Classified in Economy

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Brand extension

Simplifying process(making simply assembly) 

Improving financial performance

Flexible source of manufacturing capacity and capability, allowing to minimize investments (due to manufacturing fixed costs ex: machines, manpower…)


Increased transaction costs

§Lead time in service from external supplier due to distance can add delivery and inventory costs 

§Rising wages

§Expenses of negotiating/ maintaining/ enforcing outsourcing agreements may outweigh benefits

Loss of control

§Dependence on external supplier

§Loss of flexibility in controlling business activities and final product by client.

§Security risk issues and information confidentiality 

Negative impact on costumer and sustainability

§Lead time in service from foreign outsource supplier may delay delivery and increase costs to final client

§Can disrupt operations during the transition of outsourced activity (client to outsource supplier)

§Fossil fuels and pollutants due to transportation

Difficulties in managing relationship 

§Communication and cultural barriers

§Excessive time investment in building relationship with provider

§Design changes in products can be difficult far away

§Outsource provider may be unable to communicate difficulties and opportunities

Can allow cost reduction

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