Eliminate

H B R C A S E S T U D Y • E l i m i n at e t h e M i d d l e m a n ?

USTech and TaiSource was heading. The questions of loyalty and betrayal raised by Morris’s move to USTech were only part of this complicated situation, he realized. Indeed, the tense encounter between Joe and Morris, in the lobby of TaiSource’s Beijing manufacturing plant, spoke to issues at the very heart of USTech’s corporate strategy.

The China Question

Six months earlier, Greg and Dan had met with the rest of USTech’s senior leadership team at headquarters to discuss the company’s sourcing strategy. The CEO began by setting the context: USTech had positioned itself as a midlevel brand, offering more features than commodity producers and lower prices than higher-end rivals. Its goal was to capture the number three spot in the global market. But the company was losing market share, particularly to CaliTech and TexaTech, the number one and number two players, which were marketing more innovative products. And

they started doing their own sourcing in China.” “Now, wait,”Greg said.“We should be cautious about jumping on the China bandwagon. What about the indirect costs that CaliTech and TexaTech are incurring? Have you tried to calculate those? Sure, labor is inexpensive in China, but what about dealing with government bureaucracies or resolving long-distance logistics breakdowns? We can’t begin to see all the hidden costs.” “But haven’t our years working with TaiSource given us sufficient experience to work directly with the Chinese?” asked the head of human resources. “Not really,”Greg explained.“Yes, TaiSource has moved most of its manufacturing to China. But that hasn’t involved us. In fact, we’re getting the best of both worlds–TaiSource’s world-class research and design and its lower manufacturing costs. We’re getting the benefits of direct sourcing in China without the hassle of coordinating it.”

“Sure, labor is inexpensive in China, but what about dealing with government bureaucracies...