Following the 2008 recession and a short period of declining demand, the outlook for outsourcing and off-shoring showed an increasing trend for the foreseeable future. As companies realign their strategies to better compete in the world stage, the projections indicate that this practice will grow over different dimensions including function, services and geographic locations (Deloitte, 2014).
The main benefit for the companies that use outsourcing and off- shoring is the positive impact it has on their bottom line. Companies usually outsource services or functions to undeveloped regions of the world where wages are much lower and regulations are weak allowing them to realize savings and lower costs, which are probably unattainable if carried out in their home countries. The ability to offload secondary functions or competencies to third parties allows companies to concentrate in their core processes and maintain or create a competitive advantage. Other benefits include getting access to skills and capabilities not available in-house, more operating flexibility and the ability to lower operating risks by delegating activities to third parties (Dinu, 2015).
The above are some benefits cited by firms regarding outsourcing, but as it is common with all activities there are negative side effects. The increase in investment risks, including operating and more importantly reputational risk. Poor selection of vendors, lower quality standards and security gaps for confidentiality
Because many businesses in the US have more often began outsourcing different business products instead of doing them in-house, it is important to understand why outsourcing may be the best option. Although many tie outsourcing to foreign markets, outsourcing can include both foreign and domestic markets. By entering into a contractual agreement, outsourcing allows organizations to pay for services they need. This gives the option for a business to get professionals to perform services for them that the business may not have the staff for. Outsourcing provides a cost saving-strategy that is usually more affordable. Ultimately,
Cost Advantage: The job can be completed at a lower cost than the company may incur and with better quality at the same time. For example, the wages in India is a fraction of the same work done in other western countries. The cost savings is approximately 60 percent when outsource in India. In addition, the higher quality service ensures the company benefits from the high quality work can be done at a low price.
Many firms embrace outsourcing as a way to realize cost savings or better cost control over the outsourced function. Firms usually outsource to a vendor that specializes in a given function and performs that function more efficiently than the company could, simply by virtue of transaction volume. Back-office functions that are complicated in nature, but the size of the firm is preventing them from performing it at a consistent and reasonable cost, is another advantage of outsourcing. For example, a small doctor's office that wants to accept a variety of insurance plans. One part-time person could not keep up with all the different providers and rules. Outsource to a firm specializing in medical billing.
It is a concept that has evolved from a manufacturing perspective to a strategic perspective, which views the concept as a way for organizations to focus and be more competitive. The basic premise of outsourcing is that a specialist organization can perform a particular service more efficiently than can internal operations because a specialist organization has an inherent advantage in producing and delivering a service. Superior technology, management skills, or economies of scale may contribute to this perception. The type of sourcing relationship depends on whether a long-term or short-term need exists. To save funds used for benefits for regular employees, temporary workers are hired. In this case, the organization (outsourcer) provides all necessary resources except the workers, who are provided by the vendor. For long-term services, the vendor has full responsibility for delivering the service; the outsourcer provides only a liaison.
The fourth advantage to outsourcing is that it can help develop internal staff. As I stated in the advantage above, outsourcing projects help meet performance peaks, but it can also assist in completing projects that are nearing the end of its requirements. What this does is allow the company staff to focus on new initiatives that
There are many benefits of outsourcing that companies and countries seize to take advantage of. The biggest benefit is reduced costs of infrastructure and labor. According to the OneNeck IT Solutions, “The attraction to overseas outsourcing has traditionally been reduced costs. By moving support services to India or China, for
One effect of outsourcing is that it economically benefits American firms both domestically and abroad, and these benefits are the reason outsourcing is so prevalent in today’s world.
Over the past decade, many companies from North America have moved to foreign countries. This migration is known by many names – “runaway plants”, “outsourcing”, “global sourcing” and “offshoring” ("Outsourcing: What's the true impact? Counting jobs is only part of the answer."). According to Investopedia, outsourcing is “a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally” ("Outsourcing Definition | Investopedia"). Companies outsource primarily to cut cost. This mostly helps them to reduce their cost by 60 percent since labour in many Asian countries like China and India is very cheap. Even though offshoring is benefiting companies, it has negative
One impact that companies have using offshore outsourcing ' is the business rivalry, and business rivalry is great. It is imperative since it gives one organization an edge over another. As indicated by Winston Pepito if companies do not use outsourcing they will lose ground against the competition (Pepito).
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
While some risks are not that significant, some risks may be very complex or even almost hopeless and thus managers need to identify them clearly and step by step and then find an appropriate solution. Managers also need to understand how the mechanism of outsourcing is working, specific tools, and techniques that may allow them to deal with those kind of risks or challenges. With the right strategy manager can outsource in a more efficient way.
There are also several disadvantages to outsourcing agreements, which include becoming dependent on an outside supplier for services, failing to realize the purported cost savings from outsourcing, locking into a negative relationship, losing control over critical functions, and lowering the morale of permanent employees.
A final reason for the company to offshore part of their operations is access new markets. Since the company is not restricted to just the domestic market, offshoring gives the company global presence and the ability to access developing markets in Third World countries. By streamlining the company’s production processes and supply chains globally, companies can lower their prices increase demand for their products, thereby attracting new customers and entering new markets.
Even when you don't provide certain services because there is no need enough know-how or inclination to provide such services, outsourcing will help you add new services to your clients. It really is like adding new earnings source to your combination by leveraging the collective capacities of the service provider's team. Many duty preparers take help of outsourced accounting and bookkeeping to provide full-service accounting experience with their clients.
First, outsourcing reduces the need for a company to focus on an area that is not as critical