SUPPLY

CHAIN
MANAGEMENT

OFFSHORING
STRATEGIES
ASSIGNMENT 1

Prepared by:

Aastha Kumari
BFT/19/91

Annem Ananya Sri

BFT/19/52

Bhumika Pant
BFT/19/113

Shankhadip Das
BFT/19/626
 TABLE OF CONTENTS

Introduction to outsourcing strategies 1

Types of outsourcing strategies 2

Offshoring strategies and risks 3

About the brand 5

Nike offshoring strategies 6

Risk Management 7

Conclusion 9

References 10

Under the guidance of Mr. Joseph Regy

 INTRODUCTION TO
OUTSOURCING STRATEGIES

Outsourcing is the practice of giving certain jobs, functional areas,

or business processes to a third party and obtaining the outcomes
from somewhere other than your own organization. Services that
were previously handled by your organization will now be offered by
a specialist service provider. These are frequently a company's
secondary functions, duties that must be carried out so that a
corporation can concentrate on its main activity.

When one or more jobs or processes are outsourced, a third party is

typically involved. However, in some situations, certain tasks can be
carried out internally (in-house outsourcing). Internal outsourcing, for
instance, is when you assign a task to a department that specializes
in it or to a separate sector of your business. On the other hand,
external outsourcing refers to assigning a task entirely to a company
outside your organization. The external business could have a local
presence or be a foreign contractor. On possible cost savings is the
main emphasis.
An outsourcing strategy is a plan that outlines how a business
contracts with other businesses or people to complete activities. This
strategy can lower costs, boost production, and raise the overall
quality of the finished product as opposed to simply depending on
internal staff.

The norms, practices, and laws that specify things like who an
organization recruits and how much it pays them make up
outsourcing tactics. Depending on its demands, a business may
outsource to a single person, a small business, or a major
organization.

Advantages of outsourcing:
Increased efficiency
Optimal scalability
Quicker response
Quality improvement
Save costs
Lack of know-how

Page 1
 TYPES OF OUTSOURCING
STRATEGIES

The three main types of outsourcing:

Local/Onshore outsourcing
Offshore outsourcing
Nearshore outsourcing
Onshore outsourcing, sometimes referred to as domestic
outsourcing, is the acquisition of services from a third party within
the same nation as a corporation. Offshore outsourcing, which is
when services are obtained from individuals or businesses outside of
the country, is the opposite of onshore outsourcing. Onshore
outsourcing is used to give a third party the ability to do non-critical
tasks that nonetheless have commercial value but are not necessary
to the core business, including conventional human resources (HR)
duties. Onshore outsourcing, as opposed to offshore and nearshore,
allows for a better level of control and closer communication
between the two businesses. However, compared to other
outsourcing choices, this one may be more expensive depending on
the amount of work involved. One example of onshore outsourcing is
when a local business outsources its cleaning to a local company that
can provide reliable, well-trained and well-managed custodians who
can take care of cleaning, maintenance and rubbish removal better
than the business could if it tried to manage those services itself.
Offshore outsourcing is the practice of hiring an external
organization to perform some business functions (Outsourcing) in a
country other than where the products or services are actually
developed or manufactured (Offshore).
Nearshoring is the practice of moving one or more of a client
organization's operations, procedures, or services to a different
nation, typically one that is in the same continent and has a
comparable time zone. For instance, a North American corporation
might relocate some of its activities to Mexico or Panama, and a UK
company might do the same with its services. In each scenario, the
client company would gain from a larger, more diverse talent pool,
lower salary costs, the same operational hours for customer service,
direct transport links, and because the countries share a common
language and cultural understanding, less training time, especially if
the roles being outsourced are customer service positions.

