Global communications benchmarking research

Global Communications Benchmarking

Practices of outsourcing are becoming more and more popular for the American manufacturers as they generally support them in reducing costs and maximizing profits. This trend is extremely obvious within the shoe making industry and two significant representatives in this instance, aside the most popular Nike, are the New Balance and Reebok.

Outsourcing at New Balance

The famous shoe maker began outsourcing operations in the early 1980s and commenced by sending work to Japan, then to South Korea and eventually Taiwan (Parloff, 2006). When the company first commenced these operations, their American employees began to fear for their jobs and the unions pressured the employer. The response was that not all jobs would be sent abroad. And they kept their word; today, New Balance still maintains 25% of their jobs within the United States. This basically means that, unlike Reebok, Nike and other competitors, New Balance still faces larger costs; their labor costs are generally between 10 and 12% higher than those registered by the companies that entirely outsource operations to other countries. In order to respond to this potential threat without jeopardizing the positions of their employees, the management at New Balance implemented various strategies aimed at increasing productivity and counter-balancing as such the increased costs. "But productivity at New Balance's five U.S. plants is much greater, lowering other costs. We're able to deliver into the market in a matter of days, where our competitors are looking at a matter of weeks and sometimes months" says President and Chief Operating Officer Jim Tompkins. To speed up production, employees assemble in teams, designed to maximize output and minimize waste" (Thompson, 2006).

New Balance also takes pride in the possibility to label their products with "Made in the U.S.," which offers them various benefits, such as increased confidence from the buyer due to higher trust in domestically assembled products. Aside from 25% of the manufacturing operations, the company also conducts internally their design and marketing operations. The future plans of the shoe maker are yet unknown, but it is possible, according to some sources, for the company to entirely outsource their operations to foreign countries with cheaper labor force. "Although there is something to be said for manufacturing domestically, they are straying away from the skills that they do better than anybody else - the design and marketing of the premier running shoe in the industry. Their long-term strategy should shift to a 100% outsourcing model, allowing them to control this niche for the future" (Van Dusen, 1998)

Outsourcing at Reebok

Reebok is yet another prestigious shoe maker that began outsourcing their manufacturing operations to the Asian continent at the beginnings of the 1980s. But in late 1990s, the company was struggling and had to increase the number of laid off employees. The responses to the layoffs had been settled with financial rewards for each of the fired individual.

A major problem encountered by the company that sent most of its work abroad is that of controlling the operations undergone within foreign countries. "At the Canton headquarters of Reebok, Gregg Nebel tries to keep tabs on the foreign factories that churn out his company's products. Nebel's team is working with officials in Mexico to make sure suppliers there are meeting Reebok's standards for fair wages and worker safety. He says his job gets harder each day, because Reebok and its parent company Adidas rely on foreign manufacturers more than ever" (Nickisch, 2008). A crucial issue in this instance is given by additional expenditure. For example, the company had to settle a lawsuit for the death of a four-year-old with one million dollars, and this raises the question whether the money saved are efficiently spent.