Deciding Whether to Make or Buy

International businesses frequently face make$-$or$-$buy decisions, decisions about whether they should perform a specific value creation activity themselves or outsource that activity to another entity The decision will affect cost structures and the strategic flexibility of the firm. The choice has long$-$term implications.

Outsourcing decisions can pose a number of problems for domestic firms, but international firms face even more problems. The decisions are complicated by the volatility of countries' political economies, exchange rate movements, changes in relative factor costs, and so forth. There are a number of advantages to firms if they make all or part of a product in$-$house. There are also a number of advantages to outsourcing the production of parts or a product. Understanding the advantages to each as well as the trade$-$offs between them will help the firm decide which is best. The firm may also consider strategic alliances as an alternative.

Read the case below and answer the questions that follow

Your firm produces consumer electronics and high performance audio devices Your business's success has depended on your ability to innovate and provide a variety of choices to consumers Many of your products are protected by patents. Growing competition$-$pressures on costs as well as knock$-$off and $"$me too" products$-$has forced your firm to consider ways to cut costs. You are concerned about ways to reduce those costs as well as ways to protect your technological leadership.

When substantial investments in $q,$ are required, the firm will prefer to make the component internally rather than contracting it out to a supplier.