considering. You decide to interview employees to learn their views about Project India, research the pros and cons of outsourcing, and analyze the effec- tiveness of the alternatives to outsourcing the company is trying or considering.

Benefits of Outsourcing PC Manufacturing

From your research, you discover four main benefits to outsourcing PC manufacturing. First, outsourcing noncore operations such as PC manufacturing enables CSC to focus on its core products-servers and workstations. Second, outsourcing lowers labor costs. CSC pays an Indian employee $22 per hour to make a PC, while it pays a U.S. employee $98 per hour to make the same PC.

Third, product quality reports suggest that Indian-made PCs have a 0.14 percent defect rate, the same as domestically made PCs. Fourth, profits and market share increase because of outsourcing. Last year, CSC profits after outsourcing PC manufacturing were $1.65 billion, while profits were only $900 million before outsourcing (roughly half ). Market share after outsourcing of PC manufacturing increased from 34 percent to 45 percent.

Equal Job Program

You learn that, as an alternative to layoffs, CSC created Equal Job, a program designed to deflect criticism from its outsourcing actions. Equal Job offers affected employees the option of keeping their jobs by relocating to the country to which their jobs will be outsourced. Employees who choose relocation remain employed by CSC but work for lower, local wages. Although some outsiders think the approach
is creative, 88 percent of employees surveyed about the program are against it and in fact were shocked and angry at the program's announcement. Only 8 percent of the employees who were offered the relocation accepted it.

Operation Web Office

As another alternative to layoffs, you discover that CSC launched an experimental program called Operation Web Office. Still under devel- opment, the program involves creating a virtual online workplace in which each employee sits at his or her own computer at home and is connected to other employees by the Internet through an application on each employee's computer. The projected savings from Operation Web Office are about $23 million per year in reduced costs for office space. Eighty-three percent of the test group of 218 employees like the program. However, development efforts have been plagued by server crashes, software malfunctions, and computer viruses. Worse, the company has to date been unable to uncover the sources of these problems.

Onshoring

You also investigate the possibility of "onshoring"-relocating workers to areas in the United States with lower costs of living and paying them less. Based on your interviews, only 17 percent of the employees surveyed said they would consider relocation accepted it. In addition, 56 percent of the American public had a negative opinion of onshoring.

Your Task. Write a memo report of three or fewer pages addressed to your boss. Include conclusions, recommendations, and a pie chart illustrating public opinion of outsourcing. Should Cyberdynamic Systems Corporation continue to outsource its PC manufacturing?