Question

Outsourcing and shifting production jobs or work assignments to another company to cut costs is a controversial topic. When those jobs are moved to another county it is can be called global outsourcing or offshoring.

Are you an advocate for global outsourcing or are you against the strategy? Briefly explain why you chose that answer and provide a specific example to help explain your answer.

Answer 1

What is Global Outsourcing?

Global Outsourcing is the task of allocating some of its business process outside the organisation. It involves temporary or permanent allocation of some of their resources to do efficient utilization of resources. The organisations outsource the parts of their processes which they deem desirable either due to un-importance or due to not having specialization in the particular process.

Global Outsourcing also known as off shoring has both its pros and cons and an understanding of both needs to be done before deciding its usefulness.

Benefits of Outsourcing

Expert Assistance-The third party provides the expertise of the particular process and helps in the most efficient utilization of resources.

Maintaining focus on core processes-The outsourcing helps the organisation to focus on their key operational area and reduce the trouble to take care of supporting processes.

Risk Sharing-The sharing of resources and outsourcing also brings accountability of performance on the third party. The parameters of performance can be reviewed periodically and best performance can be achieved.

Reduced operational costs-The operational costs are reduced significantly as the less importance processes are outsourced. Sometimes, the country of third party has location advantages in terms of natural resources, low cost resources etc and helps in the improvement of financial performance.

Reduced Hiring costs- The outsourcing also brings down the hiring costs as globally there are advantages of cheap labour, low cost specialized expertise etc.

Challenges of Outsourcing

Risk of sharing confidential data-The outsourcing of processes also requires sharing of internal resources and data which can be confidential. This sharing has to be reviewed as a lot of consumer data is at stake.

Collaboration between internal and external becomes tough-The outsourcing requires coordination and teamwork between internal and external third part teams which is a challenging job.

Additional hidden costs-The global outsourcing sometimes may involve additional hidden costs which may increase the total costs for the organisation.

Lack of focus-The third party may sometimes require enhanced focus from the company which is sometimes missing as the company might be taking care of a number of other companies as well. This might result in hampering the financial and non-financial loss to the organisation.

Choosing between outsourcing or not outsourcing

The choice of outsourcing a function or process by an organisation has to be approached with a lot of care and the function which is not the core of the organisation or has a significant cost advantage has to be outsources. At an overall level, in the era of shoetening turnaround times and increased need of globalisation, the organisations need to do global outsourcing but take care of its challenges. The most prominent example is of IT outsourcing or Business Process outsourcing to countries like India by US or European countries. The lack of expertise in communication capabilities, technical assistance and proficiency in English language are among top reasons for the outsourcing. Many other organisations outsource functions such as Legal outsourcing, Content Development, Logistics, Web design, recruitment, customer support and manufacturing.