final mrp for scma
TRANSCRIPT
MRP: Finding offshore outsourcing success factors in Canadian
manufacturing industry (engineered products).
By: Hanif Motala
Student ID#500600375
Ryerson University
Date: April 29, 2016
Supervisor: Dr. Ron Babin and Dr. Kimberly Bates
Ted Rogers School of Management
Ryerson University
Table of Contents
1.0. Introduction 32.0. Summary 53.0. Literature Review 6
3.1. Outsourcing in the manufacturing industry...............................................................................................73.2. Outsourcing locally.......................................................................................................................................83.3. Offshore outsourcing..................................................................................................................................103.4. Literature findings......................................................................................................................................20
4.0. Methodology 245.0. Quantitative analysis 27
5.2.1. Descriptive statistics................................................................................................................................285.2.2. Regression analysis.................................................................................................................................31
6.0. Discussion 337.0. Conclusion 348.0. Acknowledgement 369.0. References 3710.0. Appendix40
10A. Canadian imports in CDN$ (billions):..................................................................................................4010B. Canadian exports in CDN$ (billions):...................................................................................................4010C. Consent Letter.........................................................................................................................................4110D. Survey Questions.....................................................................................................................................4410E. Regression analysis results in SPSS software......................................................................................5010F. Frequency Analysis:................................................................................................................................56
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1.0. Introduction
The offshore outsourcing has been a very attractive option for businesses in developed
economies like Canada and USA. In outsourcing, a manufacturing company shifts all or part of
its operations to other companies or other countries. In offshore outsourcing, outsourcing is done
from the low wage countries. For the purpose of study offshore countries are defined as
countries, which have low wage costs such as China, India, countries of South East Asia, Latin
America, Mexico, Pakistan, Bangladesh, etc. Offshore outsourcing mainly offers benefits such as
cost savings, provides access to new technology, access to skilled labour, saves capital
investments, and also provides access to offshore markets. At the same time it brings some risks
of job losses in local economies, longer lead times due to long distances, logistical issues in
border crossings, communication issues, long distance relationship issues, protection of
intellectual property, government regulations, and social responsibility concerns. Despite these
concerns, offshore outsourcing is still a very popular business decision across the board. The
main focus in this study will be on companies, which are operating in manufacturing engineered
products (industry classification#31-22-3321) because these companies operate in a very dynamic
environment, and they have to adapt innovative techniques to remain competitive.
Economic globalization has created a strong international interdependence. The
interdependence has featured an increase in the amount of goods/services traded, and expertise,
and also in manufacturing and distribution of work force. Due to its popularity the issue of
offshore outsourcing in manufacturing needs to be seen in a specific context. In this context, this
paper seeks to find success factors associated with offshore outsourcing. The main research
problem related to the topic are to find the crucial factors that make offshore outsourcing a more
suitable technique and why many manufacturing firms opt for this approach. The issues/factors
to be discussed in this paper include product quality, pricings/cost savings, lead times, socially
responsible offshore suppliers, relationships with offshore vendors, and minimizing risks in
offshore outsourcing. The offshore outsourcing success is defined as achieving the objectives,
which include financial benefits, technological benefits, minimizing risk, better relationships,
responsible business practices, and a smooth supply chain.
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As per North American industry Classification system (NAICS) Canada 2012, the
manufacturing industry is classified as 31-33. It’s subdivided to code#332 for fabricated
products (Statistics Canada, 2012).
Offshore outsourcing is an attractive option for businesses, which offers significant cost
savings, provides access to technical expertise, and also provides access to emerging markets.
This research will focus on these factors, which affect success of this decision. This research will
answer following research questions through a literature review and by conducting a research
survey. In this paper, the key research questions are listed below:
1. What are the effects of product quality on the offshore outsourcing success?
2. What are the impacts of cost savings on offshore outsourcing success?
3. What are the effects of a relationship between customers and vendors, on offshore
outsourcing success?
4. What are the effects of order lead times on the offshore outsourcing success?
5. What are the effects of logistics on the offshore outsourcing success?
6. Does better CSR of offshore vendor effects on the offshore outsourcing success?
7. Do using middleman companies contribute to mitigate offshore supply chain risks?
8. How much importance do Canadian companies give to factors such as currency exchange
rates, total cost of ownership, using middleman companies, political stability in offshore
country, and third party inspection at the offshore vendor, when making offshore
outsourcing decision?
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2.0. Summary
Canadian companies have doubled imports from offshore companies in last 10 years. This
also helped Canadian companies to find new markets in offshore countries as it doubled its
export also to these countries in the last 10 years. As per Ragatz et al. (1997), around 50% of the
cost of goods sold (COGs) is related to outsourcing. Offshore outsourcing is becoming popular
in the last couple of decades. Offshore outsourcing brings cost savings, better technology, better
skilled manpower, and provides new market to companies. Offshore outsourcing also brings
multiple risks such as: loss of employment in home country, intellectual property protection,
currency exchange rate fluctuations, cultural differences, communication issues, loss of control
due to long distance, higher inventory, loss of customers due to stock outs, warranties and
returns, CSR of offshore vendors, and logistical issues.
Logistics, and client vendor relationships are the main factors in the success of offshore
outsourcing. These two factors are very strongly and positively correlated to offshore
outsourcing success. Order lead time is also strongly correlated with offshore success. However,
Canadian companies are mostly satisfied with product quality and cost savings, so cost savings
and product quality are presumed to be necessities, and not important correlated variables.
Canadian companies are not satisfied with the carbon footprint created by offshore outsourcing.
Canadian companies place more importance on currency exchange rates and total cost of
ownership (TCO) when making offshore outsourcing decisions. Canadian companies also
believe that middleman companies more often help mitigate supply chain risks in offshore
outsourcing.
Offshore outsourcing has some negative effect on employment in manufacturing and IT
sectors, but it has a positive effect on employment in other sectors of the supply chain, logistics,
customs, banking, accounting, auditing, and law. Offshore countries are producing technical
graduates and scientists in greater numbers relative developed countries. This trend is creating a
skills gap, which will cause transfer of engineering function and knowledge along with
manufacturing to offshore countries.
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3.0. Literature Review
Offshore outsourcing is not new concept to the manufacturing world; numerous studies
have been done and thousands of authors have discussed the issues. While many scholars opt to
discuss this topic in special contexts, few have discussed the dilemma of offshore outsourcing
and outsourcing materials and labour from foreign countries. Companies manufacturing
engineered products operate in a very competitive environment due to new entrants, and
advancement of technologies. They are always on the lookout for reducing operational and
manufacturing costs to improve the bottom line, and also to stay in the business. Local
outsourcing and offshore outsourcing are two great ways to reduce overhead costs and increase
net revenues.
For the purpose of this paper, local outsourcing is defined as transferring some or all of
the company work to suppliers in Canada and the USA, where as offshore outsourcing refers to
outsourcing to international countries, where labour costs are significantly low. These lower
wage countries are China, India, the Middle East, South East Asian countries, Bangladesh,
Pakistan, Mexico, Latin America, etc. The two processes can provide many benefits to a
company. For example, a business may choose to outsource or offshore its bookkeeping duties to
an accounting firm. Besides helping an organization to save the money required to train and run
different departments, outsourcing enables a company to concentrate on building its brand, invest
in development and research, and to provide better services, which give it an edge over the
competitors. The processes also eliminate the need to invest in infrastructure and sophisticated
technologies as the supply company takes full responsibilities for business processes and
develops all required infrastructure for the same.
While outsourcing and offshore outsourcing are essential components of a successful
business, there are some factors that engineering firms should employ to make the concepts
valuable. Cases have been reported where businesses experience significant losses as they
collaborate with untrustworthy companies. Some companies also tend to overcharge for their
services, which can even make the whole process unattractive. Some partners may also take a lot
of time to complete a process, thereby slowing down the progress of their clients. Although
outsourcing and offshore outsourcing products and services are beneficial, it is crucial for firms
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manufacturing engineering products to understand the factors that make the processes successful
by looking at work done by other scholars.
The section that follows provides an analysis of several scholarly articles and is organized into
three categories mentioned below.
1. Outsourcing in the manufacturing industry
2. Outsourcing locally
3. Offshore outsourcing
3.1. Outsourcing in the manufacturing industry
Offshore outsourcing is a controversial topic with a great deal of supporters arguing for
and against it. The main concern has been the jobs that could have been given to citizens are
given to people from other countries. Statistics indicate that more and more businesses are opting
for offshore outsourcing. For instance, in the year 2013, American companies outsourced more
than two million jobs. Most of these jobs were transferred to China & India (Selvaggio, 2014).
More highlights and report analysis shows that on average manufacturing companies outsource
about 6% domestically, and about 10.5% of primary functions of the company are transferred
offshore (Targeted New Service, 2014). These statistics gives more clear indicators that
outsourcing is becoming more preferable especially to manufacturing companies.
Sharifi and Zhang (2000), in their work "A Methodology for Achieving Agility in
Manufacturing Organizations: An Introduction," evaluate the challenges facing manufacturing
companies in the 21st century. A business survival and success are becoming challenging, and to
guarantee sustainable growth, firms should be agile. Agility depends on the company’s internal
and external capabilities to meet rapid changes in the market and customer demand. It is
important to develop manufacturing capabilities outside the firm, to run efficient operation
(Zhang & Sharifi, 2000). Firms embrace changes in the methods of production and supply
through implementing advanced models such as outsourcing and offshore outsourcing.
An article titled "Success Factors for Integrating Suppliers into New Product
Development," published by a team of professionals led by Gary Ragatz looked at the challenges
faced by manufacturing companies in new product development processes. According to the
write-up, firms are faced with marching orders to offer cheaper, faster, and better products.
Authors mention that in USA manufacturing industry, 50% of the cost of goods sold, are
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attributed to outside suppliers. So the suppliers have huge impact on final cost, quality of
product, technology, speed, and market responsiveness. Integrating outsourcing in the
manufacturing process has many benefits including improved quality of purchased products,
reduced assembly time and rates, and access to current technology (Ragatz, Handfield, &
Scannell, 1997).
Finished product quality is highly depending on raw materials, semi finished and finished
components supplied by outside vendors. Product quality has also led to the attainment of
offshore outsourcing and outsourcing progress. As per this article: “Outsourcing, Product
Quality, and Contract Enforcement” (Lu, Ng, & Tao, 2009), “Mattel, the largest toy maker in the
world, outsourced 65% of its parts to suppliers in China, and had massive recalls of its China-
made toys”. This kind of issue can cause massive negative publicity, and revenue loss. So the
question arises that whether the firms providing outsourcing services have the technology and
knowledge to provide high-quality goods and services? It is the role of these companies to ensure
that the services they are offering are focused on quality, professionalism, and perfectionism.
In the article "Industrial Engineering the Toyota Production System," (2010) Towill looks
at the factors behind the success of the Toyota Company. The article attributes the company's
achievements to the effective and efficient production systems. He supports the argument that
continuous material flow and effective delivery of products are driven best through outsourcing
to independent companies.
It is important to have a strategy for which activities are to be delegated to outside
suppliers. It is not advisable to outsource core activities outside firms. According to "What went
wrong with Boeing", Boeing Company lost over three billion dollars by outsourcing its
operations to local based companies, over a period of three years. The company had an aim of
delegating all its activities to local, US based companies (Denning, 2013).
