1、Literature Review on Outsourcing in Electronics Industry in ChinaWord count: 2,0001.0 introductionOutsourcing referred to vertical specialization. It is simply the farming out of a business function to a third party and it covers a contractual agreement on exchange of services and payments. Several

2、researches have acknowledged significance of outsourcing. Calaf foresees an increasing trend of companies outsourcing their productions to others who are expertise in product manufacturing (Mason and Cole, 2003). Apart from his concern, outsourcing also draws attention from researchers like Scott J.

3、 Mason, Dieter Ernst, Masaaki Kotabe and so on. What to mention is that these researches pay their special attention on process of outsourcing, or some new technique development applied in outsourcing. However there is a lack of study the evolution process of Outsourcing in special Industry to ident

4、ify some intrinsic laws during the evolution. The purpose of this essay is to choose Electronics Industry as a typical example to fill this gap to study the development process of Outsourcing in Electronics Industry make a literature review about Chinas current outsourcing, historical development of

5、 outsourcing and effects of outsourcing，and to identify some intrinsic laws during the evolution2.0 Evaluation of Outsourcing in Electronics Industry 2.1 Evolution of Global OutsourcingOver time, there are three eras through the history of electronics manufacturing: vacuum tube era transistor era an

6、d integrated circuit era. They have witnessed how outsourcing emerged and evolved. Masons study shows that approximately 10 years ago no more than 5 percentage of all manufacturing was outsourced. However, global components sourcing was seen as a significant trend among manufacturing companies (Quin

7、n, 1999; Kotabe, 2002; Mol, et al., 2005). While there began a surge in manufacturing outsourcing on large scale in the mid-1990s. Then, over time, changes had taken place with the development of economy and technology, thanks to which products grew more and more complicated (Delattre, et al., 2003)

8、. A realization has emerged that electronics manufacturers should boost investments in capital equipment and contract manufacturing started to grow. In response, outsourcing become an efficient approach for OEMs to cut cost, focus core competition, respond quickly to new changes and to tighten plann

9、ing processes. Al Delattre, Tom Hess and Ken Chieh composed an essay on electronics manufacturing transformation in changing business climates. They did a comparison job between todays outsourcing and more traditional forms. One major difference is that partners now must work together to confront wi

10、th strategic risk and to achieve strategic outcomes. Another is standard of performance evaluation system- performance is evaluated by not just reduction of cost, but also by revenue, earnings per share and market share (Delattre, Hess and Chieh, 2003). Finally, todays outsourcing is highly dependen

11、t upon tight connection between partners. The essay also demonstrates how to make the most of outsourcing arrangement. “Innovation is widely acknowledged to be a major source of economic growth.” Dieter Ernst puts it in his essay. He demonstrates that the leaders of Asias electronics industry are un

12、dertaking a transition towards commercially viable innovation and that Asian firms will be given new opportunities to improve their innovative capacities. And innovation develops due to the emerging of global networks economy whose characteristics cover vertical specialization (also called outsourci

13、ng), global network integration and IT-based information management (Ernst, 2003; Egger & Egger, 2003). This implies that outsourcing is no longer restricted to manufacturing but now extends to R&D activities and every other stages of the value chain. With “integration” as complement and large-scale

14、 global corporations as integrators, outsourcing leads to multi-layered production and innovation networks (Christopher, 2009). 2.2 Analysis of Chinas Outsourcing in Electronics Industry With the rapid development of globalization, the geographic scale increased and the degree of economic integratio

15、n was deepened (Sturgeon, 2004; Doig et al., 2001). The electronics industry reached it climax around the world in an operational sense. Throughout the former decade until recent years, lots of OEMs have been learning to take advantage of outsourcing alternatives available to them. After outsourcing

16、 has contributed to operational integration of tangible products like electronics, apparel and motor vehicles, it is still on the rise and extends into many other fields, concluded by Aijit Singh, the president of Concorde, CA-based Siemens Medical Solutions Oncology Care Systems Division. Merrill L

17、ynchs 2003 EMS Outsourcing Survey said that the value of electronics contract manufacturing would be raised by $10 billion, compared with that of 2002 (Teng, 2004). As a so-called worlds factory, China has been a big manufacturer of products around the world. It shipped more than $ 593 billion worth

