Do you think the decision to outsource and/or offshore some aspect of a firm's operations can have major strategic consequences for the firm? Give reasons to support your answer.

Answers will vary. The decision to outsource and/or offshore some aspect of a firm's operations can have major strategic consequences for the firm. Managers should choose these strategies only after considering the current economic climate, industry trends, and the firm's long-term goals. Outsourcing has grown more common in recent decades, largely because companies need to find the best possible products at the best possible prices from around the globe in order to compete. When outsourcing, a firm and its suppliers sometimes enter into a partnership rather than simply transacting with one another. By partnering, both firms share in the risk and the reward. Some firms, called hollow corporations, outsource and offshore almost everything they do. Dell became an example of this by outsourcing its entire production to ASUSTek in Taiwan.
But outsourcing and offshoring aren't just about production costs. They also introduce transaction costs that come from relying on the market to obtain a product or component rather than making it yourself.
Once a company has considered its goals and other factors related to the industry and the economic climate, it should also consider the two types of risk in outsourcing and offshoring decisions. The first is operational risk, which measures how difficult it is to codify and control the production process. When companies can document the work employees do in the production process and stipulate what employees' actions should be, the process can be codified and entails low operational risk. When companies can assess the quality of a process, that process is measurable and also entails low operational risk. Companies must factor in the transaction costs associated with operational risk; these costs accrue from the travel, communication, and coordination associated with managing outsourcing and offshoring.
The second type of risk is structural risk, which comes into play when relationships with service providers or outsourcing vendors become problematic. Companies can assess this type of risk by examining how well they can monitor, or at least trust, their suppliers. When structural risk is present, a company must factor in the transaction costs of guarding against opportunistic behavior by the supply partner. These can include the costs of finding reliable vendors the firm can trust, drafting contracts to prevent those vendors from competing with the company, and enforcing contracts and resolving disagreements.
Based on the different risks associated with outsourcing, firms may have compelling reasons for wanting to maintain production in-house, or insourcing, rather than outsourcing. For instance, Boeing struggled for years to tighten its global production of the 787 Dreamliner. Delays and quality issues plagued the project, and management ultimately decided to insource more of the manufacturing in order to gain greater control. As the project moves forward, the company will probably continue this practice. Boeing is likely to insource more on future products as well, until it is once again confident that outsourcing won't lead to diminished quality and costly delays.
The section "Outsourcing and Offshoring" on page 330 discusses how the decision to outsource and/or offshore some aspect of a firm's operations can have major strategic consequences for the firm. Students can use this section to make their own interpretation and answer this question.