Pros And Cons Of Outsourcing

Globalization along with the rise of information technologies, have led to changes in the global business arena. Outsourcing is when a business hires another entity to perform their functions. It can be on-shore (in the same country) and off-shore (in other country), but this paper will be based on off-shoring since the Global aspect has to be taken in perspective. First off the emergence of outsourcing will be discussed followed by the reasons and scope of outsourcing. Then the paper will focus on the benefits and drawbacks of outsourcing.

Emergence of outsourcing

Global outsourcing first became popular in the apparel and textile manufacturing industries during the late 1960’s and 1970’s. Then it continued with automotive, computers, electronics, and other forms of assembly work during the 1980’s. Most recently, during the 1990’s, now and also in the future the outsourcing is focused on ‘knowledge’ work such as work in software design, technical support, telemarketing, call centers, and back office work. By the end of 2009 Information Technology outsourcing (ITO) revenues were over US $250 Billion while for Business Process Outsourcing (BPO) were more than US$ 140 billion. By 2006, over 200 firms from the Forbes 2000 companies and almost half of the Top Global 250 had offshored IT and business process activities. By 2008 India was managing 65% of the ITO and 43% of the BPO market. In general, India, China, Latin America, Philippines and Mexico have been the top locations for offshoring. The United States is a major player in the offshoring of IT and business process, however, Europe is also catching up. The growth of global sourcing sparked due to the technological advances in the telecommunications industry and the internet w...

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...achieving the major objectives. If there are only a few core competencies after outsourcing, firms can strive to develop best-in-the-world capabilities.

Companies outsourcing can take advantage of the service provider’s capabilities and innovative competencies, which may be impossible to develop in-house. For example, if a company outsources its IT solutions to a service provider in India, the service provider will give access to the company for its software solutions and data warehouses, which would be very hard to replicate on their own.

Outsourcing manufacturing services to a network of suppliers can provide organizations the ability to adjust the production capability upward or downward, at a lower cost, when trying to match the demand conditions. Outsourcing can also decrease the product design cycle time