Page 2
OFFSHORING STRATEGIES AND
RISKS

Offshore outsourcing or offshoring, in short, refers to hiring a 3rd

party company that operates in another country to require care of
some business operations or services for us. It's a business strategy
to lower business costs without sacrificing the standard of the
company’s output.
Offshore outsourcing is especially employed within the customer
service and manufacturing industries.
Offshoring is all about cost-effectiveness and expanding companies
or business operations on a worldwide scale, but there are also some
risks to it.
10 Risks Of Offshore Outsourcing

Poor data/IP security - A company or business data or IP might

not be well secured, which may result in data loss or leaks. There
are even some incidents of data theft, which may result in the
business collapse.

Hidden Costs - There are several cases where offshoring clients

are taken by surprise by sudden and extra fees that were never
part of the initial agreement. This is why most offshoring
companies today present fixed rates.

Poor Communication - One of the most important concerns in

offshoring is that the communication barrier, on condition that it
involves contracting a corporation in another country where
English might not be the first language. Although English is that
the main language used among offshore companies, their level of
proficiency might not always leave excellent communication
between them and therefore the offshoring company.

Subpar Employee Management - Offshoring clients are worried

about the offshore company’s employee management style and
their recruitment process, which are critical to ensuring the
competency of the employees they hire. Working with a service
provider that’s located thousands of miles away makes it hard to
monitor work productivity due to lack of supervision.

Page 3
OFFSHORING STRATEGIES AND
RISKS

Lack of Proper Work Dissemination - Offshoring is not about

employees multitasking; it is about hiring several employees and
making sure those employees are efficient in their job
responsibilities. However, progress may be impeded by poor work
distribution.
Lack of Technological Advancement and Skills - Many
offshoring clients are looking to outsource to a company that’s
able to provide extensive and dynamic technological capabilities.
However, technological advancements in many countries are not
the same. This is an essential matter because most of the
advanced countries in the world like the US, UK, and Australia
actively outsource their work to offshore service providers. Many
of them have high standards when it comes to technology; thus,
outsourcing work to a firm that’s unable to meet those standards
will only slow down their business operation.

Culture-Barrier - Just like with the communication barrier, failure

to understand and embrace different cultures may lead to
inadequate progress. It may also prevent the client company and
the offshore service provider from establishing a harmonious
relationship.
Quality Problems - Offshoring appeals to businesses because of
the lower labor costs, which enable them to hire two or three
employees for the price of one. However, quality work is not
always guaranteed when it comes to offshoring. This problem
may arise due to inexperienced employees, poor team
management, inability to understand the requirements, and more.

High Turnover Rate - The high turnover rates in offshore

companies can have an adverse effect on the business as this
can mean the loss of knowledge and the need for retraining or
knowledge transfer, which can take time and slow down a
project’s progress.
Legal Problems - Offshoring clients are required to abide by the
different set of rules or laws in another country. As such, it is
important to iron out all the terms and conditions before hiring an
offshore service provider.
Page 4
ABOUT THE BRAND
Nike, Inc. is an American multinational corporation that creates,
develops, produces, markets, and distributes shoes, clothes,
equipment, accessories, and services on a global scale. The business
has its headquarters in the Portland metro area, close to Beaverton,
Oregon. It was formerly known as Blue Ribbon Sports. The "swoosh"
logo of Nike is recognized worldwide. Nike's endorsement is mostly
done by famous athletes like Michael Jordan, Roger Federer etc. and
part of the company's success is earned from these endorsements.
Nike, one of the most valued companies in the sports industry,
employs more than 76,000 people globally. It sells its clothing under
the Nike name as well as the brands of its Jordan Brand and
Converse affiliates. LeBron James, Serena Williams, Rafael Nadal,
and Alex Morgan are a few of the world's top players and sports
teams that are sponsored by the organization. In an effort to
decrease consumer waste and fight climate change, the firm
revealed intentions to start refurbishing returned sneakers in 2021.

