Much has been written about the merits of outsourcing and insourcing of operations and services. At a strategic level there are as many arguments for each option as there are against. Rather than re-hashing these I am going to look at the merits of outsourcing or insourcing in the context of business expansion, particularly in developing markets.
Rapid business expansion into new geographies is an imperative for many companies. Establishing a brand before competitors gain a foothold often gives significant long-term marketing advantages. High levels of brand recognition and trust in product quality for ‘first movers’ can enable pricing power and margins that are difficult to compete against. These advantages are not guaranteed however and there are multiple examples of failed market entries, including those by leading global businesses and brands.
So why do some market entries succeed and others fail? There are of course multiple reasons, but there is a common thread that holds them together, and that is talent. The right team for a new market entry requires a mix of talent that has the skills, local knowledge and experience to create a new business in unfamiliar surroundings. The traditional approach, insourcing, is to assemble a mix of current employees, with some working full-time on the project and some part-time. However ‘on the ground’ presence for these team members in the new market is often sporadic and can be compromised by other business priorities. Full-time on the ground support is dependent on how long it takes to appoint a leader who will base themselves in the new market. Supply chain expertise for new market entries is particularly in short supply, as the globalisation of supply chains has put a premium on these skills. In the longer term, employing local talent in developing markets has further challenges for international companies. The skills these employees gain are highly valuable in the job market and high turnover is the rule rather than the exception. In short, getting the right talent, at the right time, at an acceptable cost is never easy, especially when a business is growing quickly.
Insourcing then has its challenges, but what are the alternatives? Even with a mainly insourced business model, it is usually necessary to outsource some specific services such as logistics, or construction management for new facilities. However outsourcing can now be extended to cover a much broader range of operations and services. It can bring advantage through immediate availability of skilled resources, deep knowledge of local conditions and a wide experience of the range of potential business solutions. Long-term employment contracts, particularly for expatriates, can be minimized and this greatly simplifies cost control. And most importantly, outsourcing support functions can free up the market entry team to focus on the key activities to attract consumers to the brand.
Whether insourcing or outsourcing, availability of the right people to drive a new market entry is critical to success. Outsourcing, either on a short term or long-term basis can be a key tactic in winning the ‘war for talent’
Cosmapec Supply Chain Management has been established to provide retailers, marketers and manufacturers a reliable, high quality alternative to in-house resources for sourcing, manufacturing and supply chain processes in developing markets. Our new website will soon be available, check back here next Tuesday for further details!