Question

Question 2 Week 9 Tutorial 8 What are some of the potential problems global businesses face when they outsource or subcontract their manufacturing work to companies in other countries? (e.g. an Australian company outsourcing the manufacturing of its product to a separate company in China or Vietnam)? Answer this question in 300 words use your own words please

Answer 1

Outsourcing or sub contract of manufacturing works of various global companies to other small companies in other countries is a trend that gained prominence in the 21st century. A part of the business function which could either be a job or a service would be outsourced to a third party, which will be located in some far off country. There is no doubt that the benefits of outsourcing has been tremendous for the companies which is why the demand for the same has also increased. We see that more giant companies of USA, Australia and other countries demand on the Third World countries like India and China to do the work. These companies are invariably looking for cheaper modes of production as these countries offer cheaper labour and less strict government regulations comparing to their own countries. However, the problems arising from such outsourcing or subcontracts is also increasingly making it difficult for them to continue the same. The companies are facing potential problems which can be elaborated as below.

One potential problem that can be faced by these companies is that they will not be always sure of the type of responses they will receive from the outsourced companies. Often the responses will be sluggish and this can adversely affect the functioning and reputation of those global business companies. Another problem is that being located in another country, the big house companies have to worry about the political and economic stability of the countries to where they are outsourcing their work. This is important because, their future business depends on how governments of those countries are functioning. There can be other problems which can affect the integrity of the big house companies itself. This is because, as you are outsourcing your work to a third party, they cannot be sure of that companies credibility and there always will be potential risk of security and privacy leaks. There can also be many unforeseen charges applicable to these giant companies and also there can be many hidden charges which will in the end increase the cost of production for these companies. The changing tax structures of these countries can also hamper the development of production process for these companies. If the government changes the tax structure, then the outsourcing companies would have to bear the brunt and this would be a totally unseen expense that they would have to make.