Global make-or-buy decisions

Abstract

This article surveys the current status of international subcontracting in terms of demand for components, intermediate products, and supplies by industrialized countries and supply potential and capacity of industrializing countries to exploit market opportunities. This article also concentrates on managerial aspects of subcontracting, including the contribution that subcontracting can make to improve the competitiveness of manufacturing. Different approaches to the make-or-buy issue are identified in recent research, and the criteria typically used by manufacturers in deciding which operations to subcontract, how to subcontract, and the performance outcomes required from subcontractors, especially those in industrializing countries that can offer some cost/volume benefits, are examined. Many practical examples of products and processes that have been subcontracted as part of operations strategy with benefits to both manufacturers and subcontractors are provided. Organisation for Economic Cooperation and Development (OECD) country classifications are used in this paper. Industrializing countries are those in the first stage of industrialization, and include newly industrializing countries such as Mexico, Yugoslavia, Brazil, Turkey, and Taiwan. Industrialized countries include those in full membership of OECD. Other documentary sources concerning international subcontracting include EEC Directives on Competition, Rules of Origin, and Tariff Administration. There are reports on international subcontracting in the automobile and semiconductor industries published by the United Nations Institute for Training and Research (UNITAR) and on technology and the garment industry by NEDO in the United Kingdom (Economic Development Office). There is also an interesting early study on the development of international subcontraction in the African, Caribbean and Pacific (ACP) countries [1].