18、 of products globally in 2004 and thus maintained the third biggest trading nation in the world (Janssen, 2009). More than that, figures from Reed Electronics Researchs Yearbook of World Electronics Data revealed that China had bested all the other manufacturers of electronic products in 2006. Succe

19、ssfully getting involved into globalization and dominating the global electronics industry, China adopted outsourcing as its efficient economic strategy. According to the Chinese ministry of information industry (MII), outsourcing features the electronics manufacturing industry in the Yangtze and Pe

20、arl River deltas of China, which is proved by the increase of EMS revenues of 2004 in these areas and even more ODMs from mainland China. And it is also proved by Clive Jones and Eric Miscolls report on Chinas outsourcing in electronics industry- the scale of electronics outsourcing in China may hav

21、e surpassed $150 billion in 2004. Approximately 20% of this number goes to EMS, and perhaps another 30% belongs to ODM (Flannery, 2010). Along with the world economic integration, China also witnesses the increasing outsourcing and its evolution to collaborative partnership. Thus the government make

22、s every effort such as amending investment laws, making proper policies, establishing economic zones and improving infrastructures of high-technology districts to catch up with the trend. For instance, Chenzhou in Hunan province has recently improved massive logistics and transportation hubs availab

23、le for foreign electronics firms to land a plant. And local government of Chenzhou also offers incentives including eye-catching tax-incentives that will last for several years. Besides, China can provide enough labor sources to support the manufacturing industry and the massive education policy hav

24、e enabled those people to be more qualified. Adequate experience and skills that are accumulated through the development of manufacturing industry also make China unparalleled among its peers (Geishecker & Gfrg, 2004). However as a new player in globalization, China has its disadvantages that limit

25、the process of outsourcing. Standing at the far end of value chain, China gains not much profit from outsourcing and low added value, which may drive the outsourcing process less effectively (Russell, 2010). Other obstacles such as lack of intellectual property protection, language and culture diffe

26、rences and shortage of competitiveness, stand in Chinas path to facilitate outsourcing. 3.0 Intrinsic laws during the evolution of Outsourcing on Electronics Manufacturing3.1 Two mainly researchSeveral researchers have focused on intrinsic principles during the evolution of Outsourcing on Electronic

27、s Manufacturing, including Zineldin and Bredenlw (2003), Vining and Globerman(1999), Doig,et al. (2001), etc. Among them, there are mainly two most important researches, which are made by Mason et al. (2002) and Kotabe (2008)Mason et al. (2002) examined the impact of outsourcing on electronics manuf

28、acturing and its supply chain and he came up with the conclusion that outsourcing affected supply chain in the aspects of facility location, customer service transportation and product distribution, capital investment plans and also management cost. He also cited that innovation would play an import

29、ant role in promoting an agile supply chain. And Kotabe (2008) examines the cases of Emerson, Sony and Philip to develop an evolutionary stage model on the relationship between outsourcing and competence development. He admits cost savings brought by outsourcing in the short run and meanwhile he que

30、stions how outsourcing affects a firms capacity of skill levels maintenance and competitiveness guarantee in the long run. Started with offshore sourcing, the three firms in the first stage realized the need to cut costs. Emerson was declined to sourcing components and final products from foreign ma

31、nufacturers and others landed plants in low cost locations. Throughout the second stage of phasing out, the three firms were busy with transferring producing to independent operators to reduce fixed costs, which pushes them into stage three. In stage three, the three companies increased their depend

32、ence on foreign suppliers and Emerson radio and Philips were deprived of their leadership in the electronics manufacturing field as time went by. Due to hasty process and lack of proper chance to salvage itself, Emerson Radio lost its technological competences. Learning from the hazards of excessive

33、 outsourcing, Sony started to reduce outsourcing activities in stage four. Finally, Kotabe (2008) concludes that outsourcing may result in competence deterioration and coin a vicious cycle if supplier competences are less complementary and more overlapping. Besides, he adds that the future value of

34、in-house production needs taken into consideration. From another standpoint, Holger Gfrg and Aoife Hanley investigated the impact of international outsourcing on labor demand with Generalized Method of Moments estimator. Different from case study of Kotabe team, they confined their research to a sho

35、rt period. Finally, they found that outsourcing decreases labor demand in the short-run.3.2 Other Intrinsic Laws Research on Outsourcing As outsourcing is an economic relationship between OEMs and contract manufacturers based on agreements. Besides researches of Jason Amaral (2006) probes into this