3.2. Outsourcing locally
Although the concept of outsourcing has been linked to many successes, it is clear that
not all firms have been successful. Ramingwong and Ramingwong (2009) argue in their article
“The Paradoxical Relationship of Risks and Benefits in offshore outsourcing of Software
Projects”, that before an organization pursues the strategy, the management must examine related
issues or factors. Some of the issues include cultural factors, management and sponsorship and
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the governance framework. Under cultural factors, the firm should understand the culture and
background of the country in question in order to determine the success of the practice. The
company needs to blend well with the culture to enhance the effectiveness of outsourcing. This
could be attained through a feasibility study on the country culture (Ramingwong &
Ramingwong, 2009).
The findings above are also augmented by those of Erber and Sayed-Ahmed (2005), who
concluded that a company should first establish the strength of the team of professionals in the
country. Timely completion of outsourced work requires employment of experts, working using
significant resources, hence, the call for capital outlay investment by the firm.
Research has indicated that outsourcing in manufacturing creates a competitive
advantage. Ramingwong and Ramingwong (2010) noted that strategic benefits accrued to the
firm that embraces offshore outsourcing and outsourcing. The strategic benefits are attributed to
existing cheap expertise across borders and the ability to minimize logistical issues related to
procuring resources. One of the key words of research is the product quality in outsourcing.
Some of the researches have shown that offshore outsourcing may lead to poor quality
performance of the product. This study noted that offshore outsourcing might be associated with
a lower quality rating of a product following inadequate supervision and low quality equipment
compared to local output. Nonetheless, there is not confirmed a comparative empirical
relationship between offshore outsourcing and quality failures (Ramingwong & Ramingwong,
2009). Recently, many researchers have concentrated on the issues of customer complaints, and
increased product recalls, which possibly due to poor product quality from offshore vendors. For
instance, Heerde et al. (2007) linked the increased product recalls to the Product-Harm crisis.
This crisis is a disaster for any firm as the firm loss revenue, as well as it has to struggle to
recoup the loss. Company’s brand will also get affected. So lots of checks and balances are
required before deciding on outsourcing and offshore outsourcing because firm loses control by
giving important business information to other companies (Heerde, Helsen, & Dekimpe, 2007).
In this risk assessment offshore outsourcing carries more risk than local outsourcing in
controlling the transaction.
Transportation factors are also attracting many companies into outsourcing to local firms
in Canada and USA. The team of experts led by Chakravarty et al. argued in the article “Choice
of geographical Location as Government strategy in outsourcing contracts: Localized
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Outsourcing, Global Outsourcing, and Onshore Outsourcing”, that outsourcing to local
companies is important because it reduces shipping distance, thereby helping to save both time
and money. Business travel expenses are also reduced, as employees don’t have to travel to
oversee international long distance business transactions. Sometimes immigration laws also
make it harder to exchange manpower skills efficiently on time (Chakravarti, Grewal, Sarkar, &
Sambamurthy, 2014).
An article "How Outsourcing Works" compares outsourcing to local companies versus
offshore outsourcing to companies in low wage countries. The article points out to the fact that
going overseas can be less expensive than outsourcing locally. Wages in low-cost countries are
cheaper, implying that labour costs will be lower. Raw materials in such countries are also lower
as compared to the local market (Crosby, 2008). Besides these advantages there is still a question
mark in achieving success objectives. In the article “The Client-Vendor offshore Relationship:
Success Factors”, authors mentioned that the Deloitte Consulting LLP surveyed 25 big
organizations, and found 70% of the companies have negative feelings about outsourcing
program success (John, Guynes, & Vedder, 2014). So despite cost savings achieved by these
companies, they are not totally happy with offshore outsourcing decisions.
Successful outsourcing to local firms depends on several critical factors. An article
"Critical Success Factors in IT-Outsourcing: a Literature Analysis" identifies long-term contract
as the primary factor leading to a successful outsourcing campaign. A long-term contract is only
possible with a great relationship between two parties. According to the article, inefficient
outsourced relationships spoil quality of the product and services offered, and appear to be costly
to the firm's operations. Therefore, companies must realize that relationships between their
partner organizations must involve specialized skill, mediation, and negotiation capabilities so as
to create long lasting relationships (Kronawitter, Wentzel, Turetschek, & Papadaki, 2009).
3.3. Offshore outsourcing
As per Mohiuddin and Su (2013), “offshore outsourcing is a multi-dimensional and multi
faceted business strategy explained by theoretical perspectives imported from other fields such as
economies, strategy, sociology, and systems science”. Two main important assumptions of this
process are cost savings, and risk mitigation (Mohiuddin & Su, 2013).
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"A Pragmatic View of Knowledge and Boundaries: Boundary Objects in New Product
Development" written by Paul R. Carlile (2002) discusses the advantages a company can leap
from taking some of its activities, where knowledge is localized, embedded, and in practice. So if
certain countries have mastered certain processes and methods then it makes sense to outsource
those activities to these countries. For example, call centres are best suited in India,
manufacturing mass production components in China, etc. In the article, Carlile argues that some
countries are best suited for certain business. Moving some projects to such countries can save a
company its financial resources and optimize the workflow (Carlile, 2002).
An article “Engineering Aspects of offshore Outsourcing and Public Policy
Investigation” highlights all the advantages of offshore outsourcing abroad as compared to
outsourcing locally. According to the scholarly work, globalization has enabled firms to win
cheaper deals abroad than locally. As per author, there is a vast pool of engineering skilled
labour available in developing countries such as: China, and South Korea. The number of
graduate, and doctoral degree holders is rising in China and South Korea, while it is decreasing
in the USA (Simpson, 2004). A labour pool is shifting locations, but companies still need to be
careful about meeting local codes, and regulations while offshore outsourcing to other country.
For example, buying a motor from offshore company has to be Canadian Standard Association
(CSA) or Underwriter Laboratory (UL) code compliant.
In the case study “offshore manufacturing: Implications for engineering jobs and
education: A survey and case study”, authors states that Offshore outsourcing is affecting our
daily lives, from the car we drive to the computer and phones we use. Authors mention that
because of this change of bringing products from offshore, engineering and scientist education
landscape has also changed. The “internet” and high-speed data networks have enabled
knowledge share, and now production can be done in any part of the world. An engineer from a
developed nation is not “cost” competitive anymore. A new trend has shifted “engineering”
functions to developing nations. This change has also created major risks of protecting
“intellectual property” for the companies. So companies should be aware of this risk, and find
out about offshore countries’ laws regarding IP protection, and enforcement of this law. Coming
back to engineering studies, India and China are producing more engineering graduates, and
technically skilled graduates. Since year 1998, China has produced 25% more science and
engineering degrees than the USA. India and China are producing more than 350,000 engineers
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per year. An increasing number of engineering graduates from these developing nations are as
talented as those from developed countries. It’s apparent that offshore outsourcing has impacted
job markets for highly trained technical personnel. But there is still more work to be done in
educating these engineers to work with cultural diversity, be proficient in communication,
negotiation, and carrying multinational responsibilities (Bibanda, Arisoy, & Shiman, 2006).
In their research article “Manufacturing Small and Medium Size Enterprise’s offshore
Outsourcing And Competitive Advantage: An Exploratory Study on Canadian Offshore
outsourcing Manufacturing SMEs”, Mohiuddin and Su (2013) state that offshore outsourcing of
manufacturing creates competitive advantages for small and medium sized enterprises of
Canada. It allows them to produce products competitively, and also provide access to new
market. These companies can take advantage of economies of scale from offshore countries, as
well as keep higher “value added” activities locally. Canadian companies mainly export to USA
market, and they compete with products from other countries in this market. Offshore
outsourcing does provide them much needed competitiveness in price point, and also leave
companies focusing on their core strength. Also, this paper concludes that there is a positive
relationship between offshore outsourcing and better performance of these companies
(Mohiuddin & Su, 2013).
Ramingwong and Ramingwong (2009), in their article “The Paradoxical Relationship of
Risks and Benefits in offshore Outsourcing of Software Projects” indicated that the average cost
of labour in leading offshore suppliers is relatively cheap compared to develop countries
(Ramingwong & Ramingwong, 2009). This can be the greatest indication that has increased the
motivation towards the offshore outsourcing. Further research shows that due to a relatively
lower cost of production and numerous competitive characteristics the scale and scope of
offshore outsourcing from not only large organizations but also even medium and small firms.
This attitude has been linked to general low cost and the resultant low pricing. Authors conclude
the article with following risk and benefits of offshore outsourcing (Ramingwong &
Ramingwong, 2009). The table below shows the benefits and risks from this article.
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Factors Benefits Risks
Costs Low labour costs Additional and Hidden Costs
Unemployment Increasing needs of global talents Unemployment in the major (developed)
nations
Skills Infinite Pool of workforce Insufficient level of required skills
24/7 Operations Around the clock operations Lack of instantaneous communication
Quality Possibility of satisfactory products Possibility of inadequate products
Culture Broader perspectives and
opportunities
Problems from cultural differences
Language Encouraging localization Problems from language barriers
Table 1: Risks and benefits of offshore outsourcing (Ramingwong & Ramingwong, 2009).
Erber and Sayed-Ahmed, in their article, “Offshore Outsourcing: A global shift in the
present IT industry” published in a journal “Intereconomics”, focus on the dangers and the
benefits of Offshore outsourcing. The article specifically focuses risks and advantages of
offshore outsourcing in different phases of the offshore projects. Although the research focused
on case examples of China and United States, their conclusion makes it an important part of
readings for this research. They concluded that offshore outsourcing in China, and in the United
States have been largely successful and most effective. The study also claimed that the success of
the offshore outsourcing method is largely attributed to some factors like, an availability of
cheap resources, maintenance costs, and time frames of a production process overall given the
advance technology (Erbar & Sayed-Ahmed, 2005).
Ramingwong and Ramingwong (2009) found more emphasis was placed on the cost-
effective phenomenon of the strategy. The authors sought to understand whether sending the
product design overseas for manufacturing solves the issue of cost. The research further seeks to
show if companies will benefit when they redesign their products at home and keep all the
manufacturing. To show the cost of offshore outsourcing relative to manufacturing at home and
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later redistributing, the paper succinctly calculated the total costs of the offshore outsourcing and
related the findings to the total cost of production in non-offshore outsourcing companies. The
ultimate results of their findings show that indeed offshore outsourcing has major advantages
(Ramingwong & Ramingwong, 2009).
In their article “The Economic Impact of IT offshore outsourcing on Canada, Part 1”,
authors Mukherjee & Schrutt (Mukherjee & Schrutt, 2014a) have analyzed economic impacts of
IT offshore outsourcing on Canada. As per the survey done in this research paper, approximate
33% Canadian executive participants agree that offshore outsourcing positively impacts
Canadian economy, 35% of executives are not sure of the impacts, and around 30% disagree
with this belief of positive impact. So higher number of industry executives have a belief of
positive impacts due to offshore outsourcing. Whether it is IT offshore outsourcing or
manufacturing offshore outsourcing, it effects employment, productivity, and innovation. The
authors noted that the main reasons for offshore outsourcing are: cost savings, and skilled
resources. They also mention that main dangers of offshore outsourcing are: communication, and
security. If we look at employment, Canada has a capacity gap or skill gap in our labour pool in
the IT industry. This is due to rapid growth in the IT sector, declining enrolment in IT
educational programs, Canada’s aging population, and also government immigration policies.
But at the same time, a “temporary work permit” program has brought some relief to the industry
in bringing skilled talent. Because of this program, the labour pool has increased in recent years.
Authors have measured impact of offshore outsourcing on employment by a measure called LDE
(Labour demand elasticity), which measures increase of 1% in offshore on various occupation.
