Strategic outsourcing of core competences in the automotive industry: threat or opportunity?
Parry, G. and Roehrich, J. (2009) Strategic outsourcing of core competences in the automotive industry: threat or opportunity? International Journal of Automotive Technology and Management (IJATM), 9 (1). pp. 40-53. ISSN 1470-9511
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Publisher's URL: http://dx.doi.org/10.1504/IJATM.2009.023585
This paper examines Core Compentence, its theoretical underpinnings and examines current trends in the automotive industry. The management practice of outsourcing a companies’ core and supporting activities in a variety of business functions has been a focus of increased attention during the past decade. Apart from the growing volume of literature describing various facets of outsourcing, the consultancy business welcomes outsourcing as a weapon to fight within a competitive marketplace as well as to focus business strategies. Automotive manufacturers are aiming to increase their market share by producing a broad product offering. Capital intensive core activities such as research and development of automotive products place increasingly greater demands on an automotive company’s core engineering resources. Manufacturing of automotive products may be outsourced to free up both resources and capital as manufacturing activities become regarded as further from the core activity of the firm. Maintaining a broad product base requires vast resources, so to focus efforts outsourcing has progressed from involving only peripheral business activities towards embracing critical core activities that contribute to a company‘s competitive advantage. As a result, outsourcing has become an increasingly complex and vital issue for many organisations. Outsourcing requires knowledge of the core activities that an individual firm in a value stream undertakes to provide value. Non-value adding activities may be suitable candidates for subcontracting to the supply chain, but core competences need to be retained and protected. But what are the core activities, how are they described and what defines them? In this paper Competence Theory (CT) is discussed in terms of the Resource Based View (RBV) and extended RBV of the firm, Resource Dependency Theory (RDT) and contextualised by exploring Transaction Cost Economics (TCE). Detail of the development and application of CT from the published literature is also provided. To gain an industry view two in depth case studies with OEM car manufacturers headquartered in Germany were undertaken. Semi-structured interviews with domain experts provided a ‘current’ view of core competence management and practice as well as an insight into potential future directions and caveats. The aim of the article is to explore to what extent OEM manufacturer in the automotive industry strategically outsource core competencies to achieve competitive advantage.