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Advantages and disadvantages of outsourcing in global context
Advantages and disadvantages of outsourcing in global context
Advantages and disadvantages of outsourcing in global context
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1. Pros and Cons of Contracting out a) Pros The proponents of contracting out assume that outsourcing in the IT sector is useful in strategic, technological, and economic reasons. (Gonzalez, Gasco & Llopis, 2009) They believe that outsourcing enables an organization to get the same or better services with lower cost. First, strategic advantages enable organizations to refocus on strategic and core functions, and provide flexibility for organizations because organizations need not to concern about routine tasks (Gonzalez, Gasco & Llopis, 2009). OPPGA (1998) also support these strategic advantages. It asserts that outsourcing can provide organizations with great flexibility in personnel and facilities in short-term projects. Outsourcing providers can provide better services for clients since they usually use new and developed technologies. Second, proponents think that outsourcing gives organizations opportunities to access to technology and reduce technological obsolescence without large investments (Gonzalez, Gasco & Llopis, 2009). Lastly, Pros assume that contracting out can save s...
The outsourcing trend continues to eat up the value chain from blue-collar jobs to white collar jobs3. The software industry is experiencing an outsourcing trend to countries such as China and most significantly to India. The proliferation of the Internet has opened easier access to information and collaborative environments. Previously communication costs and access to mind power was limited. The Internet made communication costs virtually free and collaboration with groups around the makes software engineering and collaboration tasks easier. In additional, liberalization of free markets across international lines has made it easier for companies to set up and outsource engineering tasks throughout the world. Business-process and software outsourcing rely on cheaper cost structure as found in East Asia with manufacturing4.
Jacques, V. (2006). International outsourcing strategy and competitiveness: study on current outsourcing trends, IT, business processes, contact centers. Paris: Publibook.
The term outsourcing refers to the act of contracting out business activities and procedures to a third party. The act of outsourcing sometimes involves the transfer of assets from one organization to the other. The term is also used to describe the act of handling the control of public services to the private corporations. Outsourcing mainly involves both the local and foreign contracting. At times, the term is used to describe relocation of business organizations to another country which is a also known as off shoring. This term is very popular in the U.S especially in the 21st century (Davies, pg. 21). The main motivation for the activity of outsourcing is the financial saving due to the reduced international labor market rates. The opposite of outsourcing is in-sourcing which is the act of bringing the business process that are handled by the third party back to in-house or the local areas instated of contracting it to another country.
Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations. More and more companies, large and small, are turning to outsourcing as a way to grow while restraining payroll and overhead costs ( Ribbers & Routledge ,2011).
Throughout history hundreds of jobs have been outsourced to other countries for the benefit of cheap labor. American outsourcing has been blamed for the constant lack of American jobs causing a controversy between the labor force and businesses that benefit from outsourcing. In the introduction of, Does Outsourcing Harm America?, outsourcing is defined as a “business practice in which a company hires service providers, usually located outside of the country, to do work that the company believes can be performed more efficiently and less expensively by these outside contractors” (7). Although many people believe that outsourcing is a recent practice in business, this is not true. Outsourcing has been around since the colonial times, the production of covered-wagon covers were outsourced to Scotland while the raw materials for the product were imported from India. During the 1970s computer companies began outsourcing their payroll applications to outside providers. Outsourcing became a well-recognized practice during the 1980s due to the high demand of IT workers. Although there was a high demand for IT workers, large corporations viewed the IT workers as an expensive labor force. Therefore many corporations led their demands elsewhere for the sole purpose of lowering their expenses. Outsourcing is not just used for IT solutions; major companies are embracing the benefits of outsourcing, companies such as Apple, Wal-Mart, Boeing, Sears, Disney, etc. US corporations have expanded their needs for outsourcing from just IT departments. Auto parts, cell phone parts, airplane parts, tax return preparations, and clothing manufacturing have all been deemed as jobs that can be produced at a lower cost rate outside of the US.
Competitive advantage is mean a firm’s ability to create value in a way that is rivals cannot. While outsourcing is a business strategy that moves some of an organization’s functions, activities, processes, and also decision responsibility from an organization to outside providers. This outsourcing is done by doing negotiating contract agreements with a vendor who takes the responsibility for the quality, customer services, production process, and people management of the function. So, to allow organizations to focus on their core business and create a competitive advantage, the organization must use outsourcing. Outsourcing is use to reduce operational costs. However, outsourcing have a lacking or disadvantages such as quality risk, quality service, language barriers, labor issues, and legal compliance and security.
As everyone knows, that Outsourcing is an arrangement in which one company provide services for another company that missing or don’t have a specialty on certain area of expertise. Outsourcing is a trend that is becoming more common on information technology and other industries for services that have usually been regarded as intrinsic to managing a business.
To help an organization make outsourcing decision, it should ask the following questions; after outsourcing, will the company be free to concentrate on its core activity? Will the company’s efficiency be achieved when the organization outsources? Will outsourcing help the company gain a competitive position? Among other strategic concerns (Crown 2011).
Outsourcing IT functions has grown exponentially over the last few decades. As organizations grow they find that the IS management becomes a larger and larger part of their day to day operations. In order to save money and focus solely on their core competencies many companies outsource their IT departments to off shore organizations that say they can provide the same service at a lower cost. However many times encumbrances arise from these partnerships such as cultural barriers, talent retention, and loss of in house competencies (Dhar & Balakrishnan 2006). These problems can be avoided by keeping their IT department in-house.
Outsourcing is a technique for companies to reassign specific responsibilities to external entities. There are several motivations for outsourcing including organizational, improvement, cost, and revenue advantages (Ghodeswar & Vaidyanathan, 2008).
One is the opportunity to liquidate the firm’s intangible IT asset, thus strengthening the balance sheet and avoiding a stream of sporadic capital investments in the future. Also, outsourcing can turn a largely fixed-cost business into one with variable costs. This is particularly important for firms whose activities vary widely in volume from one year to another or which face significant downsizing. THE BENEFITS FROM OUTSOURCING Outsourcing has identified numerous potential benefits. Financial benefits from outsourcing included rapid funding of new systems development and economies of scale and scope.
Leveraged buyout or LBO by definition is a purchase in which a group of investors borrows money from banks and other institutions to acquire a company (or a division of one), using the assets of the purchased company to guarantee repayment of the loan. Leveraged Buyouts are normally undertaken by private equity firms. Private equity firms have to deal with the investments in the private equity- in other words someones’ own stock (equity is the difference between the value of the assets/interest and the cost of the liabilities of something owned). With leveraged buyouts it is expected that the return generated will more than outweigh the interest paid on the debt. LBOs are a great way to experience high
Nowadays, many large companies are using outsourcing through IS/IT sector it is because the company was not in the field of IT / IS also in order to gain benefits to their company especially reducing expenses. It also to ensure that the company can focus on their core business and give other operation to outsourcing company that is expertise on the field.
Nowadays, outsourcing is a viable expense sparing technique when used legitimately. It is now and again more affordable to buy an exceptional from organizations with comparative advantage than it is to prepare the great inside. As example of an assembling organization outsourcing might be Dell purchasing some of its components from an alternate producer to spare on handling expenses. Then again, organizations might choose to outsource book keeping duties to autonomous bookkeeping firms, as it may be cheaper than holding an in-house accountant.