 RESEARCH AT CRANFIELD SCHOOL OF MANAGEMENT
MANAGING PRODUCTION OUTSOURCING RISKS IN CHINA’S APPAREL INDUSTRY: A
CASE STUDY OF TWO APPAREL RETAILERS
Richard Wilding
Professor of Supply Chain Strategy
Three key lessons were identified to manage the risks in outsourcing garment production:
define product value, incorporate local networks and provide clear specification.
Outsourcing manufacturing in China carries
many risks. Foreign exchange fluctuation,
inconsistent product quality and convoluted
contracts are but a few examples. Failure to
manage these risks could be crippling but
attempting to manage all of them would be
impossible. Consequently two Chinese
retailers in the clothing industry were studied
to find out how they identify and manage the
risks in outsourcing garment production.
The study found that the retailers’ approach is
driven by what they see as the critical value
delivered to customers by their products.
Where product quality was the priority
emphasis was placed on manufacturer
selection and the process control contract.
But, where newness and variety was the value
driver then managing risks relevant to the
speed to market and to a strong committed
business relationship were seen as essential.
The first company was foreign owned and
produced technically based sports goods such
as water resistant and performance enhancing
sportswear. The second was Chinese owned
and specialised in seasonal and fashion items.
The business literature on the management of
outsourcing risks is thoroughly explored while
recognising that more research is needed on
how to choose an outsourcing strategy to deal
with delivery failure risks to a business’s value
drivers. For practitioners there is a useful
overview of the key outsourcing risks identified
along with a description of their effects and a
list of articles providing more details.
Equally informative is the authors’ discussion
of the place of Guanxi in the risk management
of outsourcing in China. Guanxi is an
untranslatable Confucian construct covering
the behaviour and conduct of social and
business relationships. Its purpose is to
promote social harmony and order through a
complex network of friendships and family
relationships lubricated by care and favours to
provide mutual protection and social status
RESEARCH AT CRANFIELD SCHOOL OF MANAGEMENT
enhancement. It is contrasted to western style
business relationships that have explicit
expectations guided by legality and rules.
Consequently Guanxi can play a valuable
relationship nurturing role between a firm and
its outsourcing agents. In planning their case
study the authors took account of the influence
of Guanxi on the choice of strategies to
manage outsourcing risks.
The impact of Guanxi is illustrated by a
noticeable difference in the companies’ risk
management strategies. The sports goods
manufacturer adopted formal contract
management to ensure technical
specifications were met. The fashion producer,
however, benefitted from the softer and less
rigid Guanxi approach to secure the
cooperation and support of outsourced
partners in getting goods to market quickly.
There are three lessons for practitioners from
this research:
(1) Have a well-defined product value and
use this to drive the management of
outsourcing requirements and
relationships.
(2) Incorporate and acknowledge the
benefits and opportunities of local
networks and relationships as
manifested by Guanxi in constructing
outsourcing relationships especially if
speed to market is the key value driver,
the technical requirements are low and
the order quantity is smaller scale.
(3) Stringent technical production
requirements need to be carefully spelt
out and cannot rely on informal
networks such as Guanxi. The scarcity
of the right technical resources in China
would make replacement difficult so
clear specification at the outset is
essential.
Bear in mind though that these lessons
emerge from just two cases. A larger
scale study would provide more insight
into strategies for the risk management
of outsourcing in China and the
influence of Guanxi.
Kam, B., Chen, L. & Wilding, R. (2011)
Managing production outsourcing risks in
China’s apparel industry: a case study of two
apparel retailers, Supply Chain
Management: An International Journal,
vol. 6, no. 6, pp. 428-445.
For further details on this research paper
please contact:
richard.wilding@cranfield.ac.uk
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Management Theme: Supply Chain
and Logistics Management
MANAGEMENT THEMES AT CRANFIELD SCHOOL OF MANAGEMENT
 Business Economics and Finance
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