Describe the company that is making the decision to outsource. What area of the business is the company either looking to outsource or did it already outsource?
The company seeking to outsource is Renesas, as asserted in the New York Times on May 28, 2012. Renesas Electronics is a company in Japan operating as a chipmaker. It has branches in over 20 countries, which has added on its output from production processes. It contributes to the production of semiconductors for mobile phones in the world, making it among the largest producers. The Renesas Electronics is a result of merging between the Nec Electronic and Renesas Technology. The company announced on May 28th that it would like to outsource some of its high-end chip production to the Taiwan Semiconductor Manufacturing (Reuters, 2012).
Why did the company decide to outsource (or is considering outsourcing)?
The company considers outsourcing as the only option for reawakening their success in the market after the exhibited rising cost and the lagging investment. The rising production cost resulted from the loss of 62.6 billion yen that the company underwent in March 31 (Reuters, 2012). This, in turn, led to a big derailment of the company’s effort to continue with chip making. The foundation of their failure in the market was a result of the filing of bankruptcy in relation to Elpida Memory (Reuters, 2012). Further, the company could not stand the strength of their competitors like Samsung Electronics, which were on the peak of their production process. This made it consider outsourcing to the contract manufacturers, Taiwan Semiconductor Manufacturing, who are now world leaders in the chip production (Reuters, 2012). Through outsourcing, the company would be able to convince their potential customers that they can continue thriving in the technology world. In the quest of lowering the production cost and the losses suffered, Renesas focus that outsourcing would see them produce more than double of what they are producing in 2016.
List the revenues and costs that might be impacted by this outsourcing decision. The article will not list many, if any, of these revenues and costs; you should make reasonable guesses about what revenues and/or costs would associate with the outsourcing of business operation.
- The shares owned by the company had fallen by around 11 percent on the day that they announced the need to outsource the chip production. According to the New York Times, shares in Renesas closed down 10.6 percent Monday at ¥244 after touching all-time low of ¥238 (Reuters, 2012).
- Further, outsourcing will cut down on the operation cost of the company because of the involvement of Taiwan Semiconductor Manufacturing in their production. The latter will help in contributing to the production process.
- Outsourcing would also lead to reduced tax revenue. In the event of outsourcing, the company looks forward to retrenching at least quarter of his workforce. This would increase the number of those unemployed leading to reduced tax revenues arising from the laid off workers.
List the qualitative factors that could influence the company’s decision whether to outsource this business operation or not. Again, you need to make reasonable guesses about the qualitative factors that might influence the company’s decision to outsource or not.
- The future effect of the company’s operation on the profitability acts as a qualitative factor that may have influenced the company’s decision. The company is exhibiting rising cost in the production of the chips leading to susceptible to losses in the event of continuing sole production in the future (Reuters, 2012).
- The deteriorating relationship with the suppliers could have also influenced the company’s outsourcing decision. The deteriorating relationship could have made the suppliers reduce their commitment of bringing materials to the company thereby derailing the production process.
- Internal elements including the effects of production on employee morale are also qualitative factors. The employees could not have been enjoying healthful working condition like provision of enough salaries, forcing them to reduce their efforts towards the production. The company would have to look for outsourcing company, to help in paying the employees.
Work cited
Reuters. Renesas to Outsource Chip Making. New York Times, May 28, 2012
