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QUESTION 1: What was the strategic advantage to Microsoft of outsourcing Xbox production to Flextronics?

1)Microsoft has a lot to gain from outsourcing the Xbox production to Flextronics. Microsoft’s core competency is producing software, not hardware. So by the Law of Comparative Advantage, it is best for Microsoft to let someone, who is good at producing hardware, produce the Xbox. Flextronics not only offers their expertise in hardware, but also their network of connections worldwide which reduces production costs, thus making the market value of Xbox lower and more affordable. Because of Microsoft’s web-based information system, they are able to share information with Flextronics real-time and therefore Flextronics can manage the amount of Xbox production, according to Microsoft’s demand.

2)The strategic advantage that Microsoft has is that it is a primary business that is used to develop software. The company also sells computer hardware and the products represent a much smaller part of the company’s overall revenues. When considering whether to produce the Xbox in house or to outsource, the company chose the latter strategy. Microsoft was able to continue to focus on its core business while allowing another company, Flextronics, which has expertise in managing a global supply chain, to handle production.

QUESTION 2: What were the risks associated with outsourcing to Flextronics? Did Microsoft mitigate these risks? Do you think Microsoft would have been better off making the Xbox itself?

The risk associated with outsourcing to Flextronics is the company makes the decision to outsource; it gives up control over the production process. Risks also included a timeliness, quality, and so on will become the responsibility of another company. Microsoft decided to outsource Xbox production, the company chose to work with Flextronics, which it had a long history with. These factors combined with Flextronics advantages in the global supply chain...