THE MYTH AND THE REALITY OF OUTSOURCING AND OFFSHORING

THE MYTH AND THE REALITY OF OUTSOURCING AND OFFSHORING Bill Naskov Sydney - Australia July 2020 Abstract: Outsourcing and offshoring processes have existed for a long time and have always been closely related to international business. The advent of modern means of telecommunications and transportation, among other vital factors, has enabled the companies to reach levels of outsourcing and offshoring, which we have never witnessed before. On the other hand, this massive offshoring caused a phenomenon called de-industrialisation in the once heavily industrialised countries such as the USA, Australia, UK, Canada, and subsequently to some of the EU countries and Japan. Can the USA and these others, once amongst the most industrialised countries in the world, return the decades-old trend of offshoring misfortune in their interest so that they may experience a "Manufacturing Renaissance" is the primary notion behind this publication. 0 PREFACE The term "Outsourcing" comes from the U.S. private economy terminology and is derived from the term "Outside Resource Using." The verb "to outsource" literally means to push or shift aside. It describes a situation when some organisation, for various reasons, in order to fulfill certain necessary functions or operations, uses entrepreneurial activities of other, usually more specialised entrepreneurial subjects, company, or organization. Therefore the outsourcing as a business practice may be described practically as a process under which a company hires a third-party to make provision of products, perform various tasks and functions such as to manage projects, operations and provide products and services for them. This outsourcing has been existent for a long time and has always been closely related to international business. However, the advent of modern means of transportation and telecommunications, cyber-revolution, market liberalisation and integration, advanced production technologies, among other essential factors has enabled the companies to reach levels of outsourcing and offshoring, which have never been witnessed before at this level. Sometimes the term outsourcing is used for offshoring, which is slightly incorrect as offshoring. The offshore outsourcing is a type of outsourcing that results in outsourcing services to a third party in a foreign country, typically taking advantage of more optimal cost and non-cost related factors. Companies, which have adopted the global strategy, should offer, in general, the same products and services in all markets. The companies following the global strategy often by outsourcing take advantage of scale and location of economies by producing entire inventories of products or components in a few optional locations/countries. This new manufacturing process, which utilises the offshoring, is called "rationalised production," which is a unique global production system. In this system, products are produced and assembled anywhere globally, where the cost of production is lowest. Adopting this type of rationalised production, which introduces the offshoring on an industrial scale, significantly reduces the overall cost of the products and ultimately would increase the firm's profit. History indicates that almost no industry in the Western world has been spared from offshoring or outsourcing. While the offshoring may have started on a large and global scale with manufacturing by the transfer of the manufacturing facilities from western countries to predominantly Asia, with the growth of the I.T. industry, it has spread over too in many other industrial sectors which were initially considered to be offshore – proof industries and activities, since they were at the end of the consumer chain in the host country. These sectors have included service sectors such as banking, I.T., asset management, and infrastructure support, insurance, engineering design. There are different types of outsourcing, and some of the most accepted division of the outsourced activities are:           Business Process Outsourcing Professional Outsourcing I.T. Outsourcing Multisourcing Manufacturer Outsourcing Process-Specific Outsourcing Project Outsourcing Offshoring Onshoring Nearshoring 1 The use of the external resources ideally enables the entrepreneurial subject to respond to the rationalisation pressure, to reduce costs, increase labour productivity, or enhances the quality of its products or services. This outsourcing, in turn, enables the company to focus its efforts on the core activities, which are considered to be fundamental for the achievement of competitive products. The contemporary outsourcing was initiated in the 1950s but became visible in the 1980s when organisations used outsourcing to reduce costs related to service-oriented operations which were typically non-core business processes. During these times, Western countries started to take advantage of the cheap labour market, particularly within China and the S.E. Asian countries. Outsourcing in manufacturing became very widespread in the 1980s, primarily because of the advancement of modern manufacturing technologies and the industrial automation, which enabled the manufacturing businesses from the developed countries to set up their high volume automated production lines in the developing countries thus producing cheap parts for their industries without compromising in the quality of the parts. Outsourcing in this context and this development stage involved the development of longer term supplier relationships, which were characterised by collaboration and joint problem solving in a range of areas. The adoption of this collaborative supplier relationships approach enabled the manufacturing businesses to reduce the risks associated with outsourcing. However, encouraged by the success of the initial outsourcing, the manufacturing businesses developed the more advanced stage of the complete offshoring of the entire industrial plants to the developing countries, e.g., some of the Japanese cars are entirely produced and assembled in Thailand. In the 1990s, organisations, influenced by the benefits of outsourcing and offshoring on cost reduction, started to outsource functions in which they did not have expertise. This approach enabled the organisations to shift toward the strategic use of outsourcing to focus on their distinctive competencies and build closer relationships with other companies to acquire external skills, competencies, and knowledge. This strategic approach enabled the organisations to outsource their operations on a massive scale and skills specifically related to product manufacturing. This concept of the earliest manufacturing outsourcing was considered a success, which instigated the service industries to start to consider outsourcing some of their services since it was more profitable to procure services from outside than to be provided from in-house sources. The concept of outsourcing was introduced to the public sector organisations during the "New Public Management" (NPM) movement in the 1970s in Britain and the USA and quickly spread into other countries. This outsourcing and offshoring resulted in the globalisation, which, as a practice, became even more popular after the dot.com crash of the early 21st century. Due to social and societal functionality reasons, the government provides services that are not always economically viable. Therefore they are not highly likely to be chosen by private enterprises unless incentives are provided over. However, this did not prevent various governments from exploring some radical cost-cutting strategies within the government services sector, which involved outsourcing and offshoring. One method called "Alternative Service Delivery" has been being practiced and experimented by developed countries governments all over the world. Alternative Service Delivery (ASD) is the process of replacing the delivery of a service from the government sector to the private sector or another public entity, often a mixture of the two with some responsibilities still falling to the government and another, most frequently private sector. However, ASD as a process is not a privatisation process in its core, but it includes the reorganisation and restructuring of particular functions and responsibilities of the government sector. 2 Western multinational companies (MNC's) started first with the offshoring in Japan, to continue in the four South East Asian Tiger Economies, and then to end up in China. In this pursuit for profits, the large multinational companies (MNC's) obliterated millions of jobs from their countries of origin to primarily the above mentioned Asian countries. This massive scale outsourcing and offshoring within various industries and the service sector caused a phenomenon called de-industrialisation in the once heavily industrialised countries such as the USA, UK, Canada, Australia, Canada, and even some of the countries member of the E.U. and Japan. This de-industrialisation process has been particularly painful for the middle classes of the once leading industrial countries, particularly in the USA, since the offshoring of the classic industries caused the middle class to shrink down and the remaining middle class to become worse off due to the de-industrialisation process. Therefore, there is no doubt that this subject and everything related to offshoring has always had a strong political dimension because outsourcing does not offer the advantage of keeping the domestic jobs by a simple transfer of the outsourced jobs within the country of origin. Offshoring transfers domestic jobs abroad or overseas, thus resulting in sometimes massive job loss and layoffs. Besides, it is not unusual to see or read warnings from various industry experts that the new wave of increased industrial automation and the continuous introduction of the artificial intelligence (A.I.) capabilities would even further contribute toward the elimination of many more current industrial jobs than the offshoring did the past, which would undoubtedly further exacerbate the offshoring related political dimension. At present, outsourcing and offshoring reached a point in its development of strategic partnerships that even embrace outsourcing and offshoring its core competencies, if found profitable through cost-benefit analysis. Based on comments of some eminent political economists' views, this was the moment where the red line was crossed, which caused the western economies to show signs of being out of balance, resulting in massive deindustrialisation and rising unemployment and the consequent rise of sovereigntist leaders all over the western world. Also, the elimination of internal activities, formerly run by its forces, represents the most significant threat connected with outsourcing implementation, since the transition from its operations to other organisations results in skills losses and know-how in the eliminated field. Even if losses of skills can be recovered, the organisation may need to undergo a lengthy and complicated process, proceeding with hardship still with no guarantee of success, which makes the outsourcing process one of the riskiest operations one organisation may undertake. On the other hand, until recently, the west did not fully understand the problems, nature, and the depth of the problems between China and the west. Consequently, the west continued to struggle with the nature and scale of their response. The ad-hoc style of trade tariffs imposed by the current U.S. administration led by President Trump, although may be considered as the beginning of some trade war between China and USA, is still a far cry from tackling the structural differences in the bilateral relationships between these countries which would result in restoration of free and fair reciprocal trade. However, in recent years we have witnessed an endeavour towards a reverse trend which was launched by the current U.S. President Donald Trump during his last election campaign, "Make America Great Again." Without any doubt, this approach was crucial for his success in the 2016 U.S. presidential elections. Once he won the election, he wasted no time to implement: the increased tariffs for many Chinese imports, trade agreement changes, and the economic measures he thought would contribute toward the reversal of the offshoring trend. 