Authors have concluded that 1% increase in IT offshore has a negative impact of 0.093% on
Computer programmer jobs, and a negative impact 0.05% on computer support specialist jobs.
But authors also concluded that these affected labour force is still able to find jobs in other
occupations of IT segments. So the net impact is not as great. Also, if IT offshore outsourcing
increases, it affects positively on other occupations such as auditors, lawyers, supply chain
specialists, contract negotiators, etc.
In the same research article, authors note that productivity has increased due to offshore
outsourcing. They have defined productivity as cost savings and also change in employment. In
the part 2 of their study (Mukherjee & Schrutt, 2014a), authors mention that job losses due to
offshore outsourcing in IT industry were 13,189 in during years 2001-2013, but also gained
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1,058 jobs at the same time in other areas. So in a nutshell, Canada has lost jobs, but gained in
cost savings of 15.1 billions due to offshore outsourcing. In this study they also have noted that
offshore outsourcing hasn’t created mass layoffs in the industry. So if we look at job losses, loss
of compensations due to job losses, and gains in cost savings, the net impact is positive $11.0
billions over a period of 2001-2013. This number is expected increase to $13.1 billion in year
2014-2018. If we consider wage increases in the future, Canada will have 2% wage increases
versus over 5% in offshore countries. This will affect cost savings going forward so offshore
outsourcing will have to provide more value and expand to new technologies. As labour
arbitrage will disappear due to the reduced gap in labour rates, offshore vendors will have to
open operations in to Canada by mergers and joint ventures. Offshore outsourcing has also
affected innovation in the industry. Cost savings achieved due to offshore outsourcing has
increased investments in R&D activities. Offshore outsourcing has increased unique
development capabilities of companies in Canada, and also enabled small and medium sized
firms to expand globally. The negative impacts of offshore outsourcing in Innovation are due to a
communication gap between countries, and also due to skill sets development. But authors agree
that it’s very hard to quantify these effects, so more research is required in this field (Mukherjee
& Schrutt, 2014b).
Corporate social responsibility (CSR) is a new trend of integrating social and
environment concerns into business operations. Social and environmental issues are getting lots
of attention nowadays by various stakeholders. The findings of the study focused on the
Malaysian electronic firm, conducted by Ching and Wad (2009) on the relationships between the
corporate social responsibility of the company and offshore suppliers, indicate that the level of
corporate social responsibility of the company influences the performance of the offshore
outsourcing (Ching & Wad, 2009). This means that corporate responsibility of the company
influences the performance offshore suppliers. It appears from this research that the success of
the offshore program is dependent on the corporate responsibility.
Another relevant research done by John, Guynes and Vedder (2014) entitled Client-
Vendor offshore relationship: Success Factors, focused on the relationship that firms have with
offshore vendors. The research studied the complexity of offshore outsourcing relationships, and
probed that the social exchange factors that make it difficult for successful relationships. The
results of this finding indicate that the relationship between client and vendor are likely to be
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successful, if they are characterized by effective communication, honesty, and trust. The
researchers in this paper have made recommendation of generalized research to determine, if
there exist a closer relationship between the success of offshore outsourcing and the offshore
vendors (John, Guynes, & Vedder, 2014).
The availability of skilled labour has also led to the success of the outsourcing process.
The findings were published in an article "East or Far East? Manufacturing Outsourcing.” In the
paper, Suonsilta mentioned the price pressure faced by northern Europe and Us companies. So
companies offshore their manufacturing to low wage countries, where skilled labour is available.
Most of the large size companies are successful in this endeavour of cost saving by offshore
outsourcing from the Far East. But she is also making a claim that price savings are hard to
materialize because of high transportation costs, communication overheads, fluctuation in
currency exchange rates, and also due to product quality issues. So some times, “Near East”
sourcing approach might be more suitable in some cases (Suonsilta, 2014).
The “middleman” involvement plays a significant role in Offshore outsourcing successes,
according to "offshore Middlemen: Transnational Intermediation in Technology Sourcing."
Offshore outsourcing to foreign countries implies dealing with unfamiliar languages, foreign
currencies, and different cultures. Middlemen mitigate cultural and social entry restrictions,
bridge cognitive distances, and offer specialized translation services. Middlemen reduce cultural,
and cognitive distances. They help in the process of pre-contractual negotiations, and also post
contractual operations management (Mahnke, Wareham, & Bjorn-Anderson, 2008). They help in
preparing proper documentations for efficient logistic process of shipping, and also help in
meeting foreign government regulations.
Foreign exchange rates also play a role in the success of Offshore outsourcing projects as
discussed by Hashimoto in his work titled "International Outsourcing, The Real Exchange Rate,
and Effective Demand." Fluctuations in foreign currency can work for or against a company. As
per this article, more outsourcing to foreign countries tends to devalue home country currency.
Therefore, firms need to understand currency implications as a way to cut down costs. When the
rate of the foreign currency drops against other currencies, an organization may end up paying
more than what the service typically costs (Hashimoto, 2011).
In their article in the news paper Globe and Mail, Barrie McKenna and Tavia Grant point
out benefits of lower Canadian dollars in certain sectors of the economy. Lower loonie
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(Canadian dollar) helps travel industry, as well as manufacturing industry. As per the article,
10% currency devaluation can add up to 1.5% in GDP next year. But we can’t forget that the
lower loonie will also increase import costs, and also increase inflation. This change will make
life more expensive. Besides all these, manufacturing industry is a clear winner in the scenario of
lower loonie, as Canadian goods will be more cost competitive in the global market. The USA is
a major export market for Canada, and majority of this sales is in US Dollars. This trend
increases margin for canadian manufacturers. As per this article, there is a trend of re-shoring
and near-shoring in the USA. A lower loonie can definitely help Canadian manufacturing
businesses benefiting from this trend. A lower loonie will make cross border shopping
expensive, and also vacation travel to outside of Canada will be expensive. Due to the lower
loonie an export will rise, and companies can give more wages and bonuses to their employees.
There is a bit of catch though, as Canadian manufacturers buy their raw materials and
components globally, and they are priced mostly in USD. This increases the costs of
manufacturing due to the lower loonie. This higher cost can motivate companies to look for
inputs in Canada, which will in turn positively affect the Canadian labour market (McKenna &
Grant, 2014).
A stable political environments and security are other important factors discussed by
Ellis. In his paper titled "Adaptive strategies of trading companies," author explains that some
countries like China, India, Kenya, and South Africa have put into place the measures that
encourage investments. Organizations in such countries can offer quality services at cheaper
rates as compared to local firms. Security in such countries is given top priority implying that
investors' money is safe from all forms of criminal activities. Ellis explains in the article about
how Hong Kong went through changes during World War II, when it was occupied by Japan,
and then liberated. During this era, political economy had a major impact on country’s import
and export (Ellis, 2001).
"Economic Influence Analysis of offshore Outsourcing Based on Host Country's View."
looks at all the disadvantages of offshore outsourcing. Outsourcing abroad always brings quality
issues, especially when dealing with new partners. The trend has seen the failure of many local
engineering companies, which have been receiving services short of what they asked. The
companies tend to earn better profits when they outsource their activities to local organizations
(Li, 2014).
17
Furthermore, authors Hern and Burke in their paper titled "Enhancing the success of
outsourcing initiatives”, listed key success factors in outsourcing and offshore outsourcing. In
their view, Planning and preparation, Effective change management, Relationship management,
Contract negotiations, and proper vendor selections are the key elements of success (Hern &
Burke, 2006).
The local outsourcing process keeps business transactions and employment locally in the
same country. Offshore outsourcing outsourcing involves transactions with different counties,
different cultures, different skill sets, different time zones, and also transfer of jobs to other
countries. As per statistics Canada, Canadian total imports in last 10 years have increased from
$397 billions CDN$ to $536 billions (Statistics Canada, 2015). Also, these numbers states that
imports from the offshore countries such as China, and Mexico have doubled in last 10 years.
The graphs below show the Canadian import numbers.
Graph 1: Total imports in Canada (in Canadian dollars $ billions).
18
Graph 2: Imports from China, and Mexico, (in $CDN billions), years 2006-2015.
Statistics Canada numbers also suggests that because of this offshore outsourcing trend,
the value of exports to these countries has also increased. So the argument of losing jobs is not
supported by this trend. It looks like Canadian companies are finding new markets for their
businesses. The graphs below show that exports have more than doubled (from $8 billions to $20
billions) in China in the last 10 years (Statistics Canada, 2015).
Graph 3: Export of Canadian Businesses to China, Mexico, and India, in CDN $Billions, years 2006-2015.
19
3.4. Literature findingsLiterature analysis reveals that manufacturing businesses use outsourcing for their benefit
and smooth operations. By outsourcing some of the business activities, companies can focus on
their core operations. Outsourcing helps manufacturing businesses to be flexible, agile, helps in
faster delivery to market, and also reduce overhead costs. Approximate 50% of cost of goods
sold is attributed to outsourcing (Ragatz, Handfield, & Scannell, 1997). An outsourcing is done
either locally or to foreign countries. Outsourcing is done to low wage countries such as; China,
India, Pakistan, Bangladesh, Mexico, Latin American countries, South east Asia, northern
Europe, and middle east countries is called as offshore outsourcing. Offshore outsourcing helps
reduce cost significantly, so improve bottom line and stay competitive.
Outsourcing locally has several advantages against offshore outsourcing. Important ones
are government frame work, local laws, transportation, lead times, more control due to short
distance, keeping jobs within the country, similar culture, intellectual property (IP) protection,
ease of communication, and same time zones. But offshore outsourcing if done right has
advantages of cost savings, skilled personnel access, new market opportunity, better technology,
and tax break advantages.
Engineering companies businesses involve design, fabrication, and assembly of products.
These companies serve automotive, construction, electronics, and retail markets. These
companies are more prone to price pressure due to competition, skilled labour, and technology
advancements. They add value to products and stay competitive. Protection of intellectual
properties is a major concern for engineering companies, while making Offshore outsourcing
decision. Companies need to involve teams of professionals to do strategic planning while
deciding on offshore outsourcing. Engineering education is on rise in India, and China. These
countries are producing technical graduates at increasing rates, and number of engineering
graduates, scientists, and Ph.D. are higher than developed nations. In the new trend, engineering
function also getting transferred to offshore countries. So these offshore countries have emerged
as talent pool in engineering jobs, but more focus is needed in communication training, and
negotiation skills.
Canada has increased its import from low wage counties in past 10 years, and at the same
time has increased exports to these countries. So Offshore outsourcing helps Canadian
businesses enter into those markets. Canadian companies have main market of USA, where
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competition is tough from USA companies, as well as foreign companies. Manufacturing
companies outsource 6% of jobs locally, and 10.5% of jobs to offshore countries. Offshore
outsourcing helps Canadian companies stay cost- competitive. But if companies select unreliable
offshore suppliers then the cost of this transaction could be very high.
Quality of products, heavily rely on outside suppliers. Companies buy raw material, semi
finished, and finished components from outside source. If outsourced material is defective then
final product will have its bad effect. Due to poor quality, companies will face brand image
issues, product recalls, customer complains etc. Toy maker “Mattel” faced lots of criticism, and
also had a product recalls because of bad quality from outsourced products from offshore.
Transportation is also a major decision, while making offshore outsourcing decision. Cost
of transportation is more when products are coming from long distance vendors. Transit
inventory cost, insurance costs of products in transit, ocean and air shipping costs, duties, and
transportation delays are high in case of products coming from offshore countries. Beside various
transportation costs, documentation preparation for importing products across borders also cause
headaches for companies. Long distance transportation also has direct impact on environment. It
increases carbon footprint by using fossil fuels in ocean and air shipments. Business travels for
employees to the long distances also costs dearly to the companies. So local outsourcing has
upper hand in considering this factor.
