Off-shoring has been and still is a subject discussed in connection with cost reduction. However, initial practical experience provides a rather sobering picture of the cost savings which really can be achieved with it. The fight for work allocation within the tangled web of corporate units is a tough one – and it soaks up money. Transformation competence within the network thus becomes very important, and clearly defined rules of play are also extremely valuable.

The Nokia case study shows just what effects off-shoring can have. The production unit in Bochum, Germany was closed with state assistance, and a replacement production unit set up in Romania with EU financing. Progress and activities continue to attract media attention. Alongside the effects that are visible for all to see, off-shoring seems to put the internal relationships between the different organizational units within a corporation to a particularly hard test.  

Off-shoring is the geographical relocation of individual work stages of the value chain to corporate units located abroad – ­often in low-wage countries. The main objective is normally cost optimization, and benefits from lower personnel costs the primary expectation.

Off-shoring always results in massive changes within the company: personnel reductions at the old location on the one hand, and the creation of controlling positions, usually at the HQ, on the other. Parallel to these changes, the infrastructure has to be set up at the new location. This forces new locations into the role of interchangeable transplants and the HQ into a permanent position as distributor of work and profit. Transformation competence becomes very important while the value chain changes significantly. OEMs now even invite their different production locations to compete by issuing them tenders for entire vehicle production lines. These allocation fights within the corporate complex must be managed carefully from the outset. Employees, organization, and business processes are affected dramatically, but work in progress, with its delivery deadlines and capabilities, quality and costs, must remain unaffected. The speed and sustainability of the transformation process within the corporate complex are success factors which must be ­optimized.   

Higher coordination costs may spoil plans for cost optimization.  

The main reasons for shifting production locations are to reduce the costs of production factors and to facilitate market entry. When purchasing or growth motives are behind a corporation’s decision to set up production in offshore regions, secondary processes are set up in the home office. This is different when the action is driven purely by cost: in this case there is real substitution of the location – processes and jobs are cut at home and the company takes advantage of the attractive investment programs open to foreign investors in low-wage countries.

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