Managing production outsourcing risks in China's apparel industry: a case study of two apparel retailers

Abstract

PurposeThis paper aims to examine how Chinese apparel retailers manage their production outsourcing risks and why they elect to manage those risks in a particular manner.Design/methodology/approachThe investigation used the case study approach to explore factors driving two Chinese apparel retailers operating in different market environments to manage their production outsourcing risks.FindingsThe selection of production outsourcing risk management strategies hinges on what apparel retailers view as the most important value their products provide to customers. Product values were linked to specific product characteristics as well as the market environment in which the apparel retailers operated. The retailer that regarded product quality as a key value driver was found to place emphasis on manufacturer selection and use of a formal contract for process control. The retailer that viewed newness and variety as a value driver opted to cultivate a strong, committed business relationship based on Guanxi to achieve speed‐to‐market.Research limitations/implicationsAs a case study research, the findings of this study have their limitations in generalisability. Given that one of the retailers did not invoke Guanxi to cultivate a long‐term business relationship with its outsourced manufacturers, the role of Guanxi in outsourcing risk management in China deserves further exploration, as businesses in China become more globalised.Practical implications/valueThis study grounds mainstream outsourcing strategy literature on operational practice through case studies. It highlights the influence of both product characteristics and market environment in dictating the choice of outsourcing risk management strategies in apparel manufacturing.Originality/valueThe study views outsourcing risk management from the perspective of minimizing outsourcing failures, rather than achieving outsourcing success. It reveals that risk management behavior of apparel retailers was linked to the notion of value protection, which varied according to what they considered as their principal product value drivers.