3 Some analysts even noticed the change of the USA's offshoring trend long before the arrival of Donald Trump as a president of the USA, mainly due to lower energy costs within the USA and rising labour costs in China. For example, on Apr 4th, 2013, a statement appeared in the "Money & Market" by Paul Ashworth that the offshoring boom had basically "running its course," which was indicated by the lowest offshoring rate in almost a decade. On the other hand, Goldman Sachs' chief economist Jan Hatzius in the same magazine argued that much of the recent economic data only indicated that that U.S. manufacturing was improving and that this improvement only reflected a recovery was "squarely cyclical," not structural. In other words, U.S. manufacturing has yet to demonstrate that there is a significant long-term shift going on in the world. The economic analysts are divided about whether this is a temporary cyclical recovery or a positive trend of the return of U.S. manufacturing. This return of the U.S. manufacturing or, as some economic analysts call it "Re-Shoring" whether it would be a structural trend or just a cyclical recovery of the U.S. economy or a combination of both processes, undoubtedly as a process has been gaining momentum in the U.S. economy. In the post – COVID 19 period, politicians in Australia and the broader Australian communities have become more and more aware of the structural defects and cracks in the Australian free market based economy which during the COVID 19 crisis was unable to provide some essential manufacturing functions and manufactured products such as the supply of necessary hospital PPE and equipment such as masks, gowns, hospital ventilators and other hospital equipment necessary for the fight against the coronavirus outbreak. Both sides of Australian politics, the federal government, and the opposition have acknowledged the importance of the domestic manufacturing or the issue of the lack of it and the danger of the current reliance on imported manufactured goods. It is predicted that the current offshoring trend would shift from China to Viet-Nam and other less developed S.E. Asian countries, since they offer lower labour costs, than the coastal cities in China. However, it also becomes evident that global trade has reached a point at which the USA and other western countries will no longer tolerate further unbalanced offshoring on such a massive scale as witnessed before. The USA and the other once industrialised countries such as the UK, Canada, Australia, and New Zealand were the main losers in this offshoring process. The return of the decades' old trend of offshoring misfortune in their interest so that they may experience a "Manufacturing Renaissance" is the primary notion in this publication. 1. The History and the Reasons for Outsourcing The contemporary and massive scale of the classic industry offshoring, which we have witnessed in the last several decades, however spontaneous it may appear, it was initially designed and implemented deliberately by the previous US administrations in such times as being represented to be a part of the transformation of the global financial network. The former US president Richard Nixon and his secretary of state Henry Kissinger initiated a plan to open the Chinese market for trade and investment by the US multinational companies. At the beginning of the 1970s, this was a concept of deliberate strategy among major US multinational companies to move their manufacturing abroad in search of cheap labour and low costs. The US think tanks and journals praised the new and undoubtedly nonsensical idea that the West had entered a "post-industrial era," a promised nirvana where instead of "dirty" industrial jobs in steel, autos, and similar, the future would be a services economy. However, this promise of better jobs has not materialised. 4 The sternest argument against the offshoring has been that the offshoring deal only worked for the corporations, not for the American, Australian, or the generally speaking for the host country people. The free-market economists gave their assurances that better jobs would replace the once the offshored manufacturing jobs. Thus, the offshore production would pay back to the US buyer through decreased prices as compensation for the loss of wages from the offshored jobs, which certainly has not been the case. The corporations did not fulfil this promise given by the free-market economist, since the offshoring process lowered their costs but the MNE's still kept prices up, and the consumers have not experienced lower prices for the: shoes, jeans, computers and iPhones, white goods, cars, or any other outsourced products. The result has been, corporations have increased their profits in the near term. However, this profit increase was at the cost of destroying consumer purchasing power, and thereby their sales, in the longer term. This idea of outsourcing was closely linked with the transition of the Chinese society from classic socialism into "market-based" socialism, which was proposed initially to Mao Zedong by US Secretary of State Henry Kissinger and US President Richard Nixon. However, the real transition of Chinese society began after the death of Mao Zedong when the new Chinese communist party leader, Deng Xiaoping, took over China's power. Chairman Deng Xiaoping managed to promote a plan for economic reforms in 1979, which were then, although modified continued by all of the next generations of Chinese leaders. These reforms paved the way for China's economic progress, which we know today as the second-largest economy in the world. The positive outcomes for the Chinese society started to become noticeable beginning in the 1990s with China's negotiations to join the Western industrial "club" by negotiating for WTO membership. Before 1971 the world financial system was defined by the Bretton Woods or "Gold standard" system, founded on a fixed US dollar to a gold relationship, which was $35 US per ounce of gold. By the early 1970s, this system became too rigid, and also, due to various reasons, the United States could not continue to keep to honour the agreed exchange rate of $35 US per ounce of gold, resulting in the collapse of the Brereton Woods system in 1973. To prevent a recession at home in 1971, the then US president Richard Nixon unilaterally decided to make US dollars nonconvertible in gold. The float / flexible exchange rate system was introduced, which became known as "The Managed Float System." Although this monetary and financial system has been based on the principle of supply and demand in determining the currencies' values, it was always preceded by government intervention to implement the required adjustment to the exchange rates. In many cases, however, market forces alone did not determine the state policies, but they shaped state responses for a series of issues associated with increased interdependence. This system incurred increased demand for US dollars in the international economy, which helped maintain its status as a top currency. Thus, "Petrodollar" was born since the OPEC made mandatory the global oil trade in US dollars. Many OPEC earned petrodollars were deposited into predominantly US-based banks and then "recycled" in the form of loans to developing countries. The concept of massive industrial offshoring to China, which was introduced by the US president Nixon administration, was not the only radical strategy introduced by this administration. However, it was undoubtedly the most questionable the timing of the radical change of the financial system into the world petrodollar based financial system, which was also happening sequentially with this concept of a deliberate offshoring strategy. This set of global changes certainly was not a coincidence. 5 The benefits of outsourcing and offshoring vary by situation, but they often include one or more of the following:           Lower costs (due to economies of scale or lower labour rates); Increased efficiency; Variable capacity; Increased focus on strategic core competencies; Access to locally difficult skills or resources; Increased flexibility to meet changing business and commercial conditions; Accelerated time to market; Lower ongoing investment in internal infrastructure; Access to innovation, intellectual property, and thought leadership; Possible cash influx resulting from the transfer of assets to the new provider. While we will not go into a more in-depth analysis of each of these factors, it is worthy of mentioning that for most private-sector businesses, profitability as a factor is undoubtedly a factor of crucial importance. This factor is also directly or indirectly included in all the above mentioned specific factors. Unquestionably, though there are benefits from outsourcing and offshoring, these processes also come with certain risks. Some of the risks and disadvantages include, but are not restricted to:        Slower turnaround time; Decreased effectiveness in Lack of local business or domain knowledge; Language related and cultural barriers; Time zone differences; Lack of control of the outsourced/offshored activities and or services; Reliance on different relationships between the offshoring and service provider countries e.g., due to suddenly imposed: tariffs, sanctions, embargo, or similar undesirable government interventions. Despite the disadvantages as mentioned earlier, the outsourcing and offshoring activities were introduced in the western world. They had existed because it was perceived to bring many benefits, and without any doubt, the biggest winner from the offshoring in the last four decades has been China. The selection of China as the top offshoring industrial centre certainly did not come by chance, and it also should not come as a surprise. West noticed the Chinese people's business potential as a primary factor for investment and offshoring in China through the success of the overseas Chinese. Their business success of the overseas Chinese living in SE Asia has been outstanding if not phenomenal, particularly over the last several decades. The Chinese population in SE Asia constitutes less than 10% of the population in the region of more than 460 million people. However, they are dominant in almost every national economy in the ASEAN countries, which enabled the overseas Chinese to generate robust business and financial interests. The best indicator for their economic success is the share of the local country's economy directly under their control when compared with their population rate in almost any country of the SE Asia because wherever they have settled, they have made a significant impact upon their host economy and upon business practices within it. While in Taiwan and Hong Kong, they constitute the majority of the local population in other SE Asian countries such as Thailand, Malaysia, Indonesia, they constitute the ethnic minority of these countries. However, the overseas Chinese command resources beyond their numbers. For example, in Malaysia, Chinese comprise 34% of the population while they control about 60% of the economy. 6 In Thailand, with 10% Chinese population, over 50% of the economy is in their hands, and more remarkably, in Indonesia, where the Chinese constitute only a small minority of 3%, they control approximately 50% of all economic activities. This kind of economic success certainly does not come by luck. The success of the overseas Chinese was founded on the Chinese Family Businesses (CFB) operations within SE Asia, which is in stark contrast of the mixed, private, and Chinese state enterprises (CSE) structured Chinese mainland economy. Nevertheless, through the success of the overseas Chinese, the West concluded that the mainland Chinese have been in the best position to offer unique conjunction of the fundamentally positive factors of entrepreneurship, willingness for hard and disciplined work, cheap labour, large-sized local market, a network of efficient contractors. These factors proved to be crucial for the success of western companies' offshored operations in China. However, the primary notion behind this outsourcing and offshoring strategy was basically outsourcing of the US manufacturing sector. Nevertheless, corporate America saw in this offshoring system an enormous opportunity and their bankers, business people and company CEO's flooded into China, the world's most populous country with some of the then lowest wages in the world in search for business and profit. The first corporations that rushed into China were disappointed, but nevertheless, China worked hard to make offshored production a lucrative adventure, while manufacturing jobs left the US by the droves. China has skillfully used this foreign input through various Foreign Direct Investments (FDI's), alliances, Joint Ventures (JV), and other foreign investment schemes to build and develop the world's most extensive industrial base, which qualified China to be called "The World Workshop." This offshoring system for more than three decades has enabled, US multinationals to accumulate enormous profits based predominantly on cheap Chinese production, but to de–industrialise particularly the once mighty USA mid-west regions a fact which had been conveniently ignored by Washington, until the arrival of Donald Trump as the current US president. Despite the grand industrial success achieved by the Chinese, their industries also have inherent weaknesses. The current assessment of the Chinese manufacturing sector's capabilities is that their manufacturing is significant but not yet of high quality and, consequently, not very advanced. This statement is an accurate assessment of one of the main current weaknesses of the Chinese manufacturing sector. Although the Chinese economy developed a high capacity for technological innovation, it still relies heavily on the inventions and subsequent technology transfer from West. In this sense, the USA and other western countries' restrictions on technology acquisition may, in turn, bring the Chinese economy to an unenviably stagnant position. The current US government seems to be well aware of this weakness of the Chinese economy. Not surprisingly, during the latest US-China trade talks between Robert Lighthizer, the President Trump administration's top trade negotiator, Vice Premier Liu He of China and the US Treasury Secretary Steven Mnuchin held in in Shanghai in July 2019 the US delegation openly discussed the issues related to forced technology transfer and intellectual property rights. This discussion also proved that the US negotiators are well aware of the Chinese reliance on the technology transfer from West, which is also an indication that the USA would use this weakness in their future trade talks. Any internal state reform cannot quickly and adequately compensate this Chinese industry dependency from the West because of the current lag in the evolution of knowledge and technology between China and West, and however, narrowing it may look like it would continue to be there in the foreseeable future. 