Question

Pick a company who uses offsourcing or offshoring.

What are the advantages and/or disadvantages from this?

Answer 1

Outsourcing refers to the business practice of reducing costs and improving efficiency through the shifting of processes to an external contracted third party based onshore or offshore. The processes that are outsourced can be performed by the third party either onsite or offsite. The key point here is that the service provider engaged is required to manage workflow and work quality in line with an agreed upon service contract. If the conditions of the service contract are not met (quality and quantity metrics are not hit), then there are grounds for rectification or termination depending on what has been agreed.

The offshoring involves the relocation of entire business functions to another country. This function is then managed by you directly. You are directly involved in selecting and managing your team members on a long-term basis. Offshoring is essentially having a team in another country supported by a shared services function.Offshoring is the process of relocating the business operations unit (production or services) to a different country (usually in developing nations) where cheap labour or resources are available. Here the company do not seek global retailing; instead, it looks forward to minimizing the cost of manufacturing and other supporting services.The are your team, with full support provided.

Therefore, to say that you will “outsource” and “offshore” functions mean two completely different things. Some companies lose sight of this, making it more important to be aware of the unique benefits each model brings.

Example

i-phone company ‘Apple’ have relocated its manufacturing units from the U.S to some of the Asian countries.

China is top on the list of Apple’s offshoring countries because it has been known as the most cost-effective electronics manufacturing hub worldwide.

Future of Offshoring

Offshoring is a more effective means of acquiring the right talent at a minimal labour cost when compared to outsourcing, where the company has no control over the people who work on its projects.

The companies are becoming more inclined towards this strategy (especially in the sector of information technology) to hire people with prominent skills, residing overseas.

The Asian countries like India, Philippines and China are most preferred offshoring destinations for the companies located in the United States.

Example General Electric.

GE used to be a pioneer in many business branches, including offshore outsourcing. They were one of the first to transfer its operational department, data maintaining department, and call center into the country of low expenses – India, creating a special GECIS (General Electric International Service) department. GECIS provided services of finance and bookkeeping, customer verification, e-learning and business analytics, and an IT outsourcing and support of software development, securing thousands of business processes in 11 GE branches. By the end of 2004, over 12 thousand people were working in GECIS, and you can imagine how much General Electric saved on people’s salary, only because they were working in India, not in the US.

However, this is not the end of this story. GE decided GECIS can bring more income if they evolve from a subsidiary company to a standalone unit, and it will provide analogical services to other companies. Intended – done.

All these operations were maintained within a framework of unified policy, founded by General Electric CEO Jack Welch, and it’s called “70:70:70”. That number combination means 70% of their work in GE must be outsourced, 70% of that is given to dedicated offshore centers, and 70% will be in India.

Advantages of offshoring

• Concentrate on Core Business: When the company offshore its other services, it can lay more focus on its core functions.
• Cost Reduction: The most crucial reason or benefit of offshoring is to cut down labour cost and other operating expenses.
• Cheap and Skilled Workforce: It is an opportunity to get competent and cost-efficient labour available in a developing nation.
• Complete Assistance: The offshore team holds expertise in its field, providing a relevant solution to every problem related to the production or services offshored.
• Better Control: The company can ensure proper management and regulation of all its operations if it opts for offshoring.

Disadvantage

• Language Barrier: When the company enters into a developing country for relocating its business operations; it finds a huge gap between the local language of the area and its native language.
• Communication Barrier: Due to the difference in language and understanding, the organization fails to establish effective communication with the offshoring team.
• Long Distance Locations: Usually the offshoring units are located in geographically distant locations which make it difficult for the management to visit these subsidiaries often.
• Ethical Issues: If the organization pays dissatisfactory remuneration to the offshoring team or in any case if they feel that the facilities are improper, it leads to ethical problems and spreading of negative brand image.
• Socio-Cultural Problems: When the company operates in a different country, it needs to acquaint with the cultural and social environment of that place; otherwise, it may face specific socio-cultural issues.

Outsourcing means negotiating out a business operation or activity to an external body. For this, two companies draft a legal agreement for the swap of payments and services. For an action to be called ‘outsourced’ it should be:

• A recurring action.
• An action that the firm presently furnishes for itself or is commonly scheduled to implement for itself

Example Google company that pride themselves on taking care of their in-house culture and employees, it might look as a bit of a mistake to list Google here. Well, it’s not because the tech giant headquartered in Mountain View, California, has been taking advantage of outsourced staff for years. Whether it was a matter of IT specialists, developers, as well as virtual assistant types of work, Google is a strong implementer of outsourced work to take care of the many projects they continuously deploy and work on.

One area that made it on the news, and that many might not know about, it’s when they decided to outsource phone and email support for AdWords to around 1000 reps. AdWords is one of their top grossing product, so they wanted to have the biggest ROI possible out of it. And, this might not come as news to you, they’ve succeeded.

Advantages

• Better Quality: Sometimes, another firm is just superior at delivering a service or building products than your firm.Thus, it is the best option to outsource that service to another firm for getting the best possible results from that service or product.

• Improved return on investment: A pillar of outsourcing is its ability to shorten the investment in equipment and plants required for the production of the products.If you can maintain the volume of the profits for the product and not waste too much on supplier margins than the return on investment of the firm will increase.
• Lower cost: Some suppliers have a business in their support; outsourcing to low-cost labour can minimize the labour cost of the firm.

Example: In India, labour cost is much cheaper than the USA; thus, various companies from the USA outsource their low skill works to low-cost companies in India.

Disadvantage

Disadvantages of Outsourcing

• You Lose Some Control:-As you might expect, when you farm work out to external agencies or freelancers, you’re losing control of how those tasks are being monitored and performed. So long as you know and trust who you’ve hired, that shouldn’t be a huge issue – but you’ve got to tread carefully.

• There are Hidden Costs:-Although outsourcing work is generally considered cheaper, yo must also beware of getting ripped off. Outsourcing companies or big agencies will typically ask small business owners to sign lengthy contractual agreements, and they’ll include plenty of fine print. If you don’t read the terms carefully, you could get hit with unexpected costs.
• There are Security Risks:-In this age of data protection, it’s essential that you exercise caution whenever using customer data. If you plan to outsource processes that require personal data, you could be placing the privacy of others or security of your business at risk by passing that data on to other people.
• Things Get Lost in Translationd:- Itoesn’t matter whether you’re dealing with overseas freelancers or some talented expert just up the street – but if you’re handing out remote work via email or telephone, important instructions are often lost in translation. That could cause you serious time, money and hassle.
• You Share Financial Burdens :-Althought it can be nice to bring in expert agencies to share in risks, it can be pretty dangerous to tie your business to the financial well-being of another company. Again, you’ve got to spell out any and all terms and conditions in contractual arrangements plainly – because you don’t want to take a financial hit if they fail to deliver.
• You Risk Public Backlash:- You’re taking work overseas (even just to write a blog or two), your business very well may run into ill will from consumers that have taken a moral stance against outsourcing. Right or wrong, for better or for worse, some form of criticism is often inevitable.

I tried my best to explain the solution ,I hope that you got the answer so please appreciate the effort by liking it.