Question

In: Accounting

Some companies have created controversy over the decision to outsource major activities to companies based in...

Some companies have created controversy over the decision to outsource major activities to companies based in other countries. The decision to outsource should begin with an analysis of the relevant costs.

What is your opinion of outsourcing?

Should outsourcing be exclusively a cost decision, or should the human aspect be factored into the decision?

Solutions

Expert Solution

Outsourcing- This is an activity in which one company hires other company or group of people or third party to be responsible for some services. Companies get some work done on contract basis with third party.

Examples- Call centres, Customer support, Payroll services etc.

Nowadays, companies create controversies over outsourcing but fact is that, there are many benefits of outsourcing-

  1. The primary benefit of outsourcing is to reduce and save cost. Companies of UK and USA hire the third party from India, Philippines etc. in this way they save cost as they have to pay less to the employees of companies in developing countries.
  2. Companies get quality service at lower cost from another company or country that they will not get in the same company or country.
  3. When companies do outsourcing, they share the risk together. Companies transfer the risk to the outsourced vendor as outsourced vendor have skills to lower the risk.

Outsourcing should not be merely a cost decision, it should consider other factors also like human resources and their remuneration. If company outsources the third party then it has to pay ethical and enough remuneration to the employees of outsourced company.


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