7 Therefore, to tackle this issue, one of the design tenets of the "Made in China" program was to reduce if not to eliminate this technology-based dependency from the West. When the current Chinese President Xi Jinping took office, besides the promotion of the "Belt and Road Initiative," in order to advance the Chinese manufacturing sector, he endorsed another comprehensive national industrial strategic visionary program called, "Made in China 2025". The broad concept for “Made in China 2025” transformation strategy has been modelled on the German "Industry 4.0" strategic initiative, which some analysts call the "4th Industrial Revolution". The "Made in China" strategic program is a massive strategic transformational program outlined by the Chinese government and consists of 3 program stages, which after its completion, if successful, it would make China by 2050 to become the leader among the world's manufacturing powers. The 'Made in China 2025" strategic program has increasingly alarmed the USA as well as the rest of the western world so that the Trump administration has made the Chinese industrial transformation strategy, "Made in China 2025," or only "China 2025" the explicit target of its current trade war offensive against the Peoples' Republic of China. This trade war undoubtedly signalled a tipping point in global trade, business, and politics, which, as a result, will significantly affect future offshoring trends. 2. The TQM Crisis and its Contribution to Outsourcing The outsourcing and offshoring of business practices and the spread of "de-localisation" from manufacturing to services have created considerable concern over future job prospects within the developed countries concerning the quantity and quality of jobs. When it came to quality transformation and the application of the TQM philosophy, the USA, with the other English speaking countries, really "missed the boat" in the past. The TQM application is a factor that many analysts are somehow reluctant to mention when the degradation due to the de-industrialisation of the western economies is mentioned. The development and the implementation of the TQM philosophy or the lack of implementation of the TQM system within the USA and other English speaking countries classic industries is considered to be one of the key factors which caused those industries, such as the automotive to lag in quality behind their competitor products from within the newly emerging industrial countries primarily from: then West Germany and Japan, and afterward by the four tigers economies: Taiwan, South Korea, Singapore, and Hong Kong. Japan was particularly aggressive in the embrace of TQM philosophy since the crushing defeat of the WW2 forced them to open their minds and search for new approaches and be willing to put into effect. The TQM philosophy has been seen, particularly by post-war Japanese industrial leaders as a gateway for both:   First, successful transformation of their outdated pre-war military complex industry into civilian products, and services industrial complex, and Second, in the improvement of the quality of their products, thus gaining successful access for export on the global markets. This second factor, product quality improvement, was considered vital because it was considered the primary constraint for Japanese products to be exported abroad. This quality revolution, which took place in Japan, had an enormous, if not a devastating impact on the US economy. The "Quality Crisis" in the USA became apparent in the '70s and deepened in the '80s and '90s. 8 This same process of industrial degradation also took place in other English speaking countries and caused numerous industries to lose a large share of their market to their Japanese competitors, mainly due to the inferior quality of products. Consequently, a massive trade imbalance between the USA and Japan developed, and millions of jobs were "exported" to Japan and afterward to other Asian countries. However, this initial industrial degradation, which resulted in de-industrialisation due to the quality revolution which firstly took place in Japan, was not the case with the highly industrialised West European countries primarily at that time, West Germany. This phenomenon stems from the fact that German products were traditionally considered to be products of the highest quality since their classic industries were based on three pillar strategic tenets which are:    The application of the newest technology thus applying the continuous improvement principles in their products and technologies; Application of the newest materials in their industrial products; "Just in Time" or JIT delivery system – not many would argue about the German obsession with punctuality in delivery. The new TQM movement's impact, led by the competition from Japan required from the affected US firms to respond. They invented and tested a variety of strategies, most of them hopelessly inadequate since they were not TQM based. Then, during the 1980s, a US few companies adopted a mixture of strategies that succeeded in achieving world-class quality. The successful strategies and the common success factors were identified, and since then, the TQM initiatives in the USA and other English speaking states started but apparently has not been completely implemented. In the late '80s and early '90s an attempt was also made in Australia by many companies to introduce or copy the Total Quality Management (TQM) based Japanese industrial prosperity success, in a "know-how" way and approach, which was later downgraded in another fashionable industrial maneuver, which eventually resulted in almost complete failure. This "TQM movement" of the early '90s was perhaps the last chance to transform the large Australian companies with outdated management from "System of Maintaining Standard" (SMS) enterprises such as the "old BHP," into modern vibrant and progressive "KAIZEN" type of enterprises with a sound managerial system incorporating continuous positive culture changes. Consequently, the downfall of the classic industries in Australia continued, which resulted in the loss of competitiveness and further offshoring of the business and increased de-industrialisation of Australian society. This de-industrialisation process devastated the classic industry sectors, particularly the manufacturing sector, e.g., the automotive industry, which in 2017 closed down all the Australian manufacturing plants and moved the production facilities overseas. In stark contrast to the Australian industry's state, the “Quality" and the "TQM" application are considered to be essential factors in the China 2025 industry development program. This program among other achievements is supposed to increase the quality of the Chinese products and services to the level of their western counterparts if not to surpass them, which would result in a transformation from "Made in China" to "Created in China," from "China Speed" to "China Quality," and from "Chinese products" to "Chinese brands." The core of this strategic initiative would involve the fundamental application of the TQM approach, which was used previously by Japan, South Korea, and other newly industrialised nations during their gradual development to their current and advanced state of industrial development. 9 It is worthy to emphasize that in some scientific areas such as IT technology, the Chinese companies outperformed their US and other western counterparts. e.g., the expansion of HUAWEI with their internet and 5G technology in more than 80 countries worldwide, left the western companies shocked since technologically advanced countries such as Germany and other western European countries had chosen HUAWEI technologies as their preferred telecommunication equipment supplier for their 5G networks. To achieve this technological success, HUAWEI spent massive more than $80bil in the development and advancement of 5G technologies. On the other hand, although CISCO Systems had these financial resources as a company profit on its account, it did not spend significantly on the development of the 5G technologies, thus leaving the global leadership vacuum in this sphere of technology to be filled by HUAWEI. This example confirms that the US and other Anglosphere tech-businesses did not fully adopt the KAIZEN principles, as one of their core strategic tenets, in their endeavor to remain leaders in their business domain. This lack of KAIZEN implementation, in turn, revealed some apriori evidence and inherent weakness for the US enterprises of being motivated to reduce overall costs not through smarter working but through reduced rewards for work, which eventually leads to offshoring. The availability of cheap labour provided, and in some cases, allowed employers to postpone the search for higher productivity through R & D for new technologies, modernising of manufacturing facilities and work systems in practice, thereby neglecting the development, regeneration, and diffusion of a skill base in these areas. They were thus causing continuous lag in their product and services quality, to the point when the production process and the facilities become so uneconomical that they had to be closed permanently. This quality management related degrading process within the industries with long valueadding chains such as the manufacturing proved to be disastrous, which is best indicated through the wholly closed down and offshored manufacturing in the Midwest USA and regional Australia are the classic examples for that. 3. Comparison Between Value Chain Analysis and Supply Chain Analysis and its Relationship to Outsourcing The organisation's structure should help achieve its goals because those are the most critical part of the organisation strategies. It would be logical that the strategies and structure should be closely linked. Every organisation is a collection of discrete activities designed to enable it to do business within an industry. It is at the level of these discrete activities, rather than the business as a whole, that competitive advantage can be genuinely understood. This collection of activities is referred to, by Professor Michael Porter, in his 1985 best-seller Competitive Advantage, as a “Value Chain of Activities.” In his opinion, two significant steps involved in the value chain analysis are:   Identification of individual activities Analysis of the value-adding process in each activity and the relation of it to the competitive strength. It is necessary to adopt a disaggregated view of the venture, or more precisely, the company value chain to analyse the sources of competitive advantage of an organisation, in any context (whether it be on a firm-level, domestic or international),. This is referred to as a “Value Chain Analysis.” An example of a value chain diagram is shown in Fig.01. For example, the activities performed by steelworks would be the production of steel slabs, plates, sheet and coil products, exclusive alloyed steel bars, and other specific metallurgical products. 