Founded January 25, 1964

Founders Bill Bowerman, Phil Knight
Products Apparel, Accessories and Sports Equipment
Subsidiaries Converse
Revenue US$46.71 billion (2022)

Page 5
NIKE OFFSHORING STRATEGIES

Some large organizations have used the distinctive tactic of offshore

global outsourcing primarily to reduce costs. Multinational
corporations have long-standing practices of producing items in
places other than the ones where they are marketed.
Asia and South America each contain Nike facilities. The locations are
spread out geographically, which supports their goal of being a
genuinely global organisation. The industrial facilities are close to
sources of inexpensive labour and raw supplies. They have been
placed there purposefully for this very reason. The facilities are
typically farther away from the majority of customers, which raises
the cost of distribution. Nevertheless, despite the greater expenses of
delivering the products, the lower cost of production is made possible
by the location of the production facilities. These dispersed facilities
will be useful as Nike continues to grow in the global economy and
extend its market all over the world.
Since Nike doesn't own any production facilities, it chooses to
contract with businesses in the Philippines, Vietnam, China, Indonesia,
and Taiwan. The production of Nike footwear employs 500,000 people
worldwide. Nike benefits from significant cost savings as a result of
the staff of the corporation maintaining strict quality checks on these
factories. Their sales revenues are $3.7 billion, compared to $1.2 billion
for Reebok.
Nike, which shifted the majority of its shoe production to Asia, where
it finds inexpensive labor, later made the sales in their home country.
Due to this circumstance, the company now has a new cost policy that
considers both sales and manufacturing costs.
For more than 25 years, Nike has shipped its goods from abroad,
including South Korea, Italy, the Philippines, and China, to the local
market. Nike continually competes with Reebok and Adidas, but it has
accepted the rivalry and seeks to offer its clients high-quality items.
The company has achieved efficiency through offshore outsourcing in
the form of risk transfer, cost reduction due to low salaries, and
concentrate on their competitive advantages, which far outperform all
other competitors. Their offshore strategy has increased
communication, made tasks easier to complete, and allowed them to
obtain intermediate goods from the planet's most productive place.

Page 6
 RISK MANAGEMENT AT NIKE

Risk and risk reduction

The most immediate risk for Nike is changing consumer tastes and
demands. Like any consumer facing business, Nike is in a vulnerable
position because consumer tastes and requirements can change
rapidly. This is especially true in the footwear industry (where he
accounted for 65% of Nike's sales in 2018).
Numerous trends in the footwear sector could affect Nike's position
in this market. For instance, the growth of 3D printing, robots,
automation, and online purchasing represents a tectonic shift in the
sales of footwear because they lower costs and allow for more
personalization. Customers are growing more conscious of the fact
that they can use their purchases to express their political and social
views, which could be detrimental to Nike given its labour disputes.
And there are a lot of options for consumers. Although Nike
dominates the global sportswear business, companies like Adidas are
seeing higher sales growth and escalating competition in China, the
market that is second in size.
Nike can still do a number of things, such as launch new brands that
cater to consumer needs outside of its core identity. For instance,
collaborations with upscale businesses or the creation of a budget-
friendly substitute. The business may also keep looking for high-
potential collaborations or acquisitions. Creating a new, competitively
priced brand can discourage price-conscious buyers from buying
knockoff shoes. Among the top contenders for a joint venture are
Anta and Li Ning (China) and Olympikus (Brazil). Nike must work to
reduce losses brought on by taxes, tariffs, borrowing rates, and
exchange rates in addition to altering consumer preferences.
Unsurprisingly, Nike operates on a global scale and is impacted by
factors like interest rates, fluctuating currency exchange rates, and
varying tax laws. For instance, the Tax Cuts and Jobs Act under the
Trump Administration imposed a $2 billion one-time tax on overseas
earnings, which had a major impact on Nike's net income in the fiscal
year (FY) 2018.

