The mobile network provider markets in South East Europe have reached a level of maturity that calls for distinctive strategic actions such as outsourcing the logistics activities. With huge providers such as Vodafone being present in Romania, Greece, ex-Yugoslavia and Bulgaria, or Vimpel Communication, the Russia’s second-largest cellular operator[1], entering non-Russian mobile customer markets, it becomes critical for these companies to focus more on their core competences and consider peripheral activities for outsourcing. This comes in line with the results from a KPMG survey[2] taken in 2003 that showed that 80% of the companies that use logistic services acknowledged the importance of logistics outsourcing. Moreover, according to the same source, it seems that in Hungary, for example, 4/5 of the companies that chose outsourcing are satisfied with the results. It is therefore extremely important to understand how the Romanian market is adapting to this evolution. But to make that transition smooth, a better understanding of what outsourcing really means must be undertaken.

In understanding outsourcing as a business strategy, it is very important to set the context in which it appeared. Williamson’s theory of transaction cost and concept of asset specificity (Williamsons, 1985) is based on Coase’s article “The nature of the firm” (Coase, 1937, Lonsdale and Cox, 2000) and represents the conceptual basis for outsourcing. Barthélemy (2003) states that “outsourcing is generally considered a very powerful tool to cut costs and improve performance”(p.87). However, according to Canez et al (2000), there are also some strategic reasons to be taken into account.

In nowadays environment, when globalization and technological innovation are faster than ever, the increased pressure on managers to remain competitive recommends outsourcing as the way to accomplish their objectives. Innocenti and Labory (2004) consider that “strategies are increasingly dependent on design innovation, product differentiation, customization, after-sales services and brand loyalty.” (p. 115). Insinga and Werle (2000) claim that: “In order to do more with less, a company must focus its limited resources on those activities that are essential to its survival and must leverage activities that are peripheral.” (p.58).

Therefore, when choosing outsourcing, the activities taken into consideration have to be critically analyzed. Heikkila and Cordon (2002) categorize the activities that should remain in-house, as following: distinctive competencies, essential competencies and protective competencies. Efficiency and risk are the attributes that have to be analyzed in order to see if an activity qualifies for outsourcing or not. Nevertheless, this is not a thorough approach to the problem and every situation has to be individually considered. A different way to identify core competencies is to apply three tests: customer value, competitor differentiation and extendibility (Hamel and Prahalad, 1994) and to analyze if outsourcing will produce significant improvements in these areas without endangering the company. According to Gottfredson et al (2005), in today’s business environment companies have to pay attention to their “ability to control and make the most of critical capabilities” (p.132). Espino-Rodriguez and Padron-Robaina (2006) developed an outsourcing framework on a resource-based view of the company. The authors presented activities from the viewpoint of their ability to create strategic value: “Outsourcing the activities or business processes not forming part of the firm’s core competences (complementary and non-core) to specialist suppliers increases organizational performance” (p.65) was their conclusion.

Vodafone Romania has analyzed the benefits and risks of outsourcing its logistics activities and chose CEVA Logistics as their partner. What made them to take this decision? CEVA Logistics, a new name in the market, acknowledged what are the key market needs. The company knows the elements that are essential for creating an ideal mobile phone supply chain, namely a timely delivery, transparency, a secure warehousing and smooth processes. Therefore, the Mobile Network Operators Solution Set CEVA is offering incorporates value added services in terms of Inbound activities, Reverse services, Kitting, and management of different sales channels. In addition, having a strong know-how in this type of business, CEVA can leverage its operational excellence by standardizing some “core” processes while customizing its activities in order to match the client needs. As CEVA already handles 1 out of 9 mobile phones in Europe, it is obvious that some of the activities can be benchmarked. The company focuses on reducing the costs of the supply chain activities on all levels. Optimized kitting yields twice the average productivity. Creating a true diagnostic of the operations, CEVA offers to its mobile network clients a solution to take decisions in specific situations. Moreover, the company provides answers to critical questions like the need for an additional kitting line for the B2C orders or the need for investment in forecasting tools, to give some examples.

The strong partnership between the two companies works very well. Vlad Goran, the Country Manager for CEVA Romania states: “We are really enthusiastic to work with Vodafone and we are happy to see the professionalism and commitment that comes from this company. The success of a partnership, when we talk about logistics, comes from openness and understanding of each other. It is vital for the partners to work together, as a team, in order to achieve operational excellence. In our case, we want to prove to everybody that not only we can maintain very high KPI’s but also, on a global scale, set an example for others. We pursue to continuously sustain Vodafone to keep their customer promise, and to do that we will walk the extra mile.” Speaking about outsourcing, Vlad Goran stated: “Outsourcing, if properly implemented, can offer some great advantages. One of the greatest advantages is full utilization of supplier’s investments, innovations and technological achievements. Some another advantages are the increased flexibility, the power to focus on distinctive competencies, cost reductions, and decreased the product/process design cycle time.”

Therefore, 2008 seems to bring new insights in terms of partnerships between logistics companies and mobile network operators. The collaboration being still at its beginning if we consider the strategic consequences it has, it becomes difficult to draw a clear conclusion. However, it can be said that Vodafone, on one hand, and CEVA Logistics, on the other hand, have began a process that, if it is properly managed, can yield great benefits on the long term. Moreover, it becomes obvious that the local market is gradually shifting towards the western paradigm of business management, a paradigm that acknowledges the power of outsourcing. Hence, important companies that are making business in Romania started to acknowledge that small is beautiful, and this will have a great impact on the competitive power these companies will have in the following years.

References

Barthélemy, J. (2003) The seven deadly sins of outsourcing. Academy of Management Executive. 17(2), p.87-98.

Canez, I.E., Platts, K.W. and Probert, D.R. (2000) Developing a framework for Make-or-buy decisions. International Journal of Operations & Production Management, 20(11), p.1313-1330.

Coase, R.H. (1937) The nature of the firm. Economica, 4, p. 386-405.

Espino-Rodriguez, F.T. and Padron-Robain, V. (2006) A review of outsourcing from the resource-based view of the firm. International Journal of Management Reviews. 8(1), p.49-70.

Gottfredson, Mark; Puryear, Rudy and Phillips, Stephen. (2005) Strategic Sourcing From Periphery to the Core. Harvard Business Review. 83(2), p.132-139.

Hamel, G. and Prahalad, C.K. (1994) Competing for the Future. Boston: Harvard Business School Press

Heikkilä, J. and Cordon, C. (2002) Outsourcing a core or non-core strategic management decision?. Strategic Change. 11(4), p.183-193.

Innocenti, A. and Labory, S. (2004) Outsourcing and Information Management. A Comparative Analysis of France, Italy and Japan in both Small and Large firms. The European Journal of Comparative Economics, 1(1), p.107-125.

Insiga, Richard C. and Werle Michael J. (2000) Linking outsourcing to business strategy. Academy of Management Executive. 14 (4), p.58-70.

Lonsdale, C. and Cox, A. (2000) The historical development of outsourcing: the latest fad? Industrial Management & Data Systems 100(9), p.444-450.

Williamson, O.E. (1985) The Economic Institutions of Capitalism. New York: The Free Press.