To be successful in offshore outsourcing relationship between two companies are very
important. This can be achieved by doing long term contracts, knowledge transfer, and risk
mitigation strategies, honesty, and building trust. We can’t forget that some countries have
manpower of certain skill sets. For example, China is modern world factory, and economical for
mass production. Similarly, India is IT hub, and best suited for call center operations. It is
advisable for companies, to offshore these kind of activities to these countries to take advantages
of low cost, and skill sets.
Offshore outsourcing doesn’t only help large corporations, but also helps small and
medium sized Canadian corporations to get cost advantages. These small and medium sized
companies stay in the market and make profits by adding “value” to offshore products. This
creates high skilled jobs in local market, and companies remains profitable and competitive.
Offshore outsourcing offers better performances to these companies.
21
Corporate Social responsibility by offshore vendors is one of the important factors in
success of offshore outsourcing program. In the world of globalisation, focus is given to
responsible vendors. Dealings with companies, who obeys local laws regarding work practices,
obeys child labour laws, improve working conditions, helps community by education, training,
and other social programs, are satisfying various stakeholders.
Foreign exchange rates are a game changer when it comes to cost savings. Big swings in
exchange rates can increase or decrease costs and margins. Lower Canadian dollar helps
Canadian manufacturers remain competitive globally. In the major market of USA, Canadian
manufacturers sell in USD, which helps increase their margins. Companies can pay more wages
to employees, and increase their bonuses. At the same time manufacturers, who buys their
products & services from global markets will have higher input costs due to lower Canadian
currency. I would like to point out observation here that Chinese, Indian, and Mexican
companies mostly sell in USD. So the Canadian companies, which offshore from these countries
will have impacts, if CDN dollar depreciates against USD. Recently CDN dollar is trading much
lower, which increased costs for Canadian companies by almost 30 to 40%. But this has positive
effect also as Canadian manufacturer will tend to onshore their raw material, and components.
Nevertheless, a lower Canadian dollar tends to help the tourism industry and the manufacturing
industry as well.
With the increase in offshore outsourcing, middleman companies also become popular in
this trend. The “middleman” companies are also operating in offshore countries, and they are
very familiar with local laws, local culture, and local languages. They act between client and
vendor, and helps in making Offshore outsourcing successful endeavour. They help source the
requirements through right source, help in negotiations, checking the progress of the contracts,
inspection, shipping process, documentations, communication, and warranties.
A stable political environment in offshore country helps confidence of clients in offshore
country. It increases investment in offshore countries. Security of businesses, and also
implementation of laws also helps mitigate risks for clients.
Offshore outsourcing impact on the economy is measured by three measurements: Job
losses, productivity, and Innovation. There are certainly job losses in certain segments due to
offshore outsourcing, but there are also higher value added job gains, and also job gains in
occupations of lawyers, buyers, contract negotiators, auditors, transportation and logistics
22
sectors, etc. Productivity has also increased due to cost savings. Cost savings due to offshore
outsourcing has also led to increase funding in R&D activities in Canada. Going forward, “wage
gap” will decrease between developed countries, and offshore countries, so offshore vendors will
have to collaborate more in the developed nation by increasing their presence in local markets by
merger & acquisitions, and investment in developed countries.
23
4.0. Methodology
This research utilized inductive (qualitative) and deductive (quantitative) approaches.
Researcher has made generalized observations, explored issues, collected survey data, analysed
data by using various statistical tools and made general conclusions basing on literature analysis,
and findings of survey data.
This research paper is trying to find out following:
1. What are the effects of product quality on the offshore outsourcing success?
2. What are the impacts of cost saving on offshore outsourcing success?
3. What are the effects of a relationship between customers and vendors, on offshore
outsourcing success?
4. What are the effects of order lead times on the offshore outsourcing success?
5. What are the effects of logistics on the offshore outsourcing success?
6. Does better CSR of offshore vendor effects on the offshore outsourcing success?
7. Do using middleman companies contribute to mitigate offshore supply chain risks?
8. How much importance Canadian companies give to factors such as Currency exchange
rates, Total cost of ownership, using middleman companies, political stability in offshore
country, and third party inspection at the offshore vendor, when making offshore
outsourcing decision?
For obtaining critical information, this paper focuses on the following research methods:
literature review, and a survey of manufacturing companies about their offshore outsourcing
experiences. The literature review summarizes previous research on this topic and gives
background knowledge. The source of this information is books, academic journals, and online
databases. Researcher has read and analyzed over 50 scholarly articles from the “Google
scholar” website, and also from Ryerson Library (RULA) collections. Researcher have also used
statistics Canada website for collecting information of imports and exports information.
The survey was created using the “Survey Monkey” platform. This survey link
https://www.surveymonkey.com/r/F9P2SGJ was sent to relevant participants. For conducting
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this survey, Ryerson ethics approval was provided by Research Ethics Board (REB) prior to
sending out the survey. Approval was also granted by Supply Chain Management Association
(SCMA) to send out this survey to its membership of approximately 2800 members. This survey
was completely anonymous to the researcher, and participants were selected through researcher’s
professional network, and also through SCMA member list. Researcher has selected participants
on the basis of their current employers. Researcher has selected companies, which are in
manufacturing, and specifically, in engineered products or fabricated products. Researcher sent
survey requests to around 200 contacts, and received responses from 26 participants. The survey
included total of 23 questions including followings (Please see Appendix for the complete list of
questions):
Companies’ primary operation
Companies’ revenue
Types of Offshore outsourcing
Why they offshore
Experiences of these companies for cost savings, quality, operational lead times, a
relationship with offshore vendors, communication ease, using a middleman to make
smoother transaction, a transportation process, a logistic process, CSR response,
warranties from offshore vendors, and their overall success feelings.
How much importance Canadian companies give to factors such as Currency exchange
rates, Total cost of ownership, using middleman companies, political stability in offshore
country, and third party inspection at the offshore vendor, when making offshore
outsourcing decision?
In this research, collected data has been analyzed by using quantitative research methods.
These methods include descriptive analysis to get data mean, median, mode, standard deviation,
and frequency. In this research, predictive statistical technique of Regression analysis is used to
find correlation between independent variables (inputs) on dependent variable (output). These
analyses are done with 95% confidence level (alpha=0.05). These questions are assessed on
nominal and ordinal scales (“Likert” style questions). A link to the survey questions is pasted
above, which shows scale ratings criteria. In this research, Frequency analysis is also done to
25
find out what is satisfaction level of Canadian companies and also which factors are most
important to them.
The dependent variable is overall “success” of an offshore outsourcing program (Ordinal
value). In this analysis, the independent variables are: activities of organizations (nominal value),
annual revenues of organizations (nominal value), types of products/services outsourced to
offshore by these organizations (nominal value), main reasons for offshore outsourcing (nominal
value). Following variables are assessed on participant’s satisfaction on Ordinal scale (1 to be
least satisfied and 7 is completely satisfied): quality, prices (cost savings), lead times, social
responsibility of offshore vendors, relationships with offshore vendors, transportation costs,
logistic process, carbon foot print it creates, communication comfort, infrastructure in offshore
countries, and warranties provided by offshore vendors.
In this analysis, the following variables are also assessed on their importance to participants
on ordinal scale (1 to be not important at all, and 7 to be most important): Total cost of
ownership importance, political stability importance, and exchange rate importance. These
variables will help us understand the important factors considered by Canadian decision makers,
while making offshore outsourcing decisions.
These methods of analysis were chosen because of their ability to provide first hand
information on the topic. It also had enhanced the understanding of the research phenomenon,
which is the significance of offshore outsourcing, particularly, related success factors. These
methods also offer comparative advantage because they are complementary, and they can
accommodate the type of data, and different designs. The reliability and validity of the research
will be attained through test-retest validity, internal, as well as external validity.
26
5.0. Quantitative analysis
A total of 26 survey responses received within three weeks time period of the request.
One of the survey data was incomplete, so only 25 samples are valid for analysis. Companies,
who participated in the survey, are mainly in manufacturing activities, and majority are in
“engineered products” manufacturing as shown in the chart below.
Graph:4. Participant company’s main activity
In the data analysis of 25 samples, the majority of companies participated are medium
sized ($25 to $100 million revenue: 38%), and large sized (over $100 million dollar yearly
revenues: 35%). Majority offshore purchases are manufacturing parts & components (65%), and
raw material (30%). As per the results, the main reasons of offshore outsourcing are: Low cost,
and to “free up” resources.
Research focus is on the manufacturing companies, which are mainly into engineering
products. Total sample size in this category is 18. A majority of participants companies have
annual sales of 25 million to 100 million CDN dollars. Majority of companies offshore
“manufacturing parts and components”, and “design” work. As per the collected data analysis,
the main reasons for offshore outsourcing are “low cost”, and also to free up resources. As per
the descriptive statistics shown below, quality of the product is the number one factor in
satisfaction and cost savings is at number two. Carbon foot prints created by this process, and
warranties are the least satisfied factors in offshore outsourcing.
27
Following variables are assessed on participant’s satisfaction on Ordinal scale (1 to be least
satisfied, and 7 is completely satisfied as shown in table below): quality, prices (cost savings),
lead times, social responsibility of offshore vendors, relationships with offshore vendors,
transportation costs, logistic process, carbon foot print it creates, communication comfort, infrastructure in
offshore countries, and warranties provided by offshore vendors. An option of “Not applicable” was omitted
for the analysis purpose.
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Table 2: Likert scale of Satisfaction
In this analysis, following variables are also assessed on their importance to participants on ordinal scale
(1 to be not important at all, and 7 to be most important as shown in table below): Total cost of ownership
importance, political stability importance, and exchange rate importance. These variables will help us
understand the important factors considered by Canadian decision makers, while making offshore
outsourcing decisions. An option of “Not applicable” was omitted for the analysis purpose.
<INPUT NAME=\ Not important at all
<INPUT NAME=\ Rarely important
<INPUT NAME=\ Not important more often
<INPUT NAME=\ Neutral
<INPUT NAME=\ Important More often
<INPUT NAME=\ Mostly important
<INPUT NAME=\ Important all the times
<INPUT NAME=\ Not applicable
Table 3: Likert scale of Importance
5.2.1. Descriptive statistics
Descriptive statistics shown below helps us provide information on important characteristics
of the sample data collected for the analysis. This will give us Mean, Media, Mode, Standard
deviation of each variable’s satisfaction level. It will also provides us information on frequency
of each variable’s satisfaction levels and their importance.
The “mean” numbers between 4 & 5 are suggesting that companies are somewhat satisfied with their
decision. The “mean” number of below 4 shows that companies are not satisfied in that area.
Factors Valid Data Mean Median Mode Std.
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samples Missing Deviation
Quality 18 0 5.05 5 5 1.47
Prices (cost
savings)
18 0 4.94 6 6 1.69
Lead times 18 0 4.44 5 5 1.33
CSR 16 2 4.31 4 4 1.35
Relationship 18 0 4.77 5 6 1.51
Transportation 17 1 4.35 4 6 1.41
Logistics process 17 1 4.76 5 6 1.39
Carbon footprint 15 3 3.33 3 3 1.44
Communication 18 0 4.83 5.55 6 1.58
Infrastructure 16 2 4.43 4 4 1.5
Warranties 17 1 3.94 4 3 1.51
Over all success 18 0 4.44 5 5 1.29
Table 4: Descriptive statistics of manufacturing companies (Engineering related products).