10 Fig.01 Porter’s Value Chain model The value chain related activities are technologically and, in most cases, physically distinct. Value chain analyses can assist companies in various ways. It may help to create value that exceeds the cost of the provision of the product or service and may generate a profit margin. The value chain analysis can create change within a business, the products, and services it offers and may enhance its connections with other businesses and their customers or clients. These value-adding activities performed by a group in any industry can be generally arranged into primary and support activities. The primary activities are those involved in the physical creation of the product or service, its delivery, and marketing to the buyer and the support after the sale. The support activities provide inputs or infrastructure that allow the primary activities to take place on an ongoing basis. The primary activities in a well-established system are rarely outsourced, but some support activities may be outsourced, which can cause the partial disintegration of the value chain. Although primary activities directly influence the production process, these activities should not necessarily be considered superior to the support activities. The competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as "information systems," "R&D," or "general management" are considered to be the most instrumental for the differentiation advantage. On the other hand, primary activities are fundamentally considered to be the source of cost advantage, so that the cost and the cost structure can be easily identified for each activity and adequately managed. There is also a conventional division within the value chain of activities between upstream and downstream activities. This distinction between these two groups of activities is based on the consumer and or buyer proximity. For example, in a water utility, the water catchment, water filtration, and potable water storage activities will be upstream, while the potable water distribution activities conventionally would be downstream activities. However, this division of activities is quite conventional and may be further customised or divided into upstream, midstream, and downstream activities, as is the case with the British Petroleum (BP) value chain analysis. (See Fig. 2). 11 Fig.2 Value Chain of BP - Adapted from BP 2014a, pp. 2-3. The conduct of a value chain analysis usually begins by identifying each part of its production process, noting operational and administrative processes' activities steps that may be eliminated along with other commercially viable improvements. By conducting this analysis the businesses can determine where the best value lies with customers and expand or improve the value for money factor, resulting in cost savings or enhanced production. This process also enables the establishment of better and more streamlined communication channels between the departmental managers for each value-adding process stage to ensure the product is produced and delivered to the end-user customers most rationally and expeditiously. The management of these change processes and activities may involve redesign of various organisational systems, structures, and processes. The fundamental tenet of this process is to find areas of potential process and structural improvements for each value-adding chain activity, thus enhancing the overall process improvement. When conducting the value chain analysis, two distinctive approaches may apply, cost advantage approach, and differentiation advantage approach. Cost advantage approach: The identification of primary and support activities is the first step that should be done when using this approach. Then the business cost drivers for each activity should be analysed. Cost drivers can include the following:      Work hours; Machine use and setup; Wage rates; Materials used to make products; Shipping. The business should then identify links and various interdependencies between various activities based on prior knowledge regarding the cost reduction e.g., that if costs are reduced in one area, they can incur a cost reduction in another, or they do not adversely affect the newly designed activity. Opportunities to reduce overall costs, then maybe identified, before the changes in the value chain are implemented. Differentiation advantage approach: The identification and utilisation of the activities which create the most value to customers is the main feature in this approach and, at the same time, the main difference between this approach and the cost advantage approach. 12 These can include the following:     Using relative marketing strategies; Knowing about products and systems; Answering phones faster; Meeting customer expectations. The next step in the value analysis is evaluating these strategies to improve the valueadding process. For example, focusing on improved customer service, increasing the range of customised products or services, offering various incentives, and adding distinctive product features are some of the ways to improve the value-adding activity process. Lastly, businesses should identify differentiation that can be maintained, and which adds the most value. The firm that competes through focussed differentiation advantage would be expected to try to perform its activities in a different and certainly lot more sophisticated way than competitors would do. The competition through cost advantage would involve the conduct of the internal activities at lower costs than competitors would do so that the company can earn profits through the production of goods and services at costs lower than the market price or through superior products. “Supply Chain” concerns the integration of all activities involved in the process of sourcing, procurement, and logistics. It provides connectivity and integration functions between all the parties, resources, businesses, and activities involved in the marketing, sales, or distribution through which a product reaches the end-user. It is an excellent tool to show the link between channel partners such as suppliers, manufacturers, wholesalers, distributors, retailers, and customers. The process management which controls the supply chain is called the Supply Chain. The process management, which controls the supply chain, is called the “Supply Chain Management”, which due to its process nature, is a cross-functional system, and it embraces the management of the movement of the raw materials within the organisation and the movement of the finished and dispatched goods. These business-related activities may be included in the supply chain:         Integration; Sharing of Information; Development of product; Procurement; Production; Distribution; Services to the customer; Performance analysis. A supply chain and value chain may appear to be similar, but the value chain embraces a few more things into consideration, such as product design, manufacturing, and research and development. The main objective of value chain analysis is to provide an evaluation of the activities within and around the organisation and relating to its ability to provide value for money, goods, and services. The most notable differences between the supply chain and value chain are considered to be the fact that supply chain refers to a chain of activities which integrates all the activities, persons, and businesses through which a product is transferred from one place to another one. In contrast, the value chain refers to a chain of activities involved in value-adding activities to the product in every step until it reaches the final stage before it is delivered. 13 The concept of a supply chain is derived from operational management, whereas the value chain concerns the overall business management. Supply chain activities include the transfer of goods and services from one place to another. On the other hand, value chain is predominantly concerned with a provision of value for price for the products or services. The supply chain order begins with the product request and ends when it reaches the customer, unlike the value chain, which begins with the customer request, and it comes to an end with the finish of the product. The primary objective of the supply chain is to obtain complete customer satisfaction, which is not with the value chain's case, since the value chain, is more about the provision of value for money. A brief conclusion regarding the difference between the supply chain and value chain may be summarised so that the supply chain is described and used as a tool of business transformation, which minimises costs and maximises customer satisfaction by the provision of the right product within the delivery time limits, at the right place and the right price. Conversely, the value chain is a tool to obtain a competitive advantage, through which a company can outperform its competitors and fulfil customer requirements. Value chain analysis can assist companies in various ways. It can be used as a change management tool to create change within a business management practice, the products and services, and its connections with other businesses and their customers or clients. The final result of a completed and implemented value chain analysis should result in having a more competitive, efficient business. The value created by the businesses must be a subject of constant revision because of the increased competition for high-quality products, low costs, and excellent customer service. The value chain analysis offers a process break–down structure, which is a valuable tool for each of the business units and creates opportunities for innovation. The creation of a strategy for processes development is vital to maintain the company value. The right strategy would enable businesses to foresee what areas they need to improve and show how to reduce cost reduction. It also enables businesses in their decision-making process regarding the most important value-adding activities when planning the increased value that needs to be created. Mapping out the value chain would be the most optimal approach to visualise all value-adding processes and, hence, predict how they impact both the company and customers, which as a type of activity it also spreads over to the TQM system implementation. Value Added Multipliers: When we discuss the value-added analysis, it is essential to mention the value added multipliers as quantifying indicators in this analysis and their role for the industry. These indicators are important economic indicators for each industry within the pertinent country, and it provides an estimate regarding the additional value added to the product or service as a result of this economic activity. Multipliers are the basis of how an “Input-Output” (I-O) Analysis System”, such as IMPLAN1 produces estimations of the potential impacts of economic changes. Input-output multipliers are summary measures used for predicting the total impact on all industries in an economy of changes in the demand for the output of any one industry. They describe common effects, not marginal effects, and thus do not take account of economies of scale, unused capacity, or technological change. A value-adding multiplier, expressed as a change rate, describes how for a given change in a particular industry a resultant change will occur in the overall economy (e.g., for every dollar spent in the economy an additional $0.25 of economic activity is generated locally, implying a Multiplier of 1.25). These official figures regarding the manufacturing or any other industrial sector participation in the overall GDP sometimes may be a subject of different approaches and definitions of the boundary conditions for the sector, resulting in different values for the multipliers. 14 The below-mentioned example given by the Manufacturers Alliance for Productivity and Innovation (MAPI) from the USA regarding the discrepancy of the US manufacturing contribution to the GDP is one particularly good example of that. Following the analysis conducted by the MAPI Foundation, it was found that the manufacturing's footprint in the USA was significantly larger than merely the value-added at the factory loading dock. Manufacturing activities usually may be found near the centre of a substantial, long, and complex value chain. This value chain consists of upstream supply chain activities involved in the collection of materials and services necessary for the production. In contrast, the downstream activities predominantly concern the sales chain activities, which provides the logistics for the goods to reach the market and sales and services support for the sold manufactured goods. The domestic manufacturing also provides goods as inputs to nonmanufacturing supply chains. The key conclusion of the MAPI finding is that the conventional measurement of manufacturing's GDP share is grossly underestimated. The US manufacturing footprint is about a third of the economy, not a tenth. Based on the MAPI findings it may be concluded that it may be worthwhile for the Australian government to re-examine the manufacturing value chain and thus its participation in the GDP in order to eliminate similar discrepancies between the gross domestic product (GDP) and manufacturing's share of the Australian economy-wide full-time equivalent employment. 