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1. Explain why Titan had to decide in favor of outsourcing

its manufacturing activities despite having a state-of-the-art
manufacturing set up.

Following were main reasons to decide the outsourcing its manufacturing activities
despite having a well based manufacturing set up.

 The biggest factor that swung the decision in favor of outsourcing was the
fact that Titan was not being able to meet the onslaught of the unorganized
sector for the first time. Since the company decided to focus on generating
volumes from low-end mass products, it had come in direct competition
with players in the unorganized market. With cheaper Chinese imports
flooding the Indian market, Titan realized that the complete technology of
making watches, from hand-plating technology to manufacturing cases, was
easily available at prices much lower than what the Hosur factory could ever
deliver.

 Titan wanted to reduce its focus on manufacturing was the high employee
costs – 11.2% of its revenues in 2000. This was because in the days when
the company had no other option but to manufacture, the Hosur factory had
a huge worker base. In 1997 and 2000, the company entered into various
wage agreements with the workers'union. As a result, even a low-skilled
blue-collar worker at the company earned as much as Rs 10,000 per month.
This increased overall employee costs.

 According to company estimates, outsourcing worked out be around 30%

cheaper than Manufacturing

 According to analysts, Titan's multibillion investment in manufacturing

facilities were proving to be a real drain on its profitability in the changed
industry. Moreover, since the company relied heavily on its marketing
finesse than operational excellence, these investments were deemed to be
too high. Though the company had consistently posted yearly profits, in the
first quarter of 1999-00, it reported a loss of Rs 52 million.
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2. Explain the concept of outsourcing and the reasons for its

growing popularity in the manufacturing industry. Briefly
comment on the pros and cons associated with outsourcing
the manufacturing function.

Outsourcing to some is not a pleasant term but this concept is used throughout
society not only in our country but the world.  Companies today are looking for
ways to survive but how they accomplish this is open for discussion.  There are
many products being manufactured today in the private sector and many of them
have a large amount of components which must be made and installed to complete
the end product.

     Outsourcing can be a good thing for the economy but it can also be a bad thing. 
Companies today both large and small do not have the capacity or expertise to
manufacture every component of an end product they are getting ready for sale. 
This is a good thing as this need creates the need for additional jobs provided the
market is good for the product being manufactured and assembled.  The key to
outsourcing is choosing the resource that can provide the quality product or service
in completing an end product. 

     The products of today seem to increasing today more than ever in conjunction
with technology advances.  Outsourcing amounts to companies using suppliers to
provide the necessary expertise and/or product to be assembled into an end
product.  The supplier system in the United States and around the world creates an
environment where jobs may be sustained or increased dependent upon the
demand for a product or service.  How and where these jobs are located is what is
creating concern over this concept.

     To begin the decision to outsource specific operations or functions must be
based on sound judgment not just a cost factor though cost is an integral part of an
outsourcing decision.  There is nothing wrong with this concept but when
companies choose this option, it must for the right reasons. The subject of
outsourcing and the decision to use this concept is different for each company. The
justification and support is as different as there are products and services. It is
necessary to evaluate several details or conditions before deciding to outsource
operations/functions.  Outsourcing is not for everyone and companies sometimes
lose something in the process when they incorporate this concept.
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     The main purpose of outsourcing is in effect to reduce costs and increase profit.
This is not a bad thing. Companies must make money to survive in the world
economy as it is today.  While it is up to each company and their management to
make the decision for outsourcing, there is an impact to the employees and the
consumer when outsourcing is used.  Outsourcing for American companies is a
good thing if it creates or sustains jobs in the United States but if the jobs are
located in foreign countries this sometimes comes under fire in the media.  While I
feel outsourcing jobs to foreign lands may be necessary in some cases, it is not
always the right decision. Granted costs are involved but there are usually ways to
work with employees to keep their jobs and still make a profit. Companies make a
variety of products for which they do not have all the resources or talent in house
to complete them for their final product. This is where the concept of outsourcing
comes into play.

