Some outsourcing costs and benefits are easily identified and quantified because they are captured by the accounting system. Other costs and benefits are decision-relevant but not part of the accounting system. Such factors cannot be ignored simply because they are difficult to obtain or because they require the use of estimates. One of the most important and least understood considerations in the make-or-buy decision is the cost of outsourcing risk.
There are many other factors to consider in selecting the right level of participation in the value chain and the location for key value-added activities. Factor conditions, the presence of supporting industrial activity, the nature and location of the demand for the product, and industry rivalry should all be considered. In addition, such issues as tax consequences, the ability to repatriate profits, currency and political risk, the ability to manage and coordinate in different locations, and synergies with other elements of the company’s overall strategy should be factored in.
Minicase: Nokia’s Global Brain Trust: Encouraging the Mobility of Ideas
Nokia likes to team up with leading international universities in search of the next great communications technology ideas. The Finnish company’s research center in the United Kingdom works with the University of Cambridge to develop nanotechnologies for mobile communication and what is being called “ambient intelligence”—electronic environments that are sensitive and responsive to the presence of people. In Beijing, Nokia’s research hub was set up to take advantage of China’s top-level universities and to gather valuable local perspectives on communications trends and market potential.
But the other aspect of Nokia’s open innovation model—its abundant use of the Internet to harvest new ideas—is far less conventional. The progress of current projects is posted on company wikis. The Nokia Beta Labs website plays host to a legion of testers who provide feedback on new and potential applications. And Forum Nokia, a portal available in English, Chinese, and Japanese, gives outside developers access to resources to help them design, test, certify, market, and sell their own applications, content, services, or websites to mobile users via Nokia devices.
By encouraging the mobility of ideas across its network and then exploiting them commercially, Nokia is able to succeed with an innovation strategy that represents the best of global and local approaches. But Nokia’s open-innovation thrust is by itself only part of a long-term innovation strategy aimed at supporting sustained expansion into markets outside the company’s traditional European markets.
Venture capital investment is the other thrust. The company’s Nokia Growth Partners, with offices in China, Finland, India, and the United States, manages $350 million for direct investments and fund-offund investments in other venture capital players, primarily in the United States, Europe, and Asia. One recent fund investment was in Madhouse, China’s leading mobile advertisement network—a crucial driver for continued growth in mobile communications markets.
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