When Microsoft decided to enter the video game market with its Xbox gaming console executives had to make a strategic decision whether to manufacture the Xbox or outsource the manufacturing. After some studies, it was decided that they did not have manufacturing and logistics capabilities and decided to outsource the assembly and significant logistics functions to Flextronics, a Singapore-based contract manufacture. Microsoft already knew Flextronics because they had already contracted out the manufacture of computer mice to them. Since Microsoft had worked with Flextronics for several years, relationships between employees of the two companies are very good making the strategic alliance an advantage to Microsoft.
What are the risks associated with outsourcing to Flextronics? Has Microsoft mitigated these risks? Do you think Microsoft would be better off making the Xbox itself?
The risk associated with outsourcing to Flextronics is the company makes the decision to outsource; it gives up control over the production process. Risks also included a timeliness, quality, and so on will become the responsibility of another company. Microsoft decided to outsource Xbox production, the company chose to work with Flextronics, which it had a long history with. These factors combined with Flextronics advantages in the global supply chain management. How does Flextronics' industrial park strategy enable the company to respond to national changes in relative factor costs? How important are Web-based information systems to the relationship between Microsoft and Flextronics? What are the economic advantages of real-time information flows between Microsoft, Flextronics, and Flextronics' own subcontractors?