4. Risks of Outsourcing and Off – Shoring and Patterns of Failure There is no doubt that from the 1990s until present, global trade has been significantly liberalised, it increased dramatically, resulting in increased outsourcing and offshoring on a massive scale, thus causing sweeping changes to many sectors, such as trade, production, financial services, etc. Economists state that cost savings and efficiencies associated with outsourcing have been a significant factor in controlling costs and maintaining profitability. It has been argued that outsourcing can improve the performance of an organisation in several different ways. These include reducing costs, increasing the quality of service, increasing flexibility, and allowing the company's management to concentrate on its core competencies. However, despite all these potential or real benefits, there is still a lot of evidence that outsourcing is often associated with significant difficulties and problems that the outsourced functions may bring to the remaining business units. One of the main indications regarding the deficiencies after the offshoring was completed, is indicated through its impoverished or severely fragmented offshored value chain of activities where almost everything had been sub-contracted, including some strategically essential functions. Usually, the outsourced operations being sub-contracted or let out to local and very often inefficient sub-contractors, which, based on the previous experience with the outsourcing, turned out to be a disastrous mistake. Companies have experienced complications related to the introduction of the globally based rationalised production concept, which involved: facilities, suppliers, material control, human resources, knowledge, organisations and relationships, and final product quality-related problems. Therefore there has been a need for the development of a model to analyse and improve the manufacturing network. A few such models exist, and "The Global Footprint Strategy of Manufacturing" developed at Cambridge University presents such a comprehensive, detailed model for reconfiguring global manufacturing networks. 15 This model details the movement of production as a seven-step, progressively elaborated process, which in its original mode is shown as followed:        In step 1, - the strategy is decided. In this step, the need for transfer is discovered, and other ways to reach the strategic goal than transferring is discussed; In step 2 - the potential host for the manufacturing process is explored; In step 3 - the fitness for transfer is discovered. This step includes how appropriate for transfer the process is (i.e., the target market and host labour characteristics, including cultural differences) and the transferability of the manufacturing process (i.e., the knowledge characteristics, available documentation, and possibility for modularity); In step 4 - the manufacturing process is altered to suit the new host site; this includes considerations for possible changes to facilities, suppliers, material control, human resources, knowledge, organisations and relationships, quality and the external environment or in other words product changes, process modifications, support activities, and training and capability development; In step 5 - the item and knowledge which need to be transferred are identified; In step 6 - the manufacturing process is embedded at the new host site, and In step 7 - the experiences worth remembering for next time are saved. Each step of this model provides the option to revisit previous actions if the cost of moving is proven too high. In this manner, the model can be used as scenario creation or in the transfer choice and implementation itself. This model can also be seen as a continuous cycle of asking, "Why? What? Where? and How?" The model thereby covers all stages from strategy formulation to implementation. Another business model which is useful, when consideration for global product development is given, has been developed by the Technical University of Denmark (DTU) Department of Management Engineering. This business model is called "The Global Decision Making (GDM) framework." It presents a way to conduct a successful globalisation process through five iterative stages, where stage four is implementation. This stage can have many iterations as new knowledge is gained during implementation, and changes are made based on this new knowledge. When a global company creates a vision, it is often done in the headquarters, without input or consideration for the subsidiaries or other stakeholders' inputs. This planning deficiency is an indication that the vision is not aligned with the market conditions, culture, or products of the subsidiaries. The GDM framework presents a managerial approach that the organisation uses to avoid or minimise the challenges described previously. By using key performance indicators, a continuous feedback loop, and learning, the change can be made to comply with the longterm goals and short-term planning for the organisation by discovering deviations early on and resolving causes for problems when they arise. The GDM original framework consists of 5 stages, and in its original mode is shown as followed: Stage 1: Strategic goal setting 1. Clarify the desired/ideal position for the organisation in the marketplace; 2. Clarify key performance indicators (KPIs) for reaching this position. Stage 2: Strategic planning 1. Clarify the current position for the organisation in the marketplace; 2. Clarify the gap between the present and ideal positions, i.e., the business problem the company seeks to solve through globalisation; 3. Evaluate the best approach to move from the current to the desired location, including which factors encourage using globalisation as a tool to do so and which factors discourage this. 16 Stage 3: Operational planning 1. Select the task to be moved abroad; 2. Clarify the possible external changes and impacts due to moving this task; 3. Clarify the possible internal changes and effects due to moving this task; 4. Select key performance indicators; 5. Implement needed changes to the internal environment. Stage 4: Implementation phase 1. Move the task; 2. Monitor key performance indicators; 3. Implement changes if needed based upon the key performance indicators. Stage 5: Evaluation 1. Evaluate the key performance indicators; 2. Implement changes to the organisation, global task or the key performance indicators to achieve the strategic goals set for the organisation; 3. Re-evaluate the strategic goals regularly (around every second year) or whenever the critical performance indicators indicate this is necessary. Depending on the strategic goals and the strategic plan, one or several implementation phases may be needed. Each implementation phase will be a change management project and will need operational planning to be carried out. Regardless of the fact which business model has been applied, there are still many risks and consequences that may arise with outsourcing, which are worthy of being considered. Therefore, the companies need to know that they can prepare for, and quickly recover from, unforeseen events. Some risk factors which may be as worthy of being considered are as followed: Cost Increases - There is evidence suggesting that when organisations outsource to achieve cost reductions, in some cases, the cost does not decrease as expected. The cost may increase due to various factors. One of the most distinguishing factors why the organisations fail is to properly consider the management of the outsourcing process, which is different in the management of insourced activities. This outsourcing trap is usually hidden during the outsourcing project's preparation phases. Therefore, it should be treated as a hidden subproject and, consequently, a hidden cost that tends to surface when it is a bit too late, and that is when the outsourcing process is already completed. Supply Risk – Outsourcing the service functions which were performed internally to an external contractor may lead to the risk of over-dependency from that party. This over dependency, in turn, may result eventually in hidden increased costs, decreased quality, and even failure of the provision of that service function. Organisations can experience significant risks when they use service providers for processes of strategic importance for the organisation that they have performed internally in the past. The over-dependency on a particular service provider can lead to significant risks in terms of cost, quality, and service provider failure. This failure may not necessarily be detected initially, during the business planning process of outsourcing even if the market conditions are favourable for this outsourcing, since many factors that potentially affect the outsourced service may change in the future. Many organisations fail to recognise that an external service provider's management requires a different set of managerial skills than those associated with managing an internal department. 17 Therefore, when a company chooses to outsource, it may do so based on competition amongst several service providers in the supply market. When the market conditions change, then a revision for the outsourced activities should be conducted to assess the viability of the outsourced operations. In this sense, before any serious outsourcing attempts are made, it is recommended to do a preliminary value chain and supply chain analysis of the newly designed or "modified" outsourced organisation to gain insights into the future outsourced organisation. This preliminary analysis would be essential to conclude whether the desired benefit may be obtained commercially viable, e.g., the newly arisen Configuration Vs Co-ordination related issues that may occur within the modified organisation or the reduced scale of economies along with increased costs of logistics after the outsourcing may lead to conclusions very different from those previously thought. Loss of Skills - This loss is almost inevitable with any outsourcing. Outsourcing can often lead to loss of skills and the potential for innovation in the future, mainly if the core competency skills were outsourced. The assessment before the outsourcing should be done regarding the fact of how critical these long term skills losses would be. Severe loss of the competitive or distinctive competency-related skills may lead to loss of capacity for an organisation to remain innovative and thus competitive. The process of innovation by itself requires flexible, very well educated and skilled human resources, organic and fluid organisational processes, and experimental competencies. These attributes are something that an external supply does not guarantee. Besides, the services provider may gain the rest of the upstream and downstream skills and technology required to become a competitor to the current outsourcing company during the service provision process. This risk may be reduced significantly by conducting the preliminary risk assessment so that the conflict of interests may be identified and assessed as a separate risk item. It may then be based on the depth of the conflict of interest to decide regarding the suitability of the service provider. Consequently, if the extent of the conflict of interest is unaffordable, then the outsourcing company should look for either another service provider to cancel the outsourcing of the pertinent process. Data Security – This is one of the most apparent risks related to outsourcing because computer hackers worldwide are becoming more resourceful. It makes it almost inconceivable to consider this service being outsourced without considering the consequences of access to some sensitive information, by any external party. Organisational Change Implications – Outsourcing, however, professionally implemented; it always has some significant collective implications. Special consideration should be taken during the planning phase of outsourcing. It always brings a negative impact upon the loyalty and job security of employees, even when they still retain their positions in the outsourcing organisation. It is a subjective view of the employees that outsourcing certain organisational functions and services are a sign of the collective performance deficiency, which in turn, in the worst scenario, may incur an industrial action. Although the outsourcing company would always make efforts to redeploy the redundant personnel within the organisation or service provider, this redeployment still may have some negative consequences. The change of the roles and company of the transferred staff involves a variation of the working conditions, including the company culture. Besides, language and cultural differences between the partners in international alliances may generate challenges within many areas of cooperation. Disagreements concerning control, strategy, staffing, and policies can lead to problems even if these issues have been discussed and contractually regulated beforehand. These cultural changes must be foreseen in due course and tackled appropriately to avoid any undesirable consequences related to outsourcing. 