Now we look at frequency statistics derived from the survey data. Frequency statistics
from the collected data are tabulated in the table below.
Factors/Satisfaction
level %
1 2 3 4 5 6 7 Total
Quality 0% 11% 6% 6% 33% 33% 11% 100%
Cost savings 0% 22% 0% 0% 22% 50% 6% 100%
Lead times 0% 11% 17% 11% 39% 22% 0% 100%
CSR 6% 0% 13% 44% 13% 25% 0% 100%
Relationships 0% 17% 6% 6% 28% 44% 0% 100%
Transportation 0% 6% 29% 24% 6% 35% 0% 100%
Logistics 0% 12% 6% 18% 24% 41% 0% 100%
Carbon footprints 7% 20% 33% 27% 7% 0% 7% 100%
Communication 0% 11% 17% 6% 17% 44% 6% 100%
Infrastructure 0% 13% 13% 31% 13% 25% 7% 101%
29
Warranties 6% 6% 35% 18% 12% 24% 0% 100%
Offshore
outsourcing success
0% 11% 11% 22% 33% 22% 0% 100%
Table 5: Frequency statistics table
This table above shows satisfaction levels of Canadian companies in these factors as described
below:
Quality: Somewhat satisfied to mostly satisfied
Cost savings: Mostly Satisfied
Lead times: Somewhat satisfied
CSR: Neutral (Neither satisfied or dissatisfied)
Relationships: Mostly satisfied
Transportation cost: Mostly satisfied
Logistics process: Mostly satisfied
Carbon footprints created by offshore outsourcing: Somewhat dissatisfied
Communication ease: Mostly satisfied
Infrastructure in offshore countries: Neutral (Neither satisfied or dissatisfied)
Warranties provided by offshore vendors: Somewhat dissatisfied
Overall offshore Success: Somewhat satisfied
This frequency analysis also shows factors of importance to Canadian companies when they
decide on offshore outsourcing. The result is described below:
Third party inspection importance: A slight majority (55%) suggests that it is important
sometimes only.
Total cost of ownership importance: A slight majority (55%) suggests it is mostly
important.
Political stability of offshore country: A minority (33%) suggests that it is important
sometimes only.
Foreign exchange currency rates: A majority (67%) suggests that it is mostly important,
and it is important all the times.
Risk Management by middleman companies: A minority (47%) suggests that middleman
mitigates supply chain risks more often.
30
Middleman usage: A majority 67% directly deal with offshore vendors, and 33% use
middleman companies to do offshore outsourcing.
5.2.2. Regression analysis
A quantitative analysis is done on the collected data by using “Multiple linear regression”
tool. The results as shown in table below suggests that companies consider “logistics” process,
“relationship” with vendors, and “lead times” to be the main affecting factors to the Offshore
outsourcing success. After these three variables, Corporate social responsibility (CSR) of
offshore vendors and quality of products/services are other two important variables to affect the
offshore success. The main motive of offshore outsourcing of low cost is least correlated with the
offshore outsourcing success. In these results, correlation of logistics process, relationships, and
cost savings are providing sigma of under 0.05, which means these results are significant and
valid (Sigma is under 0.05). This result also shows that VIF (variance inflation factor) numbers
are very low, which means there is not much muticollinearity between independent variables. As
a rule of thumb, all VIF numbers of these variables should be under 10 (Kutner, Nachtsheim, &
Neter, 2004). Table below shows results of Regression analysis.
Factors Correlation Sigma VIF Remarks
Quality 0.45 0.52 1.26 Not Significant
Cost savings 0.04 0.04 1.23 Significant
Lead times 0.70 0.12 2.28 Not Significant
CSR 0.45 0.35 2.00 Not Significant
Relationships 0.80 0.01 1.93 Significant
Logistics 0.85 0.00 1.62 Significant
Table 6: Multiple regression analysis results in SPSS
These results shows that companies who offshore will need to have smoother “logistics”
process, and also need to build proper “relationship” with offshore vendors. Companies also
should have control on lead times of orders to get success in offshore outsourcing.
31
A “Regression” analysis also gives “R square” value of 92%, which suggests that 92% of
variables predicts the output. This result is shown in the graph below, which shows that expected
outcome and observed outcome is almost similar.
Graph 5: P-P plot (Regression analysis)
32
6.0. Discussion
Low cost and cost savings are the main motivations for offshore outsourcing, but statistical
analysis showed that low costs and cost savings are not strongly correlated. This means that there
are some other important factors affecting the success of this process. As per the analysis in this
paper, “logistics”, “relationship”, and “lead times” are main success factors. So we can say that
logistics and shorter lead times are important once a relationship is present. Low cost of products
is a main motivator for offshore outsourcing, and is likely the factor that caused the relationship
to be established in the first place.
As per literature study, “product quality” is an important factor and a major risk when
ordering from offshore companies. But statistical analysis doesn’t show strong correlation
between product quality and offshore success. This could be because Canadian companies are
mostly satisfied with quality of offshore products, and it is presumed to exist in offshore
transaction.
A majority of Canadian companies believes that middleman companies are important when it
comes to supply chain risk mitigations. They do agree with the importance of middleman
companies, but a majority of Canadian companies deal directly with offshore countries.
It is presumed that offshore outsourcing will cause job losses, but as per the macro economic
data from Statistics Canada suggests that offshore outsourcing also helped in increasing export of
Canadian goods in those countries. Offshore outsourcing might have caused some job losses in
manufacturing and IT, but also helped in generating jobs in other fields of accounting, audit,
supply chain, retail, logistics, language translations, and law.
Canadian companies are not much satisfied with warranties provided by offshore vendors, so
the assumption is that companies should be sceptical for more of offshore outsourcing but the
fact is Canadian imports from offshore countries have doubled in last 10 years. This could be
because of the fact that Canadian companies are mostly satisfied with product quality.
33
7.0. Conclusion
Product quality is an important factor in offshore outsourcing. Canadian companies are
mostly satisfied with the product quality from offshore vendors. Product quality is positively
correlated with offshore success. This correlation is positive but not very strong, it could be
because Canadian companies are mostly satisfied with quality, and good quality is presumed to
be necessary for offshore outsourcing.
Cost savings is a main factor for considering the offshore outsourcing. Canadian companies
are trying this long distance business relationship because it is very cost effective. Canadian
companies are mainly saving 15 – 40% of costs compared to local outsourcing. Canadian
companies are mostly satisfied with cost savings. “Cost savings” is positively correlated to
offshore success, but with weaker number. This could be due to the fact that cost savings is a
necessary factor for offshore outsourcing, and it is presumed that it already exists.
Relationship between Canadian companies and offshore vendors is a very important factor
for offshore outsourcing success. Canadian companies are mostly satisfied with the relationship
they have. Relationship is very strongly and positively correlated with offshore success.
Statistical analysis also showed that this correlation is valid and it does exist.
An order “lead times” also shows very strong positive correlation with offshore success.
Canadian companies are somewhat satisfied with the lead times offered by offshore vendors.
This means companies are satisfied but not to a great extent.
Canadian companies are mostly satisfied with logistics process when they import products
from offshore vendors. Logistics process is also very strongly correlated to offshore success. So
if a company wants its offshore outsourcing to be successful then it needs to sort out all logistics
needs for this transaction.
Corporate Social Responsibility (CSR) factor is a concern for all companies now. Canadian
companies want to make sure that cost savings don’t come with harm to societies. Canadian
companies are not satisfied or dissatisfied with CSR record of offshore vendors. It means that
Canadian companies are not sure whether offshore vendors are doing good job in their
responsibilities to the society in the form of child labour, working condition, working ours,
34
employee treatments, training, etc. A correlation analysis does show that CSR is positively
related to offshore success but doesn’t validate the results.
A majority of Canadian companies deal direct with offshore vendors, and reap the fruits of
the offshore outsourcing but majority believes that using middleman helps better mitigate supply
chain risks. Middleman companies can help in prior negotiations, provide help in mitigate
cultural differences, can help in better communication, can help in meeting government
regulations, can help in inspecting the products for quality, can help in preparing documents and
shipments, and can help in consolidating shipments from multiple offshore vendors, and help in
better control of the entire process.
Canadian companies give most importance to Foreign exchange currency rates, and TCO
factors when they are making offshore outsourcing decisions. This is due to the fact that
exchange rates can magnify savings or loss of the business transactions. Also, TCO is important
to Canadian companies because offshore transactions have hidden costs of other costs such as:
transportation costs, customs duties, shipment insurances, loss of business due to stock out costs
of carrying extra inventory due to longer lead times, etc.
Canadian imports from offshore outsourcing countries have doubled in last 10 years. At the
same time, Canadian exports to offshore countries also have doubled in last 10 years. This
figures proves that Offshore outsourcing have found new market for Canadian companies in
those countries. Offshore outsourcing also helped small and medium sized firms because they
can focus on adding value to offshore products, and generate revenues. Offshore outsourcing
generates cost savings, which help Canadian companies to be competitive and provide better
returns to stake holders.
Offshore countries are generating more technical graduates and scientists versus developed
nations. So far, Canadian immigration policies have helped to mitigate this risk of skill gap so
far, but in the future, Canadian companies will possibly face engineering function transfer to
offshore vendors due to a skill gap. Engineering function transfer will increase risks of
intellectual property protection, and code compliance.
Statistical analysis shows that logistics process, and order lead times are important success
factors once a relationship between customer and offshore vendor is established. Low cost of
products is a main motivator for offshore outsourcing, and is likely the factor that caused the
relationship to be established in the first place.
35
8.0. Acknowledgement
Research Ethics Board (REB)
Supply Chain management Association (SCMA)
Ryerson library Archives (RULA)
Google Scholar website
Survey Monkey online survey platform
Anonymous survey participants
Dr. Ron Babin, Ted Rogers School of Management - Ryerson University (MBA
program)
Dr. Kimberly Bates, Ted Rogers School of Management - Ryerson University (MBA
program)
36
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Heerde, H., Helsen, K., & Dekimpe, M. (2007). The Impact of a Product-Harm Crisis on Marketing Effectiveness. Marketing Science , 26 (2), 230-245.
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Hern, C., & Burke, R. (2006). Enhancing the success of outsourcing initiatives. Europe's journal of Psychology , 2 (4), 1-7.
John, J., Guynes, C., & Vedder, R. (2014). The Client-Vendor Offshore Relationship: Success Factor. Information Systems Management , 31, 120-124.
Kathleen, M. (2014 йил 18-02). Report: Offshoring and outsourcing a mixed bag for American jobs, wages. From www.berkeley.edu: http://newscenter.berkeley.edu/2014/02/18/report-offshoring-and-outsourcing-a-mixed-bag-for-american-jobs-wages/
Kronawitter, K., Wentzel, C., Turetschek, G., & Papadaki, M. (2009). Critical Success Factors in IT-Outsourcing: a Literature Analysis. SEIN, 110-122.
Kutner, M. H., Nachtsheim, C. J., & Neter, J. (2004). Applied Linear Regression Models (Vol. (4th ed.).). McGraw-Hill Irwin.
Li, E.-l. (2014). Economic Influence Analysis of Offshore Outsourcing Based on Host Country’s View. International Journal of u- and e- Service, Science and Technology , 7 (3), 63-72.
