A case study of a Slovak SME potential offshoring to China

Nina Suchomelová

Student thesis: Master thesis

Abstract

Offshoring has become a popular business strategy in recent years. In general, China is the most attractive location thanks to its large low-cost labour market. Another factor attracting firms considering offshoring is its huge, constantly growing market. Most of the literature published today largely ignores size of the offshoring firms or focuses solely on large MNEs. Moreover, they explore firms already undertaking offshoring. In this thesis I investigate Ekom, a Slovak based SME, in early stage of decision-making about offshoring to China. Ekom´s main business activity is development and production of medical equipment. The thesis should serve both the academic and the practical purposes, in particular for further decision-making of Ekom´s managers about offshoring. I set the following research question: Should Ekom start offshoring production to China? To answer the question, I apply single-case study research design. I use data collected from interviews with the representatives of the company together with my own observation and secondary data. Also, I conducted a questionnaire aimed at revealing values of the company concerning offshoring. As offshore location is important for the decision about offshoring, I conduct brief country risks analysis of China, where I highlight key political, economic, operational and competitive risks. Thereafter I analyse three options, which Ekom has: 1. continuing at manufacturing in Slovakia, 2. establishing a captive center in China and 3. offshore outsourcing. Drawing on the literature review and my collected data I analyse the costs and opportunities arising from each of these three options. Consequently I compare the options in the light of the values of the company revealed by the survey and interviews. I adopt this approach because decision-making about offshoring is only in the initial phase and therefore, no exact data are available. Furthemore, the management of the company is more interested in qualitative rather than quantitative data at this point of the decision-making process. I reach a conclusion that on the basis of the currently available information it is not possible to recommend a single option. However, taking all risks, costs and opportunities into consideration, manufacturing in Slovakia is the less risky option. Nevertheless, if Ekom´s management decides to run the risks of establishing a wholly owned subsidiary, captive offshoring could offer interesting opportunities, particularly cost reduction and access to the Chinese market. Offshore outsourcing fulfils Ekom´s A case study of a Slovak SME potential offshoring to China Master´s Thesis Copenhagen Business School values the least. Therefore, Ekom could use services of an external supplier only for shorter term or only for offshoring simple, routinized tasks.

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2015
Number of pages95