Key Idea: Where a business works, and who does the work, are two decisions. This topic is why a business picks a place, and the four ways it can reorganize production: outsourcing, offshoring, insourcing and reshoring.
Reasons for a location
- Quantitative: rent, wages, transport, grants, expected sales.
- Qualitative: the local workforce, links, the government, the feel of the area.
- Station Road costs $40 a day more in rent but leaves $170 a day more.
Moving work out
- Outsourcing: another business does the work, under contract.
- Offshoring: the work moves to another country.
- Lena's cleaning to Brightway; Goldcrust's biscuits to Seren.
Bringing work back
- Insourcing: the business's own staff take the work back.
- Reshoring: work moved abroad returns to the home country.
- Lena's own delivery drivers; Goldcrust's croissants made at home again.
The words to know
| Word | Means | Do not confuse with |
|---|---|---|
| Outsourcing (subcontracting) | paying another business to do work the business used to do itself | offshoring, which is about the country |
| Offshoring | moving some or all operations to another country | outsourcing: a business can offshore to its own factory |
| Insourcing | having the business's own staff do work an outside business used to do | reshoring, which is about the country |
| Reshoring | bringing work that was moved abroad back to the home country | insourcing |
| Core activity | the work the business exists to do, such as baking | non-core work such as cleaning or payroll |
Ask two questions: who does the work, and where. That names the move. Then weigh cost against control, using the case's figures, and say what it means for this business.
Exam-style question
Lena's Bakery Ltd pays two part-time cleaners $3,000 a month, wages and materials included. Brightway Cleaning offers to clean the bakehouse and the shops for $2,400 a month. Last month a food-safety inspector found flour dust behind the Mill Lane ovens. Explain one advantage and one disadvantage for Lena's Bakery Ltd of outsourcing its cleaning to Brightway.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Important: Outsourcing and insourcing are about who does the work. Offshoring and reshoring are about where. A business can do both at once: Goldcrust paying a biscuit maker in Marovia is outsourcing and offshoring together.
Tap each card to check yourself.
Give one quantitative and one qualitative reason for a location. Quantitative: rent, wages, transport cost, a grant. Qualitative: skilled workers nearby, good links, a welcoming government.
Why pay Station Road's higher rent? It sells about 250 loaves a day to Church Street's 150, so it leaves more even after the rent.
Which work do businesses usually outsource? Non-core work: cleaning, security, payroll, IT, deliveries.
One disadvantage of offshoring? Any one: higher transport costs and slower delivery, time-zone and language gaps, jobs lost at home, harder to check quality.
Why did Lena insource her deliveries? The app's drivers delivered late and to the wrong door, and customers blamed Lena's. Her own drivers can be trained and directed.
Why might Goldcrust reshore its croissants? Marovian wages rose by a fifth, the tax holiday ended, and one tray in twenty arrives damaged after two days on a lorry.
Exam tips
- Split location reasons into quantitative and qualitative.
- Name the move with two questions: who does the work, and where.
- Weigh cost savings against loss of control, quality and jobs.
- Reshoring and insourcing reverse a move: say what went wrong with it.
- Apply every point with a figure from the case.