Lu, Y., Ng, T., & Tao, Z. (2009, August). Outsourcing, Product Quality and Contract Enforcement. Retrieved 02 20, 2016 from www.papers.ssrn.com: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1495666
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Mahnke, V., Wareham, J., & Bjorn-Anderson, N. (2008). Offshore middlemen: transnational intermediation in technology sourcing. Journal of Information Technology , 23 (1), 18-30.
McKenna, B., & Grant, T. (2014, 01 11). Why a lower loonie is (mostly) good for Canada. Retrieved 03 18, 2016 from www.globeandmail.com: http://www.theglobeandmail.com/report-on-business/economy/why-a-lower-loonie-is-mostly-good-for-canada/article16287580/?page=all
Mohiuddin, M., & Su, Z. (2013). Manufacturing Small And Medium Size Enterprise’s Offshore Outsourcing And Competitive Advantage: An Exploratory Study on Canadian offshoring Manufacturing SMEs. The Journal of Applied Business Research , 29 (4), 1111-1130.
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Ragatz, G. L., Handfield, R. B., & Scannell, T. V. (1997). Success factors for integrating suppliers into new product development . Journal of Product Innovation Management , 14 (3), 190-202.
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Ramingwong, S., & Ramingwong, L. (2009). The Paradoxical Relationships of Risks and Benefits in Offshore Outsourcing of Software Projects. The Open Software Engineering Journal , 35-38.
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10.0. Appendix
10A. Canadian imports in CDN$ (billions):
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015United States $218 $221 $227 $187 $203 $221 $234 $248 $278 $285China $35 $38 $43 $40 $45 $48 $51 $53 $59 $66Mexico $16 $17 $18 $17 $22 $25 $26 $27 $29 $31Germany $11 $12 $13 $11 $11 $13 $14 $15 $16 $17Japan $15 $15 $15 $12 $13 $13 $15 $14 $13 $15United Kingdom
$11 $11 $13 $9 $11 $10 $9 $8 $9 $9
Korea, South $6 $5 $6 $6 $6 $7 $6 $7 $7 $8Italy $5 $5 $5 $4 $5 $5 $5 $6 $6 $7France $5 $5 $6 $6 $5 $6 $5 $5 $6 $7Taiwan $4 $4 $4 $3 $4 $5 $5 $5 $5 $5Others $72 $73 $84 $70 $78 $94 $93 $88 $83 $85All Countries (Total)
$397 $407 $434 $365 $404 $447 $462 $476 $512 $536
10B. Canadian exports in CDN$ (billions):
Year/Country 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015United States $359 $356 $375 $270 $299 $329 $339 $358 $403 $400China $8 $10 $10 $11 $13 $17 $19 $20 $19 $20United Kingdom $10 $13 $13 $12 $16 $19 $19 $14 $15 $16Japan $9 $9 $11 $8 $9 $11 $10 $11 $11 $10Mexico $4 $5 $6 $5 $5 $5 $5 $5 $6 $7India $2 $2 $2 $2 $2 $3 $2 $3 $3 $4Korea, South $3 $3 $4 $4 $4 $5 $4 $4 $4 $4Hong Kong $2 $2 $2 $1 $2 $3 $2 $5 $5 $4Germany $4 $4 $4 $4 $4 $4 $4 $3 $3 $4Netherlands $3 $4 $4 $3 $3 $5 $5 $4 $4 $4Others $36 $44 $51 $40 $42 $47 $45 $45 $52 $50Total All Countries
$440 $450 $483 $360 $399 $447 $455 $472 $525 $522
40
10C. Consent Letter
Finding Success Factors in offshore outsourcing in manufacturing industryConsent to Participate in Research
Survey Topic: Finding Success Factors in ``offshore outsourcing`` in manufacturing
industry.
INTRODUCTION AND PURPOSE:
My name is Hanif Motala. I am a graduate student at Ryerson University, working with
supervisor Professor Dr. Ron Babin from MBA department at Ryerson University. I would like
to invite you to take part in my research study, which concerns offshore outsourcing. The
purpose of this research is to find success factors in offshore outsourcing. For the purpose of this
study, offshore is defined as low wage countries such as Latin America including Mexico, South
America, South East Asia, China, India, Bangladesh, Pakistan, Philippines, and other similar low
wage countries. There will be around 100 participants expected to fill out this survey. This
survey is part of my MBA study program at Ryerson University, and it will be used to write a
research report.
WHAT YOU ARE BEING ASKED TO DO?
This survey consists of 23 questions about offshore outsourcing. You will be required to spend
around 15 - 20 minutes of your time for this online survey. This survey is completely voluntary,
and anonymous. Survey will not collect your personal information, your organization
identification, or any types of demographic data. Here are sample questions for your reference:
Q.1 What is the primary reason of offshore outsourcing in your organization?
Q.2 Do you think middleman or trading company reduces risks in supply chain?
In order for all of your answers to be collected you must go to the end of the survey and click
‘submit survey’. This will demonstrate your full consent to participation.
POTENTIAL BENEFITS:
There is no direct benefit to you for taking part in this study. It is hoped that the research will
benefit company owners, corporate, researchers interested in this field and students who want to
gain further knowledge on offshore outsourcing. This research will be important even in the
future, as it provides a critical scope of knowledge and information that any interested person
will benefit. The researcher has the belief that academicians, lecturers, and professors will find
41
the study not only, helpful, but also highly informative. Final research report will be provided to
SCMAO, and can be available to you upon request.
WHAT ARE THE POTENTIAL RISKS TO YOU?
Your name, position, organization are recorded as an anonymous in the survey, and in the final
report. This survey is voluntary, and you can withdraw anytime by just closing the browser. If
you have feel uncomfortable during survey, you can withdraw from it, and your data will not be
collected/used in the analysis. If some of the survey questions make you uncomfortable or upset
you, you may simply wish not to answer by clicking on “Not applicable” option in the survey
questions. You are free to stop participating at any time by closing your browser. If you close
your browser before getting to the end of the survey and do not confirm your consent to
participate at the end of the survey by clicking the ‘submit` button your information collected up
to that point will not be used. You are being assured that if you don't participate in the survey,
there will be no harm to existing relationship between researcher and you, your relationship with
Ryerson University, or your relationship with SCMA.
If you need support after the survey, you can contact Mr. Hanif Motala by email at
[email protected] or by calling him at 416 844 6404. Please note if you contact researcher
then your identity will be disclosed to him, but will be kept confidential. Please print this page or
write down the contact information in case you want to access this information once you
complete the survey.
HOW YOUR INFORMATION WILL BE PROTECTED AND STORED?
The survey interview is anonymous and as such will not be collecting information that will easily
identify you, like your name, your organization, or other unique identifiers. Although your
Internet Protocol (IP) address can be tracked through the survey platform, the researcher/s will
not be collecting this information. Your IP address may be observed only to ensure that one
individual is not completing the survey multiple times. As Survey Monkey is USA based
company, USA authorities under the provisions of the Patriot Act may access the survey data. If
you would rather participate with an email or paper-based survey please contact the researcher
by email or phone number listed below. Please note email or paper-based surveys may allow
your identity to be known to the researcher/s but if you select this option, your information will
be kept confidential.
42
To further protect your information, data stored by the researcher will be password protected.
Only the researcher/s named in this study will have access to the data as collected. Any future
publications will include collective information (i.e., aggregate data). Your individual responses
(i.e. raw data) will not be shared with anyone outside of the research team. When the research is
completed, the researcher/s will keep the data for up to 1 year after the study is over.
INCENTIVE FOR PARTICIPATION:
You will not be paid for taking part in this study.
YOUR RIGHTS AS A RESEARCH PARTICIPANT:
Participation in research is completely voluntary and you can withdraw your consent at any point
up to clicking the submit button at the end of the survey. However, because the survey is
anonymous, once you click the submit button at the end of the survey the researchers will not be
able to determine which survey answers belong to you so your information cannot be withdrawn
after that point. Please note that by clicking "Done" at the end of the study you are providing
your consent for participation. By consenting to participate you are not waiving any of your legal
rights as a research participant.
QUESTIONS?
If you have any questions about the research now, please ask. If you have questions later about
the research, you may contact: Hanif Motala. E-mail: [email protected] Ph: 416 844 6404
Supervisor - Dr. Ron Babin. E-mail: [email protected] Ph: 416 979 5000 x 2448
This study has been reviewed, and approved by the Ryerson University Research Ethics Board.
If you have questions regarding your rights as a participant in this study please contact:
Research Ethics Board
c/o Office of the Vice President, Research and Innovation
Ryerson University
350 Victoria Street, Toronto, ON M5B 2K3
416-979-5042
Please print a copy of this page for your future reference.
If you provide your consent to this survey, please click "Next" button below. Thank you very
43
much for your participation.
10D. Survey Questions*1. What is the main activity of your organization?<INPUT NAME=\ Manufacturing - Engineered Products/Components<INPUT NAME=\ Manufacturing - Others<INPUT NAME=\ IT<INPUT NAME=\ Health care<INPUT NAME=\ Logistics<INPUT NAME=\ Mining<INPUT NAME=\ Construction<INPUT NAME=\ Oil & gas<INPUT NAME=\ Government services<INPUT NAME=\ Others (please specify)
*2. Yearly Revenue for your organization<INPUT NAME=\ 0 - 5 million dollars CAD<INPUT NAME=\ 5 - 25 million dollars CAD<INPUT NAME=\ 25 - 100 million dollars CAD<INPUT NAME=\ >100 million dollars CAD<INPUT NAME=\ Don't know<INPUT NAME=\ Not applicable
*3. What do you outsource mainly to offshore countries? You can choose multiple options.<INPUT NAME=\ Logistics<INPUT NAME=\ Raw material<INPUT NAME=\ Manufacturing parts and components<INPUT NAME=\ IT<INPUT NAME=\ Design work<INPUT NAME=\ Better technology<INPUT NAME=\ Others<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*4. What is the main reason for offshore outsourcing? You can choose multiple options.<INPUT NAME=\ Low cost<INPUT NAME=\ Better technology<INPUT NAME=\ Others<INPUT NAME=\ Better supply chain in terms of combining multiple products by one supplier<INPUT NAME=\ Better quality<INPUT NAME=\ Access to skilled personnel<INPUT NAME=\ Lead time improvement<INPUT NAME=\ Free up resources
44
Comments<INPUT NAME=\
*5. How would you rate Quality of products/services from offshore countries?<INPUT NAME=\ Totally unacceptable: major issues with every orders
<INPUT NAME=\ Unacceptable: major issues with most orders
<INPUT NAME=\ Slightly unacceptable: major issues with very few orders
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat acceptable: no major issues, but minor issues
<INPUT NAME=\ Acceptable: no major issues, very rare minor issues
<INPUT NAME=\Perferctly acceptable: no issues, and quality is getting better
<INPUT NAME=\ Not Applicable
Comments<INPUT NAME=\
*6. How would you compare prices paid to offshore vendors compared to local vendors?
<INPUT NAME=\ Much higher price (41% or more)
<INPUT NAME=\ Higher price (15 -40%)
<INPUT NAME=\ Some what higher price (0-14%)
<INPUT NAME=\ Same price
<INPUT NAME=\ Somewhat lower price( 0-14% savings)
<INPUT NAME=\ Lower price (15-40% savings)
<INPUT NAME=\ Much lower price (41% or more savings)
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*7. How would you rate "Lead times" to get products/services from offshore countries?