18 For example, the outsourcing company should identify the core personnel with the skills critical for the survival of the company and retain them. It should also consider their promotion to strengthen their engagement in the new organisational structure. Other organisational change problems that outsourcing may bring over would be the loss of the company's ability to learn and grow continuously, as it can increase the workforce's insecurity and motivation after the outsourcing process completion. Besides, since the company tries to focus on the core functions, it may or eventually become so rigid to lose the ability to adapt to changing circumstances and controlling activities that may not presently be considered "core," but whose strategic importance may change over time. In this sense, the outsourcing may incur failure to create new value for the company if it is implemented in the wrong circumstances and consequently does not promote the KAIZEN concept. To maximise the potential benefits and at the same time to minimise the risks and dangers from failures of outsourcing, it is recommended to produce a strategy to facilitate the selection process for outsourcing contractors. The establishment of clear and concise selection criteria based on the company's current strategic management plan is vital. This would be particularly important for small to medium-size enterprises (SME). Many times, the management of the firms often struggles to attract highly specialised executives capable of managing international operations or tackling complex decision-making activities. Thus, the decision-making process in SME's remains in many ways defective, due to the tendency to become much more biased and personalised. It also tends to be highly likely to involve ad-hoc short-term based decisions on individual perceptions and prejudices. Besides, since time restrictions apply as well, SMEs frequently take shortcuts in their decision making as well as their information-gathering processes, which may lead to disastrous market failures. The history of outsourcing has shown that there is a direct correlation between the vendors' selection process and the outsourcing benefits' eventual success. Some standard outstanding criteria factors for the selection of outsourcing contractors are, but not restricted to:     The market position of the potential outsourcing contractor; The quality benchmark of goods and services offered; JIT - delivery track record; The leadership in innovation and R & D leadership. Program management approach: It can still be concluded with a fair amount of certainty that there is no single cliché available to be used for the choice or selection of the right outsourcing contractor. When dealing with the management of multiple interrelated issues, translated into projects, it has been identified that the program-based approach offers the achievement of the best managerial approach. One of the definitions of a Program would be the formation of a coordinated organisation, direction, and implementation of a group of sub-ordinate projects and activities that together achieve outcomes and realise benefits that are of strategic importance and align with the organisation's vision and mission statements. The ultimate goal of a program, which consists of a myriad of sub-ordinate projects, is to realise the outcomes and benefits of strategic relevance for the pertinent organisation. As such, it is considered to be a hybrid between the project plans and strategies. Programs are usually established for improvement that moves or elevates the enterprise or, in this case, the entire national economy from the current to a more advanced level. For the initiative to be treated as a program, there must be justified in terms of the added value gained by the introduction of a layer of management between corporate portfolio management and project management. This program management principle seems to be something that many large enterprises are either unaware of or are reluctant to implement. 19 Consequently, it is expected that a program will also include some of the portfolio's attributes, but on a smaller scale. A program management structure may involve the activities of many external and internal parties for a given period. The program has its rhythm, organisation, and milestones that would have to be compliant with other stages in its life cycle. The program manager must be capable of definition and refinement of all the sub-ordinate projects within the program and quite frequently have to: recognise, define, and work on activities that are not necessarily related to some particular sub-ordinate project the program. The program manager must ensure smooth integration of the stream of the sub-ordinate projects within the program. Besides, all deliverable interdependencies among the subordinate projects must be identified and well-defined beforehand and appreciated by the pertinent project managers, to the lowest level of details before they are integrated into the program reporting system. Different types of interdependence require different means for achieving Configuration Vs. Coordination solutions for sub-ordinate projects. The program manager must be aware of this Configuration Vs. Coordination task-related issues so that all sub-ordinate projects are managed and delivered in the best and most timely manner. Every program is specific to itself, and it unconditionally should always be treated as such. In this case, the program name, conventionally chosen "Selection of the Outsourcing Contractor" program should be structured so that every potentially suitable outsourcing contractor, identified for consideration, would be treated as a single individual sub-ordinate project. Once the contractors' tender response is received, then the findings or issues from this tender response should become a subject of thorough risk assessment. This risk analysis would also facilitate the revelation of the future uncertainties, which may be created by the interrelationship among various outsourcing risk factors, which would have otherwise passed undetected in any other more simplistic analysis. The conclusions from the risk assessment should indicate the tenderers' distinctive competencies and weaknesses and, thus, to point out the preferred outsourcing contractor or contractors. These conclusions then should be used to produce the decision support advice, which would constitute a part of the overall Program Execution Plan presented to the executive management for approval, before the preferred outsourcing contractor is announced. The conduct of the analysis, as mentioned above, certainly requires well-qualified specialists for complex outsourcing programs. Based on the complexity of the program analysis, if there are no suitably qualified specialists within the organisation, it may be worthwhile to look for external consultants to facilitate the overall selection process. Outsourcing failure patterns: The outsourcing related failures usually start to appear once the preferred contractor(s) was selected, and after the process of outsourcing was implemented. There have been many outsourcing failures in the corporate world, but failed outsourcing endeavours were rarely reported because the stakeholders were reluctant to report their failures. This certainly is the case because such information could damage both their reputations and their corporate credibility. Some of the shortcomings or outsourcing "deadly sins" from the past that were admitted to by the originators are:         Outsourcing of activities which should not be outsourced, such as the core activities; Selection of an incorrect contractor; A poorly written contract, often including loopholes which rendered enforcement impossible; Relevant personnel issues which were overlooked; The control over the outsourced activities being completely lost; The hidden costs of outsourcing being often ignored; Inadequate or non-existent exit strategy. 20 These are some of the most serious of the reported errors. It is apparent that mistakes such as: "outsourcing of activities which should not have been outsourced," "writing of poor contracts," and "failure to plan an exit strategy" simply should not happen in the first place. It must also be noted that making one or two of these mistakes does not necessarily lead to failure, but they assist nothing. How companies perceive risks or benefits will depend on their strategic view, their overriding priority, and the industry in which they are engaged. To further minimise the risk of outsourcing failure, a risk-reducing action is recommended, which involves a pilot program implementation for the outsourcing be undertaken before the final decision is made. The creation of a strict governance structure will determine the success of the outsourcing strategy. Although the executive management makes the final decision for the selection of the preferred contractor and the overall outsourcing process, it must not be forgotten at any moment that the success of the outsourcing and the consequent restructuring of a company is directly dependent of the employees' attitude and commitment for the changes. Therefore, every deviation from this organisational management tenet would almost inevitably lead to outsourcing failure. 5. Insourcing as a Solution Outsourcing and offshoring have offered some immense benefits to the big US and other MNE's. The corporate CEOs and directors and Wall Street, who took heed to this opportunity, managed well in increasing their companies' profits in the past. The consequence of this was that the manufacturing jobs were "exported" to the Asian offshored destinations, and consequently, the US, Australian, and other western countries' middle class shrunk, lost its purchasing power, and with it their GDP's too. Western societies transformed or better said degenerated from production-based societies to financialised ones. Consequently, the USA, Australia, and other Anglo-sphere countries ceased to prosper, but the economic adversity caused by the offshoring was covered up with unrealistically low inflation figures and unemployment rates, and GDP growth reports since the new financialised economy enables this manipulative statistical processes. When the Western middle class's living standard became intolerably eroded, China was blamed for its demise by exporting too much to America. This conclusion may be described as baseless if not insouciant since China was used as "Trojan Horse" by the big offshored MNE's so that they may produce their products significantly cheaper before they import and sell their products in the USA, and elsewhere in West, thus reaping huge profits. The offshored production from the USA and other western MNE's firms constitutes a large percentage of imports. Classic examples for these processes are the imports from China, which consisted of computers, iPhones, shoes, jeans, white goods, machinery, etc. The "Chinese import problem," as many times described, was the of US firms offshored production, resulting in brought back products and services to sell to Americans, and other western countries, who were no longer involved in the production of the goods and services. Therefore, they did not have any income from the production of what they purchased. The final result has been the offshoring corporations have ruined their host countries, for their profits while the corporate shareholders were generously rewarded. This outcome resulted in the last quarter-century with a fragmentation of the value chains and dismantling of the original industrial supply chains and skilled labour force that