Case Discussion Questions 

1. What was the strategic advantage to Microsoft of outsourcing Xbox production to 
Flextronics? 

The major strategic advantage to Microsoft via outsourcing Xbox productin to Flextronics was
that Flextronics had the capability to produce Xbox at a lower cost and better quality as
compared to Microsoft's inhouse capabilities and thus, such outsourcing allowed Microsoft to
exploit the strengths of Flextronics, instead of utilizing its own weak manufacturing capabilities
and focus soley on marketing and distribution of the product.

2. What were the risks associated with outsourcing to Flextronics? Did Microsoft mitigate 
these risks? Do you think Microsoft would have been better off making the Xbox itself? 

The risk Microsoft has when outsourcing via Flextronics is their sharing of pertinent and
“secretive” information about their products. Sharing vital information like that can result in
creating a competitor out of Flextronics rather than maintaining a partnership. They have
mitigated these risks by patenting their products and forcing Flextronics into an agreement that
allows Microsoft to handle the overall management of some 40 suppliers for the Xbox, while
Flextronics only handles the supply of commodities. With Flextronics’ expertise, Microsoft
would not be better trying to produce Xbox themselves. Flextronics is an experienced
manufacturer, while Microsoft would need to invest too much money to start making Xbox.
Microsoft is better off producing its core competency, software, and outsourcing other products
to companies like Flextronics.

3. How did Flextronics' industrial park strategy enable the company to respond to national 
changes in relative factor costs? 
Under Flextronics’ industrial park strategy, key suppliers were required to establish their
operations near a Flextronics assembly plant in low-cost locations near the customer’s end
market. This strategy facilitated just-in-time inventory systems and reduced transportation costs,
and also avoided the break-downs that could occur in a globally dispersed supply chain. The
strategy also enabled Flextronics to shift productionto new locations as cost and demand
conditions warranted

4. How important are Web-based information systems to the relationship between 

Microsoft and Flextronics? What are the economic advantages of real-time information 
flows between Microsoft, Flextronics, and Flextronics' own subcontractors? 

The real-time, web-based relationships between Microsoft and Flextronics are a critical
component in the relationship between the two companies. Microsoft can provide demand
information to Flextronics which can then adjust its production schedules so that inventory and
costs are minimized, yet demand is still satisfied. Without the real time information systems in
place, surplus inventory could drive up costs. A similar argument can be made for the real time
information flows that exist between Flextronics and its suppliers