Page 7
Tariffs, notably the additional $267 billion in tariffs the Trump
Administration has imposed on China, represent another danger that
cannot be disregarded. The corporation has been damaged by
exchange rates (to a tune of a 0.9 percent decrease in gross margins
in FY 2018).
Finally, Nike must mitigate its risk in terms of counterfeited goods.
Nike faces some headwinds due to the fact that footwear is the most
counterfeited category in the world and that Nike is the most
counterfeited brand in the world. In fact, according to Business
Insider, brands like Nike lose up to 10 percent of revenue due to
counterfeits. The biggest counterfeiting culprit is China, a key market
for Nike.
The business has taken action to address this issue since it is aware
that it exists. To stop counterfeit goods from being sold on Amazon,
for instance, it has partnered with Amazon's Brand Registry
programme, created a forum for consumers to report instances of
counterfeiting, filed complaints with the International Trade
Commission, and worked with international law enforcement to
support anti-counterfeiting measures. However, the business ought
to take things a step further and begin a genuine conversation with
the Chinese government. Nike can shift its manufacturing out of
China and into comparable locations like Vietnam, so it does have
some clout. It can stop a sizable amount of lost sales by asking China
to crack down on counterfeiting.
Although Nike does face serious dangers, it has taken steps to lessen
some of them. Although Mark Parker and other Nike executives have
so far done a fantastic job, there is still work to be done. Consumers
do indeed desire high-performance goods and experiences, but the
sportswear sector is fragmenting. In particular, high-income
consumers are searching for a premium branded product, while
medium-income consumers are less concerned with cutting-edge
products than pricing.
In the end, if Nike wants to appeal to these customers, it can't stick
to one concept. It must, however, take good care of its incredibly
valuable brand. It will be essential to balance this reality and the
threats mentioned above if the company is to maintain its remarkable
historical growth.

Page 8
 CONCLUSION

The concepts of resource base and comparative advantage have

been used to explain offshoring. Onsite is mostly driven by
technologically advanced nations who outsource their local consumer
markets to other nations. The adage "Think global," which
encourages consumers to look beyond their local markets to the
global market, rules the marketplace today.
Nike has become one of the largest manufacturers of athletic
footwear and apparel in the world as a result of being an early
embrace of outsourcing.
It made sure clients received the right product assortment on time,
decreased inventories, reduced price markdowns, and enhanced
profit margins.

Nike can produce its goods more cheaply and effectively thanks to
outsourcing, which enables them to set its prices more competitively.
As a result, Nike is able to compete on pricing with other businesses
that market comparable goods. By lowering competition, Nike might
be able to corner the market for its products.
Although outsourcing has converted itself to monetary profits for
years for Nike, it has been chastised for exploiting foreign workers
and providing poor working conditions.
In the 1990s, activists charged the corporation with employing child
labour to produce soccer balls. However, the business has since
made efforts to enhance its labour standards and lessen its impact on
the environment.
The corporation has removed outdated steam boiler systems from the
majority of its factories, which has led to a 15–20% energy reduction.

In 2017, 96% of the waste produced during the production of shoes

was recycled or turned into electricity. Nike is now well-known for its
initiatives to support sustainability and provide fair working
conditions.
The subject of outsourcing can be sensitive, and it may not always be
the best course of action for every company. However, every firm
should at the very least give it some thought.
Page 9
 REFERENCES

Staff, F. (2022, August 1). Nike. Fortune. Retrieved September

20, 2022, from https://fortune.com/company/nike/
(2021, November 20). How Outsourcing Became Nike’s Game-
Changing Strategy? Virtual Assistant Reviewer | the Place to
Compare Virtual Assistant Providers. Retrieved September 21,
2022, from https://virtualassistantreviewer.com/how-
outsourcing-became-nikes-game-changing-strategy/

Strategic Analysis of Nike, Inc. (n.d.). Retrieved September 21,

2022, from
https://condor.depaul.edu/%7Eaalmaney/StrategicAnalysisofNik
e.htm
https://sciodev.com/blog/10-risks-of-offshore-outsourcing/
https://rezaid.co.uk/offshore-outsourcing/
https://www.indeed.com/career-advice/career-
development/outsourcing-
strategy#:~:text=An%20outsourcing%20strategy%20is%20a,quali
ty%20of%20the%20final%20product.

Page 10