36、relationship and finds lurking risks. Incentive risks come first because contract manufacturers tend to make subjective decision on how much to order, manipulate consumption forecast to suppliers, conceal details and to violate purchasing intent and so on. Amaral (2006) suggests that OEMs must be aw

37、are of the disadvantages of lost favorable treatment, potential brand damage and financial risk if they want to enjoy the advantages of cut cost and reduced overhead. He provides some methods to safeguard the promise of production outsourcing: an OEM should preserve and strengthen its power, set lim

38、itations for contract manufacturers to use this power, establish appropriate incentives to guide contract manufacturers, narrow down contract manufacturers chances to exploit their means of violating OEM interests, and establish formal governance processes. And after comparison between contract manu

39、facturers of Taiwan and North America, Timothy J. Sturgeon and Ji-Ren Lee suggest that the main organizational transformation underway should be considered as separation of production-related activities from innovation-related activities. Dieterr Ernst defines outsourcing a driver for Asias leading

40、electronics exporting countries.4.0 ConclusionsWith a long history of Evolution about outsourcing in on Electronics, some intrinsic principle forms, and based on literature review, some conclusion can be drawn: For one thing, many critics, researchers and leaders of electronics industry have made ar

41、guments on the conservative outsourcing instead of reaching an agreement. Even the omniscient Wikipedia can not provide a rigorous definition nor evaluate outsourcing. Similar to globalization; studies of outsourcing are set up in the aspects of current situation of outsourcing in electronics indust

42、ry, development of outsourcing and the effects of outsourcing. But there is lack of a system analysis on evolution process of outsource and identifying some intrinsic principle during the evolution process. For another, from literature review about evaluation process of World and China shows there a

43、re some common principles during evaluation process. Two kinds of mainly principles are put forward: for one thing, AL Delattre, Tom Hess and Ken Chieh introduced the transformation of electronics manufacturing in changing business climates and provide strategies for OEMs to further develop outsourc

44、ing activities. For another, Kotabe, Michael J. Mol and Snia Ketkar jointly did a case study of Sony, Emerson Radio and Philips, and then came up with an evolutionary stage model which served as another measurement to evaluate outsourcingoutsourcing might lead to competence destruction. And there ar

45、e also many other research, such as the research of Amarals opinions that as an economy phenomenon, outsourcing is also a double-bladed sword and how it functions depends upon how much people understand it.ReferencesAl Delattre, Tom Hess and Ken Chieh, 2002. Strategic Outsourcing: Electronics Manufa

46、cturing Transformation in Changing Business Climates, Business Journal, 13(56): pp16-26.Andy Teng, 2004. EMS Providers Play Greater Role in Device Industry as Manufacturers Focus on Core Competencies, Journal of Business, 17(8):pp13-29.Bettis, R., Bradley, S., and Hamel, G., 1991, Outsourcing and In

47、dustrial Decline, Academy of Management Executive, Vol 6(1), pp716.Christopher Janssen, 2009. Contract Electronic Manufacturing in China: How to Banish the Risks and Reap the Benefits, Electronic World, 45(10): pp46-59.Clive Jones and Eric Miscoll, 2005. The scope of electronics outsourcing in China

48、. Journal of Business, 18(8): pp45-68.Dieter Ernst, 2003. Pathways to Innovation in Asias Leading Electronics Exporting Countries: Drivers and Policy Implications, Economics Series,62（8）:pp12-25.Doig, S., J.,Ritter, R., C., Speckhals, K., Woolson, D., 2001, Has Outsourcing Gone Too Far? McKinsey Qua

49、rterly, Vol 4(1), pp2237.Egger, H., & Egger, P., 2003, Outsourcing and skill-specific employment in a small economy: Austria after the fall of the iron curtain, Oxford Economic Papers, Vol 55(2), pp 625643.Geishecker, I., & Gfrg, H., 2004,International outsourcing and wages: Winners and losers, mimeo:University of Nottingham.Holger Gfrg, Aoife Hanley, 2004. Labor Demand Effects of International Outsourcing: Evidence from Plant-Level Data, International Review of Economics and Finance, 14 (25): pp365376.Jason Amaral Corey A. Billington and Andy A. Ts