PROMPT Harting USA outsources the manufacture of some components to suppliers that are located close to its
customers. What kinds of components does Harting outsource and what are the reasons for Harting’s localization
strategy? (30%)
Harting outsources non-core competency requirements from Eastern Europe and Asia, but it usually works with
localization of it’s manufacturing. Localization enables their company to be close to their customers, as customer
service is one of their main core competencies. It reduces the level of inventory, increases the responsiveness,
reduces lead time and has quicker reaction time. As outsourcing comes with a lot of attributes such as stringent
supplier qualifications, strict non-disclosure agreements, IP protection, these steps can be avoided if localization is
adapted. As Harting USA’s major customer base is in North America, they believe that it is in the region, for the
region. Considering all these intellectual property issues and protecting the company’s core competence, the need
of outsourcing is avoided. Another reason can be due to various uncertainties in case of a bigger market network.
Internal issues such as knowledge transfer, global standards and external aspects such as devaluation-revaluation,
current political environment, ask for stricter risk management systems. Localization reduces all these efforts,
thereby allowing for more customer oriented service options such as customization.
PROMPT Considering the Transaction Cost Economics (TCE) theory discussed in Lesson 2, comment on asset
specificity and uncertainty associated with Harting’s decision to outsource. Does the theory correctly predict
Harting’s decision to outsource? (40%)
The decision to outsource obviously depends on a lot of factors such as the authenticity of supplier, location of
outsourcing, all the costs involved, various confidentiality agreements, IP protection rules and regulations in every
country, current political environment, various aspects of uncertainties, valuation-devaluation of the currency,
inter-country relationship etc. Selecting a supplier to our source comes with a lot of questions to be ticked before the
final deal is finalized such as: 1. Flexibility 2. Lead time 3. Cost: As its ultimately about business 4. Criticality of the
deal 5. We don‘t want to be the biggest fish for them as it will ruin our SC. A proper screening of suppliers should be
done such as their authenticity, stringent qualification, non-disclosure agreements, IP protection etc is verified. Only
then the deal should be taken forward. In the case of Harting, as their core competency is customer service by
providing smart and technical solutions, customer’s confidentiality as well as their own confidentiality is crucial.
Therefore the theory we studied in TCE surely predicts Harting’s decision of outsourcing.
PROMPT What different risks associated with outsourcing does the COO identify? (30%)
The situation that happened in case the supplier fails to fulfill the order. Knowing who the second supplier is.
Monitoring the most important component of their business protected from all issues. Overcoming the issues when
the technical specifications are not adequate for the grape-wine. Political environment uncertainties. Global