<INPUT NAME=\ Totally unacceptable: major risk to your company, needs immediate resolutions
<INPUT NAME=\ Unacceptable: causing number of troubles for your company, needs more attention
<INPUT NAME=\ Slightly unacceptable: causing few major issues
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat acceptable: minor issues, needs attention
<INPUT NAME=\ Acceptable: mostly comes on time
<INPUT NAME=\ Perferctly acceptable: very reliable and flexible, and on time
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*8. Do you think offshore vendors operate in socially responsible manner?Completely dissatisfied: Vendors have number of violations, with no rectification plan
Mostly dissatisfied: Vendors have number of violations, but working on rectifying them
Some what dissatisfied: Vendors have very few incidents Neutral
Some what satisfied: Vendors doing occasional good work for communities
Mostly satisfied: Vendors implementing multiple plans for betterment of communities
Completely satisfied: Vendors implemented multiple plans for betterment of communities
Not applicable
Comments<INPUT NAME=\
45
*9. How would you rate your relationship with offshore suppliers?
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*10. How do you compare transportation (costs, risks, tracking, insurance) from offshore vendors vs. local vendors?
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*11. How do you compare logistics process (customs documentation, duty paid, shipment hold and clarifications) to get materials/services from offshore vendors vs. local vendors?
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*12. How do you compare carbon footprint and its effect on environment due to long distance shipping from offshore companies vs. local vendors?
<INPUT NAME=\ Worst for the environment
<INPUT NAME=\ Bad for environment
<INPUT NAME=\ Somewhat bad for the environment
<INPUT NAME=\ Same as local vendors
<INPUT NAME=\ Somewhat good for the environment
<INPUT NAME=\ Better for the environment
<INPUT NAME=\ Best for the environment
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*13. Does your company use middleman or third party trading companies for offshore outsourcing?<INPUT NAME=\ Yes<INPUT NAME=\ No<INPUT NAME=\ Not applicable
46
Comments<INPUT NAME=\
*14. Do you think middleman reduces risks in supply chain?<INPUT NAME=\ Not at all<INPUT NAME=\ Some times<INPUT NAME=\ More Often<INPUT NAME=\ All the time<INPUT NAME=\ Don't know<INPUT NAME=\ Not applicableComments<INPUT NAME=\
*15. Do you prefer offshore outsourcing by directly dealing with suppliers or using middleman companies?
<INPUT NAME=\ Direct dealing with offshore vendors<INPUT NAME=\ Going through middleman companies<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*16. How important for you to use third party inspection companies to check quality of products at supplier?
<INPUT NAME=\ Always Important
<INPUT NAME=\ Important most of the time
<INPUT NAME=\ Important more often
<INPUT NAME=\ Neutral
<INPUT NAME=\ not important – more often
<INPUT NAME=\ Not important - most of the times
<INPUT NAME=\ Not required at all
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*17. How important is "total cost of ownership" to you, while making Offshore outsourcing decision?
<INPUT NAME=\ Not important at all (don't pay attention)
<INPUT NAME=\ Mostly not important (mostly don't pay attention)
<INPUT NAME=\ Not important more often
<INPUT NAME=\ Neutral
<INPUT NAME=\ Important more often
<INPUT NAME=\ Mostly important (pay attention most of the times)
<INPUT NAME=\ Important all the times (pay attention every time)
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*18. How satisfied are you with ease of communication with offshore vendors vs local vendors?<INPUT <INPUT <INPUT <INPU <INPUT <INPUT <INPUT <INPUT
47
NAME=\ Completely dissatisfied
NAME=\ Mostly dissatisfied
NAME=\ Somewhat dissatisfied
T NAME=\ Neutral
NAME=\ Somewhat satisfied
NAME=\ Mostly satisfied
NAME=\ Completely satisfied
NAME=\ Not applicable
Comments<INPUT NAME=\
*19. How important is "political stability of offshore country" to you while making Offshore outsourcing decision?<INPUT NAME=\Not important at all
<INPUT NAME=\ Rarely important
<INPUT NAME=\ Not important more often
<INPUT NAME=\ Neutral
<INPUT NAME=\ importantMore often
<INPUT NAME=\ Mostly important
<INPUT NAME=\ Important all the times
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\ *20. How important is "foreign exchange currency difference" to you when making Offshore outsourcing decision?
<INPUT NAME=\ Not important at all
<INPUT NAME=\ Rarely important
<INPUT NAME=\ Not important more often
<INPUT NAME=\ Neutral
<INPUT NAME=\ Importantmore often
<INPUT NAME=\ Mostly important
<INPUT NAME=\ Important all the times
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*21. How satisfied are you with the infrastructure in offshore countries vs. developed countries?
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
*22. How satisfied are you with warranties provided by offshore companies vs. local companies?
<INPUT NAME=\ Completely dissatisfied
<INPUT NAME=\ Mostly dissatisfied
<INPUT NAME=\ Somewhat dissatisfied
<INPUT NAME=\ Neutral
<INPUT NAME=\ Somewhat satisfied
<INPUT NAME=\ Mostly satisfied
<INPUT NAME=\ Completely satisfied
<INPUT NAME=\ Not applicable
Comments<INPUT NAME=\
48
*23. What is your level of success with offshore outsourcing vs. local vendors?<INPUT NAME=\ Complete failure – Issue with all the orders, detrimental, and very risky to continue business.
<INPUT NAME=\ Mostly failure- issues with number of orders
<INPUT NAME=\ Somewhat failure (issue with few contracts)
<INPUTNAME=\ Neutral (same as local vendors)
<INPUT NAME=\ Somewhat success (getting better)
<INPUT NAME=\ Mostly success (much better than local sources)
<INPUT NAME=\ Completely successful (no issues at all, and beneficial to our operations)
<INPUT NAME=\ Not applicable
Comments
49
10E. Regression analysis results in SPSS software1)
CorrelationsOverall Success Quality Cost Savings CSR Relationship
Pearson Correlation Overall Success 1.000 .449 .039 .499 .803Quality .449 1.000 .189 .236 .453Cost Savings .039 .189 1.000 .266 .429CSR .499 .236 .266 1.000 .558Relationship .803 .453 .429 .558 1.000
Sig. (1-tailed) Overall Success . .031 .439 .025 .000Quality .031 . .226 .189 .030Cost Savings .439 .226 . .160 .038CSR .025 .189 .160 . .012Relationship .000 .030 .038 .012 .
N Overall Success 18 18 18 16 18Quality 18 18 18 16 18Cost Savings 18 18 18 16 18CSR 16 16 16 16 16Relationship 18 18 18 16 18
Variables Entered/Removeda
Model Variables Entered Variables Removed Method1 Relationship, Cost
Savings, Quality, CSRb
. Enter
a. Dependent Variable: Overall Successb. All requested variables entered.
Model Summaryb
Model R R Square Adjusted R SquareStd. Error of the Estimate
1 .880a .774 .691 .719a. Predictors: (Constant), Relationship, Cost Savings, Quality, CSRb. Dependent Variable: Overall Success
ANOVAa
Model Sum of Squares df Mean Square F Sig.1 Regression 19.417 4 4.854 9.400 .001b
Residual 5.681 11 .516Total 25.098 15
a. Dependent Variable: Overall Successb. Predictors: (Constant), Relationship, Cost Savings, Quality, CSR
50
Coefficientsa
Model
Unstandardized Coefficients
Standardized Coefficients
t Sig.
95.0% Confidence Interval for B Correlations
Collinearity Statistics
BStd. Error Beta
Lower Bound
Upper Bound
Zero-order PartialPart
Tolerance VIF
1 (Constant) 1.490 .868 1.717 .114 -.420 3.401
Quality .094 .141 .107 .664 .521 -.217 .405 .449 .196 .095 .794 1.259Cost Savings -.288 .121 -.377 -2.374 .037 -.554 -.021 .039 -.582 -.340 .815 1.227
CSR .087 .165 .091 .527 .609 -.277 .451 .499 .157 .076 .688 1.454Relationship .738 .170 .866 4.340 .001 .364 1.112 .803 .795 .623 .517 1.933
a. Dependent Variable: Overall Success
2)Correlations
Overall
Success Quality
Cost
Savings CSR
Relationshi
p
Logistics
process
Pearson
Correlation
Overall
Success1.000 .449 .039 .499 .803 .845
Quality .449 1.000 .189 .236 .453 .524
Cost Savings .039 .189 1.000 .266 .429 .299
CSR .499 .236 .266 1.000 .558 .416
Relationship .803 .453 .429 .558 1.000 .819
Logistics
process.845 .524 .299 .416 .819 1.000
Sig. (1-tailed) Overall
Success. .031 .439 .025 .000 .000
Quality .031 . .226 .189 .030 .015
Cost Savings .439 .226 . .160 .038 .122
CSR .025 .189 .160 . .012 .061
Relationship .000 .030 .038 .012 . .000
Logistics
process.000 .015 .122 .061 .000 .
N Overall
Success18 18 18 16 18 17
Quality 18 18 18 16 18 17
51
Cost Savings 18 18 18 16 18 17
CSR 16 16 16 16 16 15
Relationship 18 18 18 16 18 17
Logistics
process17 17 17 15 17 17
Variables Entered/Removeda
Model Variables Entered
Variables
Removed Method
1 Logistics process,
Cost Savings,
CSR, Quality,
Relationshipb
. Enter
a. Dependent Variable: Overall Success
b. All requested variables entered.
Model Summaryb
Model R R Square Adjusted R Square
Std. Error of the
Estimate
1 .925a .855 .775 .613
a. Predictors: (Constant), Logistics process, Cost Savings, CSR, Quality,
Relationship
b. Dependent Variable: Overall Success
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 20.039 5 4.008 10.653 .001b
Residual 3.386 9 .376
Total 23.425 14
a. Dependent Variable: Overall Success
b. Predictors: (Constant), Logistics process, Cost Savings, CSR, Quality, Relationship
52
Coefficientsa
Model
Unstandardized
Coefficients
Standardi
zed
Coefficie
nts
t Sig.
95.0% Confidence
Interval for B Correlations
B
Std.
Error Beta
Lower
Bound
Upper
Bound
Zero-
order Partial Part
1 (Constant) 1.063 .790 1.346 .211 -.723 2.850
Quality .005 .131 .006 .041 .968 -.290 .301 .449 .014 .005
Cost
Savings-.263 .108 -.345 -2.446 .037 -.507 -.020 .039 -.632 -.310
CSR .113 .147 .118 .772 .460 -.219 .445 .499 .249 .098
Relationshi
p.385 .217 .452 1.775 .110 -.106 .876 .803 .509 .225
Logistics
process.489 .216 .526 2.257 .050 -.001 .978 .845 .601 .286
a. Dependent Variable: Overall Success
Model Summaryb
Model R R Square Adjusted R Square
Std. Error of the
Estimate
1 .925a .855 .775 .613
a. Predictors: (Constant), Logistics process, Cost Savings, CSR, Quality,
Relationship
b. Dependent Variable: Overall Success
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 20.039 5 4.008 10.653 .001b
Residual 3.386 9 .376
Total 23.425 14
53
a. Dependent Variable: Overall Success
b. Predictors: (Constant), Logistics process, Cost Savings, CSR, Quality, Relationship
Coefficientsa
Model
Unstandardized
Coefficients
Standar
dized
Coeffici
ents
t Sig.
95.0%
Confidence
Interval for B Correlations
Collinearity
Statistics
B
Std.
