A commentary on outsourcing - Essay Example

26 April 2007 A Commentary on Outsourcing The growing globalization ushered a new trend called business process outsourcing (BPO) where companies sub-contract or outsource their core and non-core operations. The most common BPOs are call-centers, human resources, accounting and payroll outsourcing. It is irrefutable that this new system has been viewed as highly beneficial for business organizations. In fact, the most reputed companies like Dell, IBM, and GM are now outsourcing their business process to BPO hubs like Philippines and India.

The article entitled Offshoring the Offshorers by Dolan highlights the new development in BPO with the major player like India being challenged by other participants like China, Philippines, Brazil, Hungary and other Latin American countries. From the low-rung jobs to more specialized and complicated business processes further emphasizing their importance in the business world. It is also expected that the volume of business processes outsourced overseas will continue in the coming years. This only proves the further expansion of BPO and the participation of other lower-cost service providers.

The article also stresses the huge investments made by BPO companies in order to differentiate themselves from other providers while at the same time strengthening their position in the global BPO industry. Indian firms like Tata Consultancy, is beefing up its capacity by outsourcing some of the jobs that it accepts. That entry of new participants and differentiation strategies from different BPO companies will intensify competition within the industry. The increase volume of business processes being outsourced has important implications.

It should be noted that the major rationale for business process outsourcing is cost minimization. Business organizations are often attracted by the prospects of lowering operation and administrative costs by choosing lower-wage workforce to perform jobs which are traditionally done in-house. Managers also argue that BPO is a "management tool" which "frees companies to build upon their core competencies by leaving the non-core stuff to providers" (Banham 1). However, the above presumptions about BPO are myopic as they fail to recognize the costs associated with leaving the companies' processes to lower paid third world workers.

First, as companies try to find less costly resources, the labor market in the home country usually suffers because of massive lay-offs. Workers in industrialized economies like the United States suffer as they lose their jobs to workers from other countries. It is also irrefutable that BPOs, like call centers, does more harm than advantage. Take Dell for instance which have capitalized and always been regarded for its excellent customer service. This recognition for the company has been eroded due to the fact that India's customer agents often lack the knowledge and skill necessary to service customers (Dell Admits Indian Mistake).

Thus, the savings from employing Indian customer service representatives are offset by the lower revenues generated due to clients' dissatisfaction. This has also adversely affected the reputation of the company in the industry. Companies should also recognize the risk associated with outsourcing their business process. As they entrust more complicated tasks to workers overseas, the level of the confidentiality of their private information is reduced. This situation can bring potential harm to the business organization as important information can be divulged to its competitor or to the public.

For these reasons, I believe that business process outsourcing is more detrimental than beneficial. Companies planning to outsource should rethink and weigh both quantitative and qualitative aspects of BPO. True enough, BPO provides companies with the opportunity to enjoy cost savings from their operations and improve bottom line results. However, certain qualitative issues should not be ignored. Oftentimes, qualitative factors weigh more than numbers. Works Cited "Dell Admits Indian Mistake.

" CNET Networks. 2006. 24 April 2007 Banham, Russ. "Cut to the Core-Business Process Outsourcing-Statistical Data Included." CFO:Magazine for Senior Financial Executives. Oct. 2001. 24 April 2007 http://findarticles.com/p/articles/mi_m3870/is_13_17/ai_80118912 Dolan, Kerry. "Offshoring the Offshorers." Forbes.com. April 17, 2006. 24 April 2007