Insource vs Outsource: Key Factors in Business Decision-Making

1 To Insource or Outsource? Ethan Grow American Public University BUSN604: Fundamentals of Business Analysis Xiaodong Wu 09/24/2023

2 To Insource or Outsource? The decision on whether or not to outsource a product line is a complex problem, and there are several qualitative and quantitative factors to consider. Quantitatively, the cost burden of international distribution and hiring the outsourced company must be evaluated, along with the qualitative factors of inter-business trust and longevity agreements, and whether or not the company has the manufacturing expertise to retain this product line in-house. Investment similarities and differences between US and international interests should be examined as well. Quantitative Factors Quantitative factors to consider should include evaluation of the cost of international distribution, and the cost of hiring the overseas company that would be manufacturing this new product line. As for international distribution, taxes and tariffs imposed by the host country and the US for distribution of goods can be easily calculated and compared. By adding that cost into the equation of cost vs benefit for this new product line, an informed and evidence-based decision can be made to maximize profit over cost (Beers, 2022). International shipping costs will be higher simply because of transportation costs over greater distances, but in most cases, the outsourced differential cost between manufacturing in-house vs hiring outsources infrastructure will still allow the company to come out on top. Hiring costs for overseas manufacturing can be a simple decision as long as deciding factors are clear cut such as hard upper limits on percentages of profits taken by the outsourced company and other costs such as resource use for manufacturing the product, storage costs, and disposal costs of any excess or leftover product (Kenton, 2021).

3 Qualitative Factors Trust and longevity agreements must be agreed on by both parties. This contract agreement must detail the needs and wants of both companies so that operating principles can be set. In the best-case scenario, this agreement would apply to a long-term manufacturing process where both companies can profit (Kenton, 2021). There should be a process of interviews and conversations to establish trust and a relationship that both parties can be comfortable in to reassure the other that all necessary business objectives can be met. During these meetings and conversations, it would be the responsibility of the outsourcing company to demonstrate their expertise in manufacturing the desired products and how they would perform their side of the agreement to the best of their capabilities. Productivity must be proven, along with efficiency and safety (Beers, 2022). If their capabilities do not meet the expectations of the hiring company looking for outsourcing, then they either need to find a way to increase their ability to meet those expectations or the hiring company will look elsewhere. US vs International Investments U.S. profit margins can be exposed to fewer variables and factors than international markets because of more open markets, but they also add an opportunity for investors to expand their portfolios and diversify investments. There are exchange rate and country risks when investing internationally, that must be accepted as a part of international financial endeavors (McClure, 2022). Some foreign stocks are available in the US markets and can give investors a taste of international profit gains and losses.

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4 Conclusion In conclusion, insourcing and outsourcing product lines involve qualitative and quantitative factors that should be considered in the decision-making process. Investments in the US and overseas have different advantages and disadvantages. Both of these lines of business orientation should allow for all factors and variables to be considered to create the most profitable, efficient business model possible.

5 References Beers, B. (2022, December 26). The difference between outsourcing vs. Insourcing . Investopedia. https://www.investopedia.com/ask/answers/032715/whats-difference- between-outsourcing-and-insourcing.asp Bogdanova, K. (2022, January 6). U.S. vs. International Equities: Time for a portfolio tune-up? . RBC Wealth Management. https://www.rbcwealthmanagement.com/en-us/insights/u-s-vs- international-equities-time-for-a-portfolio-tune-up Kenton, W. (2021, February 8). Make-or-buy decision explained: How to make outsourcing decisions . Investopedia. https://www.investopedia.com/terms/m/make-or-buy-decision.asp McClure, B. (2022, April 30). Investing beyond the U.S. borders . Investopedia. https://www.investopedia.com/articles/stocks/04/121404.asp

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GrowE-BUSN604 Week 7

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