Error Beta
Lower
Bound
Upper
Bound
Zero-
order
Parti
al Part
Toler
ance VIF
1 (Constant
)1.063 .790 1.346 .211 -.723 2.850
Quality .005 .131 .006 .041 .968 -.290 .301 .449 .014 .005 .723 1.383
Cost
Savings-.263 .108 -.345
-
2.446.037 -.507 -.020 .039 -.632 -.310 .807 1.240
CSR .113 .147 .118 .772 .460 -.219 .445 .499 .249 .098 .683 1.463
Relations
hip.385 .217 .452 1.775 .110 -.106 .876 .803 .509 .225 .248 4.028
Logistics
process.489 .216 .526 2.257 .050 -.001 .978 .845 .601 .286 .295 3.385
a. Dependent Variable: Overall Success
3)
Correlations
Overall
Success Quality Cost Savings CSR Relationship
Pearson Correlation Overall Success 1.000 .449 .039 .499 .803
Quality .449 1.000 .189 .236 .453
Cost Savings .039 .189 1.000 .266 .429
CSR .499 .236 .266 1.000 .558
Relationship .803 .453 .429 .558 1.000
Sig. (1-tailed) Overall Success . .031 .439 .025 .000
54
Quality .031 . .226 .189 .030
Cost Savings .439 .226 . .160 .038
CSR .025 .189 .160 . .012
Relationship .000 .030 .038 .012 .
N Overall Success 18 18 18 16 18
Quality 18 18 18 16 18
Cost Savings 18 18 18 16 18
CSR 16 16 16 16 16
Relationship 18 18 18 16 18
Variables Entered/Removeda
Model Variables Entered
Variables
Removed Method
1 Relationship, Cost
Savings, Quality,
CSRb
. Enter
a. Dependent Variable: Overall Success
b. All requested variables entered.
Model Summaryb
Model R R Square Adjusted R Square
Std. Error of the
Estimate
1 .880a .774 .691 .719
a. Predictors: (Constant), Relationship, Cost Savings, Quality, CSR
b. Dependent Variable: Overall Success
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 19.417 4 4.854 9.400 .001b
Residual 5.681 11 .516
Total 25.098 15
a. Dependent Variable: Overall Success
b. Predictors: (Constant), Relationship, Cost Savings, Quality, CSR
55
Coefficientsa
Model
Unstandardized
Coefficients
Standar
dized
Coeffici
ents
t Sig.
95.0% Confidence
Interval for B Correlations
Collinearity
Statistics
B
Std.
Error Beta
Lower
Bound
Upper
Bound
Zero-
order
Parti
al Part
Toler
ance VIF
1 (Consta
nt)1.490 .868 1.717 .114 -.420 3.401
Quality .094 .141 .107 .664 .521 -.217 .405 .449 .196 .095 .794 1.259
Cost
Savings-.288 .121 -.377
-
2.374.037 -.554 -.021 .039 -.582 -.340 .815 1.227
CSR .087 .165 .091 .527 .609 -.277 .451 .499 .157 .076 .688 1.454
Relatio
nship.738 .170 .866 4.340 .001 .364 1.112 .803 .795 .623 .517 1.933
a. Dependent Variable: Overall Success
10F. Frequency Analysis:
Frequency Table
Revenue
Frequency Percent Valid Percent
Cumulative
Percent
Valid 0 - 5 million dollars CAD 2 11.1 11.8 11.8
5 - 25 million dollars CAD 2 11.1 11.8 23.5
25 - 100 million dollars CAD 9 50.0 52.9 76.5
>100 million dollars CAD 4 22.2 23.5 100.0
Total 17 94.4 100.0
Missing System 1 5.6
Total 18 100.0
Quality
Frequency Percent Valid Percent
Cumulative
Percent
56
Valid unacceptable: major issues with
most orders2 11.1 11.1 11.1
slightly unacceptable: major
issues with very few orders1 5.6 5.6 16.7
neutral 1 5.6 5.6 22.2
somewhat acceptable: no major
issues, but minor issues6 33.3 33.3 55.6
acceptable: no major issues,
very rare minor issues6 33.3 33.3 88.9
perferctly acceptable: no issues,
and quality is getting better2 11.1 11.1 100.0
Total 18 100.0 100.0
Cost Savings
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders4 22.2 22.2 22.2
somewhat acceptable: no major
issues, but minor issues4 22.2 22.2 44.4
acceptable: no major issues,
very rare minor issues9 50.0 50.0 94.4
perferctly acceptable: no issues,
and quality is getting better1 5.6 5.6 100.0
Total 18 100.0 100.0
Lead times
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders2 11.1 11.1 11.1
slightly unacceptable: major
issues with very few orders3 16.7 16.7 27.8
neutral 2 11.1 11.1 38.9
57
somewhat acceptable: no major
issues, but minor issues7 38.9 38.9 77.8
acceptable: no major issues,
very rare minor issues4 22.2 22.2 100.0
Total 18 100.0 100.0
CSR
Frequency Percent Valid Percent
Cumulative
Percent
Valid totally unacceptable: major
issues with every orders1 5.6 6.3 6.3
slightly unacceptable: major
issues with very few orders2 11.1 12.5 18.8
neutral 7 38.9 43.8 62.5
somewhat acceptable: no major
issues, but minor issues2 11.1 12.5 75.0
acceptable: no major issues,
very rare minor issues4 22.2 25.0 100.0
Total 16 88.9 100.0
Missing System 2 11.1
Total 18 100.0
Relationship
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders3 16.7 16.7 16.7
slightly unacceptable: major
issues with very few orders1 5.6 5.6 22.2
neutral 1 5.6 5.6 27.8
somewhat acceptable: no major
issues, but minor issues5 27.8 27.8 55.6
acceptable: no major issues,
very rare minor issues8 44.4 44.4 100.0
Total 18 100.0 100.0
58
Transportation Cost
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders1 5.6 5.9 5.9
slightly unacceptable: major
issues with very few orders5 27.8 29.4 35.3
neutral 4 22.2 23.5 58.8
somewhat acceptable: no major
issues, but minor issues1 5.6 5.9 64.7
acceptable: no major issues,
very rare minor issues6 33.3 35.3 100.0
Total 17 94.4 100.0
Missing System 1 5.6
Total 18 100.0
Logistics process
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders2 11.1 11.8 11.8
slightly unacceptable: major
issues with very few orders1 5.6 5.9 17.6
neutral 3 16.7 17.6 35.3
somewhat acceptable: no major
issues, but minor issues4 22.2 23.5 58.8
acceptable: no major issues,
very rare minor issues7 38.9 41.2 100.0
Total 17 94.4 100.0
Missing System 1 5.6
Total 18 100.0
Carbon footprint
59
Frequency Percent Valid Percent
Cumulative
Percent
Valid totally unacceptable: major
issues with every orders1 5.6 6.7 6.7
unacceptable: major issues with
most orders3 16.7 20.0 26.7
slightly unacceptable: major
issues with very few orders5 27.8 33.3 60.0
neutral 4 22.2 26.7 86.7
somewhat acceptable: no major
issues, but minor issues1 5.6 6.7 93.3
perferctly acceptable: no issues,
and quality is getting better1 5.6 6.7 100.0
Total 15 83.3 100.0
Missing System 3 16.7
Total 18 100.0
Communication
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders2 11.1 11.1 11.1
slightly unacceptable: major
issues with very few orders3 16.7 16.7 27.8
neutral 1 5.6 5.6 33.3
somewhat acceptable: no major
issues, but minor issues3 16.7 16.7 50.0
acceptable: no major issues,
very rare minor issues8 44.4 44.4 94.4
perferctly acceptable: no issues,
and quality is getting better1 5.6 5.6 100.0
Total 18 100.0 100.0
Infrastructure
60
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders2 11.1 12.5 12.5
slightly unacceptable: major
issues with very few orders2 11.1 12.5 25.0
neutral 5 27.8 31.3 56.3
somewhat acceptable: no major
issues, but minor issues2 11.1 12.5 68.8
acceptable: no major issues,
very rare minor issues4 22.2 25.0 93.8
perferctly acceptable: no issues,
and quality is getting better1 5.6 6.3 100.0
Total 16 88.9 100.0
Missing System 2 11.1
Total 18 100.0
Warranties
Frequency Percent Valid Percent
Cumulative
Percent
Valid totally unacceptable: major
issues with every orders1 5.6 5.9 5.9
unacceptable: major issues with
most orders1 5.6 5.9 11.8
slightly unacceptable: major
issues with very few orders6 33.3 35.3 47.1
neutral 3 16.7 17.6 64.7
somewhat acceptable: no major
issues, but minor issues2 11.1 11.8 76.5
acceptable: no major issues,
very rare minor issues4 22.2 23.5 100.0
Total 17 94.4 100.0
Missing System 1 5.6
Total 18 100.0
61
Overall Success
Frequency Percent Valid Percent
Cumulative
Percent
Valid unacceptable: major issues with
most orders2 11.1 11.1 11.1
slightly unacceptable: major
issues with very few orders2 11.1 11.1 22.2
neutral 4 22.2 22.2 44.4
somewhat acceptable: no major
issues, but minor issues6 33.3 33.3 77.8
acceptable: no major issues,
very rare minor issues4 22.2 22.2 100.0
Total 18 100.0 100.0
Risk management by Middleman
Frequency Percent Valid Percent
Cumulative
Percent
Valid Not at all 2 11.1 13.3 13.3
Some times 5 27.8 33.3 46.7
More often 7 38.9 46.7 93.3
6 1 5.6 6.7 100.0
Total 15 83.3 100.0
Missing System 3 16.7
Total 18 100.0
How do you offshore?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Direct dealing with offshore
vendors10 55.6 55.6 55.6
Going through middleman
companies6 33.3 33.3 88.9
3 2 11.1 11.1 100.0
Total 18 100.0 100.0
62
Third party inspection importance
Frequency Percent Valid Percent
Cumulative
Percent
Valid Always Important 2 11.1 11.1 11.1
Important most of the time 1 5.6 5.6 16.7
important sometimes 10 55.6 55.6 72.2
Neutral 1 5.6 5.6 77.8
Not required at all 1 5.6 5.6 83.3
7 3 16.7 16.7 100.0
Total 18 100.0 100.0
Total cost of ownership importance
Frequency Percent Valid Percent
Cumulative
Percent
Valid neutral 1 5.6 5.6 5.6
some what important 1 5.6 5.6 11.1
mostly important (pay attention
most of the times)10 55.6 55.6 66.7
Important all the times (pay
attention every time)6 33.3 33.3 100.0
Total 18 100.0 100.0
Political stability importance
Frequency Percent Valid Percent
Cumulative
Percent
Valid Rarely Important 3 16.7 16.7 16.7
Somewhat not important 1 5.6 5.6 22.2
Neutral 2 11.1 11.1 33.3
Sometimes important 6 33.3 33.3 66.7
Mostly important 1 5.6 5.6 72.2
Important at all times 5 27.8 27.8 100.0
63
Total 18 100.0 100.0
Exchange rate importance
Frequency Percent Valid Percent
Cumulative
Percent
Valid Rarely Important 2 11.1 11.1 11.1
Somewhat not important 1 5.6 5.6 16.7
Neutral 2 11.1 11.1 27.8
Sometimes important 1 5.6 5.6 33.3
Mostly important 6 33.3 33.3 66.7
Important at all times 6 33.3 33.3 100.0
Total 18 100.0 100.0
Middleman usage
Frequency Percent Valid Percent
Cumulative
Percent
Valid Yes 6 33.3 37.5 37.5
No 10 55.6 62.5 100.0
Total 16 88.9 100.0
Missing System 2 11.1
Total 18 100.0
Histogram
64
65
66
67
68
69
70
71
72
73
74
75