Advantages and Disadvantages of Outsourcing Production to China

This case study analysis explores the advantages and disadvantages of Apple outsourcing production to factories in China. It also discusses factors influencing the choice of country for outsourcing and reasons for vertical integration. Learn more about Apple's supply chain and competition with Microsoft.

Running head: CASE STUDY ANALYSIS
CASE STUDY ANALYSIS
Name of the Student
Name of the University
Author Note

1CASE STUDY ANALYSIS
Table of Contents
Introduction......................................................................................................................................2
Advantages and Disadvantages to Apple of outsourcing the production facilities to factories in
China................................................................................................................................................2
Alignment with overall goals.......................................................................................................3
Factors influencing the choice of the country to which a firm might outsource its production......4
Reasons for shifting back.............................................................................................................4
Reasons for the vertical integration of Apple..................................................................................4
Factors assisting Microsoft in competition with Apple...................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

2CASE STUDY ANALYSIS
Introduction
The Apple Inc. can be stated to be an American multinational technology company which
has its headquarters in California. The company designs, develops and sells computer software,
consumer electronics and other related online services (3). The organization is one of the Big
Four of the technological companies along with other giants like Amazon, Facebook and Google.
The mobile company offers a wide range of products like iPhone which is a line of smartphones,
iPad which can be stated to be multipurpose tablets, Mac which is a line of desktop and personal
computers along with other products like the iOS, macOS, watch iOS and tv OS. Additionally
the company also provides iTunes and other related software. The company makes use of a
differentiation strategy in order to compete in the market and chooses to compete with respect to
the innovation strategy (9). It comes up with products of new and better designs and in lieu of
this, the firm is successfully able to maintain its positioning in the market. The given case study
analysis tends to analyze the overall performance of the Apple company and its supply chain on
a whole and discuss the various advantages of the firm in line of the same.
Advantages and Disadvantages to Apple of outsourcing the production facilities to factories
in China
The advantages of outsourcing the production facilities into the different factories of China can
be stated to be as follows:
 The factories as present in China to provide superior scale, diligence, flexibility and
access to various industrial skills. These facilities are not available back in the factories
of the United Nations.

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 The factories are very efficient back in China and the different employees are provided
with the dormitory services which can be used for production at any hour of the day (9).
 Moreover, with respect to the raw materials available, the country has advanced
considerably and with respect to this, they are able to provide advanced raw materials,
advanced goods and related parts in a timely and efficient manner which helps them to
ensure success in the long run and easy change of product design (1).
 In addition to this, the labor as present in the country is very efficient and highly qualified
as compared to that of the engineers as present in America.
The disadvantages of producing in China are as follows:
 The lack of contribution to the US economy: As all the manufacturing units have been
transferred to China, the company is not being able to contribute effectively to the
economy of the country and in order to save its costs and other related costs, the
organization is fulfilling its own needs (6).
 Very often the firm faces competition from the other consumer goods company who want
to get their goods manufactured in the particular organization.
Alignment with overall goals
The choice of the company planning to shift its manufacturing operations to China is
closely linked to the overall mission and vision of the organization, because Apple aims to
ensure that the firm is successfully able to meet its customers demand and provide them with
the best differentiation in the form of an innovative deal (4). Hence, in lieu of this, the production
in China assists the firm to attain success.

4CASE STUDY ANALYSIS
Factors influencing the choice of the country to which a firm might outsource its
production
The different factors which may influence the choice of the country with respect to the
production can be taken to be the factors like the supply chain system, the qualification of the
employees, the investment in the superior technology, the standardized production facilities and
the level of ownership allowed. Another reasons for the decision regarding the country of
production can be stated to be the decision in regarding to the core competency of the firm, the
intellectual property content and other products and services cost as present (5). Hence,
according to Hill, Schilling and Jones (2017), in this regard, Apple takes onto consideration, the
flexibility of the supply chain which can be referred to as the availability of the different raw
materials in China, the quality of the staff as present in America, the lowered cost of production
and flexibility of the production which goes a long way in assisting the firm to meet its overall
objectives.
Reasons for shifting back
Although the production in China is quite comfortable for Apple and assists the firm in
meeting its overall objectives, there might be certain consequences which may lead Apple to
shift back to the home country (2). These may be the factors relating to the intellectual property,
pressure from the home country or the increase in competition. Moreover, Governmental
incentives and related regulation reliefs might also assist the firm in shifting.
Reasons for the vertical integration of Apple
The primary reason why Apple is vertically integrated than various other computer
manufacturers can be contributed to the company`s own choice to save the costs of the firm and

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manage the hardware and the software of the firm on its own. This way the firm is easily able to
compete in the market against the different competitors so as to ensure that, it can apply the
innovative differentiation strategy and create a sustained demand for the different products in the
country (8). The firm has also instituted an upfront technological payment for itself in order to
combine technology as well the capacity of the firm.
For Apple, using the Fox Con factories to assemble its phones has been very beneficial by
assisting the firm to rapidly innovate and incorporate designs to increase production and also
save the costs of the firm (3). Hence, this helps the firm to come up with superior technology that
cannot be matched by the competitors because, they do not have this facility of the vertical
integration and hence, have to spend a large amount of money.
Factors assisting Microsoft in competition with Apple
The factors which will go a long way in assisting Microsoft in matching up with
advantages of Apple and its unique style can be stated to be the strategy which is adopted by the
firm in the form of strategic outsourcing and producing its own hardware as well as the software
(9). In addition to this, Microsoft would be also required to ensure that they are able to invest in
the vertical integration strategies and purchase the production equipment’s which go a long way
in assisting the firm to gain a lead in the market (4). Another step which can be adopted by the
firm can be matching Apple`s underdeveloped ecosystem.
Conclusion
Hence, from the given case study analysis, it can be stated that, Apple has proved itself to
be a pioneer in the particular case and has made use of various strategies like the one with

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outsourced production, vertical integration and comprehensive marketing to ensure that the firm
is able to compete with all competitors as present and be the number one technological giant.
References
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approach. Cengage Learning; 2014.
2) Hill CW, Jones GR, Schilling MA. Strategic management: theory: an integrated
approach. Cengage Learning; 2014.
3) Apple.com 2019. Business [online]. Available at: https://www.apple.com/in/business/
(Retrieved on: 27 Feb. 2019).
4) Scholes MS. Taxes and business strategy. Prentice Hall; 2015.
5) Kourdi J. Business Strategy: A guide to effective decision-making. The Economist; 2015
May 26.
6) Zhong T, Li J. Business strategy, managerial expectation and cost stickiness: evidence
from China. InThe Routledge Companion to Accounting in China 2018 Sep 18 (pp. 127-
139). Routledge.
7) Ansoff HI, Kipley D, Lewis AO, Helm-Stevens R, Ansoff R. Implanting strategic
management. Springer; 2019.
8) David FR, David FR. Strategic management: A competitive advantage approach,
concepts and cases. Pearson; 2016 Feb 8.
9) Hill, Schilling, Jones. Strategic Management Theory (12th Edition) Cengage Learning,
Inc., 2017. (ISBN: 978-1-305-50233-8)