Microsoft- Outsourcing Xbox Production

Case Discussion:
1. What was the strategic advantage to Microsoft of outsourcing Xbox
production to Flextronics?
 Microsoft has a strategic advantage in that it is a primary business that
develops software.
 Microsoft was able to continue focusing on its core business while
allowing Flextronics, a company with experience managing a global
supply chain, to handle Xbox production.

2. What were the risks associated with outsourcing to Flextronics? Did

Microsoft mitigate these risks? Do you think Microsoft would have been
better off making the Xbox itself?
 The risk associated with outsourcing to Flextronics is that when a
company decides to outsource, it forfeits control over the manufacturing
process.
 Risks such as timeliness, quality, and so on will come under the scope of
another company.
 Microsoft would not have been better off making the Xbox itself.

3. How did Flextronics’ industrial park strategy enable the company to

respond to national changes in relative factor costs?
 Flextronics' industrial park strategy calls for key suppliers to locate their
factories adjacent to a Flextronics assembly plant in low-cost locations
close to customers' end markets.
 Flextronics and its suppliers co-locating in an industrial park reduces
logistics costs by facilitating just-in-time inventory systems and lowering
transportation costs.