Risks of outsourcing: poaching

In our discussion on the hidden costs and risks of outsourcing, we discussed «poaching» (a term coined by Eric Clemons of the Wharton School) as a potential problem for firms. Poaching occurs when the outsourcer takes advantaged of privileged information for its own gain, at the detriment of the firm.

The example that I discussed in some length was of my consulting client (major Greek bank) suspecting that 3rd party call centers routinely poach sensitive customer information from financial institutions (banks, insurers, etc.) and sell it to competitors (or worse!). The suspicion is that customer info poaching is done by rogue employees, without knowledge by the outsourcer. My client used to take extreme measures to protect itself from such problems, such as insisting on using its own personnel on the floor and control room of the call center, for outbound calls.

Another good example of poaching accusations concerns the actions of iYogi, a customer support company that was managing live customer support for Avast, the anti-virus maker. According to Brian Krebs’ blog, Avast asserts that iYogi was using the live customer support calls to push for expensive support packages, by convincing Avast users that they had problems that they did not have.

In any case, poaching is a real problem that is expensive to monitor and even more expensive when the threat materializes…

Pic by barracuadz, Flickr (cc license)

Advantages and challenges of contract manufacturing

The Inditex (Zara) case that we discussed today, gave us an opportunity to expand on the role of contract manufacturing to modern supply chains. Even though your notes mainly mention cost savings as a major driving force behind contract manufacturing, It has been convincingly argued that Asian economies offer other advantages as well.

For example Apple has noted that if it were to manufacture its iPhones in the USA, it would need 9 months just to find the thousands of engineers that would be needed to oversee operations.

In addition, the amount of flexibility that Chinese and other Asian factories can display in production scheduling is beyond anything that can be matched by western firms. (read: How the U.S. Lost Out on iPhone Work including the memorable story about waking up 8,000 workers in the middle of the night to start the 12 hour shift for the first production run of the iPhone).

Unfortunately, such flexibility often comes by engaging in serious violations of ethical norms that most western firms adhere to and also serious violations of labor and safety laws. An article published 2 days ago in the New York Times does a superb job in describing these problems: In China, Human Costs Are Built Into an iPad

Pic by R. Donovan, Flickr (cc license)