Out sourcing - Essay Example

Originally, outsourcing started as a simple way to cut down on personnel costs by the hiring of sub-contractors to do certain parts of the manufacturing process. This concept later on was expanded to other functions which a sub-contractor is better able to do and at a lower cost. Usually, the outsourced functions are those in the logistics, distribution, delivery and the other parts that usually constitute a supply chain of a large manufacturing or merchandising or any fast-moving consumer goods distribution company.

The early sub-contractors were usually located just nearby, maybe in the next town or the next country. Gradually, it expanded to nearby countries (termed as near-shoring) and with the advent of better information technologies and improved means of transport, it later on still came to called as off-shoring (work sent out to faraway countries). The usual jobs outsourced are either back-office functions (accounting, auditing, finance, human resources, legal, etc.) or those with front-office responsibilities like customer service, order taking, sales, etc.

The term for it now is business process outsourcing (BPO) which is construed to mean services. Discussion Benefits of Outsourcing - The original rationale or justification for sub-contracting and later on BPO was to cut down costs. When a certain function is outsourced, the usual benefit is transforming fixed costs into variable costs. This lessens the need to invest in infrastructure to increase capacity and at the same time allows the organization to respond more quickly to changes in markets in which it operates.

The additional benefit is greater speed of response to sudden changes in the external environment. Perhaps a persuasive argument for outsourcing is to gain a key competitive advantage by allowing the firm to focus on its more core functions and let non-essential administrative functions be performed by an outside third-party supplier. Total global BPO industry is estimated at about $154 billion annually and is considered as a natural extension of the free-trade movement and the globalization of business and industry (Duening & Click, 2005:vii).

The organizations using BPO now are more inclined towards to availing themselves of the lowest-cost provider wherever they are located on the world. Big improvements in information technology is largely responsible for a rapid growth of the BPO industry, hence it is sometimes termed as information technology-enabled services (ITES). It now includes content-rich materials such as newsletters, Power Point presentations, video and graphics animations, sales kits, teaching materials, etc. New BPO sub-sectors are knowledge process outsourcing (KPO) and legal process outsourcing (LPO) which is geared towards the production of outputs that are more knowledge intensive.

The outsourced industry is growing at an estimated 10-12% compounded annual growth rate and has now expanded to jobs which normally required intensive education and ample technical training. An example is reading, analyzing and interpreting the X-ray and CT (computed tomography) scans of mostly American patients in outsourced business parks located in India, the Philippines and Russia. Outsourcing is a legitimate business strategy to enhance revenues or profits (Sople, 2009:43). As Business Strategy –