     One last point to make is that I am not against the concept of outsourcing but
specific criteria must be established to provide a basis for the decision to
outsource.  Before outsourcing the resources of a company must be examined to
determine if the capability exist within the company to provide the necessary
capacity and expertise.  If these conditions are not present and cannot be
developed, then outsourcing may be necessary.  This is an aspect that should be
examined before an outsourcing decision is made.  Granted there are many
complex issues and factors involved in the manufacture of many products
consumers want.  Outsourcing is not for every company but it is a necessary option
for others.  Outsourcing should be used sparingly for direct control of operational
performance is lost when outsourcing is utilized.  Outsourcing also creates the
need for validating requirements are accomplished per contractual terms and this
in effect causes an increase in cost that may not otherwise exist.

The Advantages of Outsourcing

 Outsourcing your non-core activities will give you more time to concentrate
on your core business processes
 Offshoring can give you access to professional, expert and high-quality
services
 With outsourcing your organization can experience increased efficiency and
productivity in non-core business processes
 Outsourcing can help you streamline your business operations
 Offshore outsourcing can help you save on time, effort, manpower,
operating costs and training costs amongst others
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 Outsourcing can make your organization more flexible to change

 You can experience an increased control of your business with outsourcing
 Your organization can save on investing in the latest technology, software
and infrastructure as your outsourcing partner would be investing in these
 Outsourcing can give you assurance that your business processes are being
carried out efficiently, proficiently and within a fast turnaround time
 Offshoring can help your organization save on capital expenditures
 By outsourcing, your company can save on management problems as your
offshore partner will be managing the team who does your work
 By outsourcing, you can cater to the new and challenging demands of your
customers
 Outsourcing can help your organization to free up its cash flow
 Sharing your business risks is possible with outsourcing
 Outsourcing can give your business a competitive advantage as you will be
able to increase productivity in all the areas of your business
 Outsourcing can help your organization to cut is operational costs to more
than half

The Disadvantages of Outsourcing

 At times, it is more cost-effective to conduct a particular business process,
rather than outsourcing it
 While outsourcing services such as payroll processing services and tax
preparation services, your outsourcing provider will be able to see your
company’s confidential information and hence there is a threat to security
and confidentiality in outsourcing
 When you begin to outsource your business processes, you might find it
difficult to manage the offshore provider when compared to managing
processes within your organization
 Offshoring can create potential redundancies for your organization
 In case, your offshore service provider becomes bankrupt or goes out of
business, your organization will have to immediately move your business
processes in-house or find another outsourcing provider
 The employees in your organization might not like the idea of you
outsourcing your processes and they might express lack of interest or lack of
quality at work
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 Your outsourcing provider might not be only providing services for your
organization. Since your provider might be catering to the needs of several
companies, there might be not be complete devotion to you and your
company
 By outsourcing, you might forget to cater to the needs of your valuable
customers as your focus will be on the business process that is outsourced
 In outsourcing, you may lose your control over the process that is
outsourced
 Outsourcing, though cost-effective, might have hidden costs, such as the
legal costs incurred while signing a contract between companies. You might
also have to spend a lot of time and effort in getting the contract signed
 With outsourcing, your organization might suffer from a lack of customer
focus
 There can be several disadvantages in outsourcing, such as, renewing
contracts, misunderstanding of the contract, lack of communication, poor
quality and delayed services amongst others.
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3. Evaluate the benefits Titan derived as a result of

outsourcing the manufacturing function. Does outsourcing
render Titan a low-cost producer?

Following are the benefits that titan derived as a result of outsourcing the
manufacturing function:-

 Dash proved to be a runaway success for Titan with 50,000 watches being
sold within the first two months of its launch.

 The Fastrack range grew by almost 100% in terms of volume and it

established itself as the largest youth brand in the country.

 The line was extended to the digital watch market with Fastrack Digital,
positioned on the fashion platform.

 By 2001, with revenues of Rs 7 billion and net profit of Rs 235 million,

Titan emerged as the country's largest watchmaker with a 25% marketshare
of the total domestic market and a 50% share among nationally Recognized
brands.

 In December 2001, while the income from the watch division increased by
4%, the figure was 10% for the company as a whole. This was because
Tanishq, the jewellery division had posted a 32% growth.
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