How Manufacturing Firms are Outsourcing in Australia | Article

man looking over computer screenOutsourcing is stabilizing in Australia and firms now have a better understanding of what can potentially be outsourced. So Fiona Rhode, lecturer in Information Systems in the Department of Commerce at the University of Queensland, assumes that outsourcing will continue to grow throughout the country. And as vendors in Australia improve the services they offer, outsourcing will continue be used as a tool to add value to growing companies. Many companies are just beginning to realize that company size really doesn’t matter because there are vendors of equal size that will cater to their needs.

Because of the ever-increasing interest in outsourcing in Australia, Rhode’s recent study comes at a great time. In her study Rhode chose manufacturing firms in Australia because she says there has been very little research in that area. And instead of looking at a large number of firms and concentrating on only a few aspects, she chose only six so that she could conduct more in-depth interviews and cover a great deal of territory in the process. All of the manufacturing firms she chose to study are in Queensland and vary in size form 40 to 60 employees to 700 to 800 employees.

What Was Being Outsourced?

The same things were typically outsourced by all of the participants in the study. None of the manufacturing firms bought their own hardware. The little firms were using generic brands and the larger firms were using systems like Compaq, Hewlett Packard and IBM. “The major reason behind the larger firms finding someone to purchase their hardware is that they were interested in maintenance agreements because they had such a large number of machines,” Rhode says. “But the small firms had someone come out and fix the computers on an as-needed-basis.”

Most of the companies outsourced their software development or changes to their accounting packages. All of them had upgraded their accounting system because of Y2K issues and they bought as much software as they could off the shelf, she says. As manufacturers, most of them have a fairly unique product costing system as far as accounting is concerned and therefore needed someone to come in and change the packages to their needs.† All of them outsourced those services except one that bought an off-the-shelf software package and configured the software to the company’s business needs internally.

None of the firms outsource the accounting function itself though. Everything is done internally, from preparing invoices and statements to payroll.

Using the Single Integrator Approach

Rhode said that there was a big move to minimize the number of accounts payable, so therefore the companies tried to get as many services as possible done by the same firm. “If a company found a good firm to do the hardware maintenance then what they would do is try to buy the next lot of PCs through them, and as much off the shelf software as they could through them as well. By using the same suppliers they could get a better all-around deal.

“I think this might be unique to Australia,” she says. “Reputation is key and word of mouth was a big issue regarding what suppliers were used. Only one firm went to tender and the rest chose their suppliers by word of mouth. Some of the companies have had the same vendors for 10 to 15 years.”

Rhode used an economic framework to determine what should and shouldn’t be outsourced. According to the study 80 percent of the companies’ functions were being outsourced correctly according to that theory. And even in the cases where they were not doing it by the book they were still fairly satisfied with the results. So even though they were doing things theoretically different they were executing them effectively.

Lessons From the Outsourcing Primer:

  • Outsourcing is stabilizing in Australia.
  • Many companies in Australia are just beginning to realize that company size really doesn’t matter because there are vendors of equal size that will cater to their needs.
  • Outsourcing will continue be used as a tool in Australia to add value to growing companies.


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