Outsourcing Xbox Production
BUS25010016-200905 – International Business Environment
Microsoft – Outsourcing Xbox Production
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 manufacturer. 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. Another advantage of the outsourcing to Flextronics was the cost and quality of Flextronics.
There are always risks you may considered when outsourcing. For example, Microsoft took the risk to give away key technological know-how to Flextronics on the Xbox. Another risks one take when entering a strategic alliance is the commitments to alliance partners. Microsoft and Flextronics already have a business relationship because Microsoft contracted Flextronics to manufacture computer mice. Microsoft would not have been better off manufacturing the Xbox themselves. They lacked logistics and manufacturing capabilities to mass-produce the Xbox. It was cheaper to outsource it to a company already established in the manufacturing market such as Flextronics; a company recognized by Microsoft because their previous alliances.
Flextronics had been pursuing an industrial park strategy to tightly manage its own supply chain, reduce the chances of supply disruptions, and lower costs, which...