supported US manufacturing and industrial growth in the past. 21 This conclusion is certainly valid for the Australian economy too, which probably has had the most impoverished manufacturing in the western world. The once-booming factories and industrial sites in the capital cities' industrial suburbs and in regional Australia were closed and run down to be converted predominantly into real estates. The offshoring era has not been a short term economic recession, but it has been an ongoing trend, which also resulted in the disappearance of the skilled and experienced labour force and with no new skilled entrants available the chances for success of the future planned re-shoring manufacturing does not look very optimistic. Today China is a quite developed manufacturing and industrial economy while the offshored "industry drained" economies such as the Midwest USA and regional Australia are not. This is the current reality which we have to accept it. The reversal of the outsourcing and re-shoring of the outsourced industries here will be called "insourcing," and it will refer to the creation of new departments within an organisation when an outsourced contract ceases. This process is also known as a "back sourcing" or repatriation" of the offshored operations. The return of the industries or the insourcing process in effect, would be as hard as bringing development to basically "ground zero" in an expensive but semi-developed economy. Notwithstanding this, if the manufacturing base shall be restored or rebuilt in this new age, then many other than manufacturing skills and advanced technologies must also be restored. For example, the 5G based technologies, infrastructure, and skilled workforce would be essential for the manufacturing and other classic industries' return. Other industrial sectors would also need significant improvement, e.g., the energy sector in Australia after the demolition of several major coal-fired power station remain seriously deficient and unreliable to accommodate a substantial power consumption increase, caused by the future insourced manufacturing. The MNE's which offshored their production operations in Asia in the past have been content with their existing profits that flow from low-cost labour and would have no intention of losing the cost savings unless there is a real financial incentive for that and they cannot be compelled to bring the offshored operations, because this would mean:  They would lose their production in China or anywhere in Asia before they can recreate the plants, workforce, supply chains, and transportation systems essential to renew, e.g., the US and Australian manufacturing sector, and  They will have to operate in the host country without being compensated for the enormous increase in their labour regulatory and liability costs associated with manufacturing, e.g., US markets with US labour industrial relationships and the changing way the corporations' income is taxed in the USA. Therefore, a revision of how the insourced corporations are taxed would have to be altered to facilitate the re-creation of the conditions necessary to restore manufacturing in the host countries. This tax change practice may also be very costly financial compensation for the already financially burdened US, Australian, or some other western economies. In order for the USA to become "Great Again" and to remain a leading world power, it is essential to restore manufacturing and industrial capability. Besides, if the USA, Australia, and other countries in a similar position do not reverse its de-industrialisation course, they have good prospects to become underdeveloped countries. Therefore, the de-industrialisation should be considered a far greater threat to the West than alleged dictators and their regimes worldwide. 22 6. Insourcing Issues and Conclusions The purpose of this publication conclusion here is not to attempt to conduct a thorough and long-term cost-benefit analysis of prospects for economic and social development but to outline some issues, conclusions, and recommendations, considered to be currently valid and relevant for the offshoring and insourcing. Although the insourcing processes have been subject to thorough research over the past decade, the insourcing processes and methods, as well as the factors influencing the insourcing decisions, are processes in – progress and thus, it presents an area of an ongoing process for further research. Both offshoring and insourcing offer some benefits, and also both were proven to be cost-effective measures since they rely on differences in organisational goals and economic climate. Therefore, it is up to the pertinent company managers to analyse the benefits of both processes, adopt one for the other strategy, or create a mixed matrix style of strategies whenever possible, which would enable them to utilise these benefits. Generally speaking, the insourcing critical drivers are expected to be combined in the areas of lowered costs and improved quality. Some companies that insourced their operations also experienced some additional benefits, including increased service levels, increased expertise, knowledge, capability, and control. The only expected benefit that did not materialise was that insourcing did not attract as many new markets as expected. It has been found that insourcing is best used for the application of as a medium to long term business strategy, while outsourcing was predominantly successful for the reduction of costs in the short term. The companies must learn from their past mistakes on how to improve the processes of management to reduce costs and maintain internal sourcing. Without exaggeration, a conclusion can be made that there are benefits associated with insourcing, including economic, capacity building, strategic direction, and quality control areas. These benefits encompass the key areas that any management deals with, and as such, the insourcing is worthy of consideration as a principle sourcing strategy. The move from extensive outsourcing in the 1980s and 1990s to the view that insourcing or repatriation of the offshored capacity offers substantial benefits also presents a radical strategic turn – around. As such, it would present a massive change management task to be implemented by any western government. The insourcing benefits are multidimensional, and the most frequently cited among the business management professionals were:        Cost savings, once the outsourced activities become more expensive than it was initially planned and expected; Increased service levels; Improved quality; Increased control of processes including the time to market; Increased expertise and knowledge as a benefit; Greater control of intellectual property; Cultural benefits. While the insourcing may not meet every business's needs, consideration of all the benefits available, and consideration of short and long term goals will lead to the "right" sourcing arrangement. The right sourcing strategy should not be considered one for all times and circumstances but something that changes over time as the business conditions change. Therefore the insourcing strategy needs to be determined and revised at regular intervals to take into account changing long and short term strategies. 23 Undoubtedly, China will remain one of the top investment destinations for offshoring in the world in the foreseeable future since there have been some valid reasons for outsourcing in the past, and this process will continue to exist as part of our future, probably in a reduced scale, than before. Chinese government achieved extraordinary economic success in the last several decades in improving the living standard of its citizens, which, by some statistics, is indicated by lifting out of poverty some 600 million Chinese citizens. Therefore, it is worthy that China is respected as an advanced first world country rather than anything inferior to that. However, the talks about the rise of China's trade within some US political establishment is also seen not only as a matter of US national security but sometimes about US insecurity, which adds up a strong political dimension to the offshoring. Consequently, it would be entirely expected that the era of unilateral mercantilism, where the Sino – American relationship was business-driven and heavily influenced by US major multinational corporations with its long term negative impact on the US economy, probably will not continue. The recent trade war escalation between the USA and China caused by the tariffs imposed by the Trump administration and the impotence of tariffs to correct the lack of good jobs for Americans along with a decline in their real incomes are well-known lessons learned from the previous protectionism based practice. Even in their best efforts and intentions to bring back the offshored industries and jobs, the US and other leaders within the Anglo-sphere countries will still have to tackle many substantial issues unconditionally and successfully, rather than to deal with the application of some simple protectionist measures. We must not forget that the contemporary high technologies rely on global supply chains and every disruption of these supply chains by any political or military arbitration by either USA or other countries may lead to a significant fracture of the global manufacturing process, thus causing collateral damage in China and the USA and possibly for the entire world. This argument represents one more reason for the global trade to be reset in a balanced way concerning both the USA and West on one side and China as well, rather than in some unconventional way, such as military or forced political arbitration. The current model, which is profit-driven by the business sector dominated by the public policies of successive US governments, has brought de-industrialisation and considerable damage to the US economy and has been proven to be fundamentally flawed. The problem of past de-industrialisation of the western countries and the consequences this degrading process are in the heart of the problem we face up. The de-industrialisation affected Western societies in many ways, and we must acknowledge that reversed industrialisation or insourcing would be the only way that may offer an acceptable solution. This consequent de-industrialisation process unleashed unseen or invisible dark forces, which have made the growth of western economies increasingly anaemic, resulting in a drop in the GDP and wealth. To continue in this economic direction would mean to come to a point when we would reach a point in the future to realise that this global impoverishing of the western countries must be reversed or it may face total erosion of the living standard with all the misery which comes with that. The global trade reciprocity between East and West probably would need to be restored to a more equalised level than the current one, although the means and tools of that equalisation remain nebulous if not disputed. This global trade is not a free trade against national security but a matter of balanced economic relationships which at present reached an intolerable level of unbalance, never been seen before in the recent world trade history. 24 Therefore, this fact presents one more reason to consider the insourcing solution since if it is strategically well formulated and implemented, it may bring some substantial benefits to the related company. Besides, if the insourcing is implemented on a massive scale, it would benefit the insourcing country. The first and probably one of the most outstanding issues for insourcing to succeed in the host country, e.g., the USA, Australia, is the current lack of manufacturing base, skills, and tradition that disappeared decades ago together with offshored industries. The corporations can only phase out their offshored production from Asia if they can recreate the necessary conditions for producing in their country of origin. Otherwise, all on-shoring efforts would fail. Therefore, the future redevelopment of the large MNE's must be pointed towards the reintegration or rebuilding of their complete value chains and the supply chains, from design departments to construction work with the integrating intention of very little or no offshoring. As supply chains have converted into more fragmented and dispersed, their design and management in an integrated manner have become increasingly difficult. The delivery of the physical products to the final customer may involve a multi-tier network of partners distributed globally, across which innovation needs to be faster and more useful than ever before. Only a well re-designed and integrated supply chains would deliver the pre-determined strategic objectives. However, in such a complex environment, it can be challenging to identify where and why this may not happen. This transitional process of industrial reconstruction will have to be gradual, and it will have to be well defined, managed, and supported by appropriate government intervention programs. Only this government intervention translated through a program based managerial approach would offer the best success since any other know-how approach would be deficient for this size and complexity program. The second issue is an outdated industrial relationship system that does not officially involve the trade unions in the industrial management system in any way, shape, or form. This insourcing process of the manufacturing and other classic industry sectors will not be a simple task. It will require cooperation and not a conflict between the employers, governments, and the workers' unions. Consequently, it is an essential requirement that before the MNE's offshored operations are returned to their home countries, that conditions and facilities for manufacturing and other classic industries are reconstructed so that the returned operations remain financially viable. In the USA, Australia, UK, and other English speaking countries, the workers have virtually no role in the management of companies. In some other countries, such as Germany, their role is more important. The system of Co-determination is a German-style of general management practice, whereby the employees also have a role in the management of a company, and history has shown that it has been a very successful industrial relationship model in the world. This word is a literal translation from the German word "Mitbestimmung," which is translated to "Co-determination." The first serious co-determination practice began in then West Germany, and at first, there was only workers' participation in the management of the coal and steel industries. However, in 1976, in the then West Germany, a general law was passed, which made mandatory that workers' representatives hold seats on the boards of all companies employing over 500 staff. Over time, all industry stakeholders, employers, and employees have learned to live with the German workers' councils or unions, and in fact, they have used and adjusted them in line with their goals. 25 Unions also have had to adapt to this system, too, because they were forced to accept and cooperate with a workplace institution that was not an integral part of their organisation but had its own constitution and thus relevance. Employers had to accept that broad areas of managerial decision making were now arenas of joint regulation. These new life facts forced the German managers to change their management style and become willing to cooperate with the works councils. In contrast, these workers' councils also had to learn the rules of co-operative management by transcending their collective-voice function and taking responsibility for productivity and economic success, which in countries like the USA and Australia, unfortunately, is regarded as a strict management prerogative, which seems to be a quite outdated industrial practice. This attitude may have to change to move forward with the status-quo within Australian industrial relationships, regardless of the fact which political party is in power. Therefore, it can be concluded that implementation of the co-determination style industrial relationship system in Australia may be considered to be a matter of necessity rather than some strange option if a progress in the area of industrial relations is to be achieved. Many advanced industrial economies have adopted several aspects of the co-determination style of industrial democracy to improve productivity and as a reformist measure against industrial disputes. Often referred to as "team building," this form of industrial democracy has been practiced not only in Germany but also in Scandinavia and the Netherlands as well as in several Japanese companies including Toyota, as an effective alternative to the "Taylorism" 2 in which the traditional "master-servant" model of industrial relationship system gives way to a more participative, power-sharing model. The industrial practices from these highly developed industrial countries point out that industrial democracy contributes to the increase of productivity and service delivery from a fully engaged and happier workforce. Other benefits include: less industrial disputes resulting from better communication in the workplace, improved and inclusive decision-making processes resulting in better workplace decisions, decreased stress and increased well-being, increased job satisfaction and fulfilment, and reduction in absenteeism. The pursuit of insourcing opportunities should not result in the treatment of the labour force as a disposable commodity. Stable employment relationships provide ground for developing skills and capacities and the delivery of quality services in both the public and private sectors. Labour markets are not merely price-clearing markets but a place where both employers and employees place value on long-term codified relationships as a platform for delivering high-productivity work systems and providing employment and income security vital for social cohesion and political stability. The third issue applies to TQM related past mistakes. The TQM implementation has been somehow mishandled pretty badly in the past, and as such, it remains a permanent deficiency if not a serious handicap of the Australian manufacturing sector. The application of the TQM approach, which promotes continuous improvement, also involves inherently the introduction of the concept of the continuous learning environment and the introduction of permanent and controlled change management processes, which as processes of management many times in the past, were mishandled if not neglected. The insourcing programs industries and processes must be TQM based lest the repetition of the old mistakes is avoided. The implementation of the TQM tools is a complicated process, particularly when the fundamentals need to be laid and often is followed with unleashing of unintended effects. Moreover, setting unrealistically high goals would only "add up more water into the flood of confusion." Therefore, the management must be aware that this process implementation is also a separate project that would be progressively elaborated and gradually implemented. 26 The transition from multi-site overseas-based plants set-up into a single site plant within the host country may reveal a hidden, trivial, but still, substantial potential issue, which, if underestimated, may have a devastating effect on the future insourcing. The problem may arise when the technical documentation of the products, processes description, and technology application within all offshored sites, mainly dispersed in various countries, is weak, not sufficiently harmonised, standardised, and underdeveloped to enable successfully integrated insourcing transition process. This deficiency may be tackled before the insourcing, by launching the so-called "Asset Improvement and Reliability Program," which would identify and produce recommendations and solutions for these problems and issues. As it was previously mentioned, the offshoring has been mainly a result of a deliberate, carefully planned strategy. However, over the decades the some MNE's gained substantial experience regarding the offshoring itself, which evolved to the point that besides its reliance on deliberate strategy, it also relies on the utilisation of emerging strategies gained specifically from the incremental learning process gained over the decades of successful offshoring. These are usually very well established MNE's with highly advanced knowledge in conducting international business. Unfortunately, the researchers do not have full access to how offshoring firms realise their outsourcing strategies because the knowledge regarding offshoring gained from both success and failure is kept predominantly as confidential information within the pertinent MNE. As such, it may not be available for external parties. Besides, in the last two decades, a new offshoring trend has arisen, which is driven not only by search of a cost advantage strategy but also in search of an offshored innovation-related process. This new offshoring trend has been made viable by the substantial improvement of the offshoring firms' technological and TQM practices and the consequent improvement of the products and services offered by this independent offshoring supplying firms. Their MNE's transplant managers are not exercising managerial control over these quality-driven offshoring firms since they can manage independently their manufacturing value chains and supply chains with full compliance to the MNE's quality and JIT delivery requirements. The emergence of these global markets based and highly competent suppliers in low-cost settings offer excellent rewards to any incumbent MNE, which is not overly preoccupied with the ideas about the risks related to the long-term offshoring. Therefore, the host countries interested in insourcing would have to consider this conjunction of extra cost reduction and the innovationbased benefits offered by the offshoring firms and offer a counter incentive to their MNE's to compensate for the loss of this offshoring related advantage. The search for this counter incentive presents another insourcing difficulty, which the host country must consider it very seriously to make the insourcing process successful. The reconstruction of the in-sourced manufacturing would be a slow process, and it would also be a reverse process from what we have seen in the last decades from globalisation. This reconstruction process would cost trillions of dollars, which neither western governments no private businesses have not got them for this purpose yet. It also is not expected to be a natural process since nothing worthy is all that easy. The current and any future Australian government should work on initiatives for the rebuilding of the Australian economy by application of government-sponsored program management approach for planned and successful industrial insourcing, rather than to promote some alternative emerging opportunity based know-how approach. Working on these programs requires agility and rigor, which may require the establishment of a separate ministry for insourcing and reconstruction. Otherwise, there is a serious risk for Australia and other currently developed countries in a similar position to miss out on the new coming industrial revolution, as they missed out on the previous ones. 27 --------------------------------------------------------------------------------------------------------------------------1. IMPLAN is the leading economic modelling application at the cutting edge of economic theory and practice. It is a platform that combines a set of extensive databases, economic factors, multipliers, and demographic statistics with a fully customised and highly refined modelling system. This software and robust data can help in gain insight into an industry's contributions to a region, quantify the impact of a shock to an economy, examine the effects of a new or existing business, model the impacts of expected growth or changes, or study any other event specific to the economy of a particular region and how it will be impacted. 2. Taylorism - Scientific Management is a theory of management which analyses and synthesises workflows. Its main objective is improving economic efficiency, especially labour productivity. It was one of the earliest attempts to apply science to the engineering of processes and management. Scientific management is sometimes known as Taylorism after its founder, Frederick Winslow Taylor. Although scientific management as a distinct theory or school of thought was obsolete by the 1930s, most of its themes are still important parts of industrial engineering and management even today. --------------------------------------------------------------------------------------------------------------------------- Biographical Sketch - 2020 Bill Naskov - BEng, MEng Sc. (UNSW), Dip PM, MBA, CPEng - EA, CPPD – AIPM, CPD - IPMA, Level – A. He is an Australian engineering and business management professional. His interests are in: engineering sector, political economy, project, strategic and general management. References 1. Balaam, D. N. & Veseth, M. 2008, “Introduction to International Political Economy” – 4th edition, Prentice Hill, New Jersey; 2. Bathelemy 2003, Chordas 2003 in Smith HA & McKeen JD, 2004, “Developments in Practice XIV: IT Sourcing – How Far Can You Go”, Communications of the Association for Information Systems (Volume 14, 2004) 508-520; 3. 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