Outsourcing and Offshore Outsourcing - Advantages and Disadvantages - Essay Example

Outsourcing/ Offshore Outsourcing Do Advantages Outweigh Disadvantages? Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Outsourcing/ Offshore Outsourcing Do Advantages Outweigh Disadvantages? Outsourcing and offshore outsourcing are two business practices which have in the recent past been used by much business organization owing the numerous benefits associated with them. Outsourcing and offshore outsourcing involves the contracting of other business organizations to provide services and products to the company instead of the company carrying out the operation by itself; hence in this way, the organization benefits from the benefits associated with outsourcing (Tadelis 2007, p.261).. Some of the industries which are characterized by a lot of outsourcing practices are the information technology and manufacturing industry. Looking at the market, it is appropriate to conclude that more and more companies are embracing outsourcing in their business practices due to the various benefits associated with it. For instance, modern companies are contracting other business organizations to provide catering, cleaning, transportation, customer care, Information technology and production of specific products/components to them. This is due to the advantages of outsourcing which will be discussed in this essay. Equally so, the paper will also discuss about the disadvantages of outsourcing. The following essay will show why outsourcing is good, by comparing the advantages and disadvantages of the business practice. Outsourcing is the contracting of specific services to an external service provider. On the other hand, offshore outsourcing is the contracting of services to an external service provider located outside a country; hence the name offshore meaning abroad (Weerakody & Irani 2009, p.615). Ideally, the firm to which specific services are outsourced is normally competent in providing such services; hence companies always outsource services for which they need expatriate intervention. Some of the examples of services which are outsourced are given above. In an outsourcing agreement, the outsourcing firm and the firm which provision of services is outsourced enter into a contract which defines the terms of engagement. More often than not, the management of the project/ services which is being delivered is left solely to the firm to which services have been outsourced to. For this reason, it is important that the agreement includes such elements as the specifics if deliverables and the payments so as to avoid such instances where organizations may feel as if they have been shortchanged. The main analysis of an outsourcing process should be based on a cost versus benefit analysis since it is after this that a firm will identify if an outsourcing process is beneficial to it or not (Tadelis 2007, p.262). Generally, outsourcing is a good practice since its advantages outweigh its disadvantages as it will be seen in this essay. The following section of the essay will discuss the advantages of outsourcing and off shore outsourcing. One of the advantages of outsourcing is that an organization is able to get quality services (Tadelis 2007, p.261). On this point, it is important to note that organization normally outsource their services to organization s which are specialized in specific fields. For instance, Toyota car manufacturing company outsources the production of specific parts to various companies located in Japan. Another example is an organization which outsources information technology related services to an IT firm which has the professionals qualified in information technology. In so doing, an organization is able to get specialized service which it would not have gotten via an internal process (Tadelis 2007, p.261). This in way leads to the creation of value via the outsourcing process as Tandelis puts it in his article ‘The Innovative Organization: Creating Value through Outsourcing’. More often than not, organizations outsource services which they cannot be able to offer or products which they cannot be able to produce internally. For this reason, an expertise professional or a specialized company to which to firm outsources its services to add value to the processes of the outsourcing company. Taking a look at offshore outsourcing, it can be seen that the need to get expert services and products is also a key factor which has driven most firms into the practice. Some of the services which are outsourced offshore include IT services, specialized services for instance aircraft maintenance and engineering, and also consultancy. Ideally, certain countries are known for the provision of certain services; hence firms normally tend to outsource to companies located in those countries, for example manufacturing services are outsourced to China and Japan due to their efficiency in that field. Therefore, the search for expert and specialized services is the major idea behind outsourcing and consequently forms a major advantage of the practice. Another advantage of outsourcing and offshore outsourcing is the reduction of costs (Pouder, Cantrell & Daly 2011, p.4). Looking at various operations in general, it is important to acknowledge that each one of them has various costs which are associated with it. Specialized operations such as engineering and IT are some of the services which require a lot of human capital to undertake. More often than not, these kinds of operations are not done on a day to day basis. They are normally done one off or after a specific duration of time, for example maintenance. For this reason outsourcing the provision of such services to specialized firms is a sure way of reducing costs owning to the high wages which the company would have to pay if were to employ its own professionals. On this point it is also important to acknowledge that an organization further reduces its overheads when it outsources. It also evades setup costs and other fixed costs as a result of outsourcing. A good example of this is when a car manufacturing company outsources the production of a seats to and interiors to another manufacturing company which specializes in the production of such components. In so doing, the car manufacturing company avoids the costs associated with the manufacturing of interiors and seats. Moreover, outsourcing further leads to a reduction of costs when organizations outsource the provision of specific services and products to a firm which can be able to produce the products and provide the services at cheaper price (Pouder, Cantrell & Daly 2011, p.4). This is the main driving force towards offshore outsourcing. It is noted that organizations outsource for services which can be rendered cheaply in other countries due to various reasons for instance low labor costs and low operation costs among others. A good example of this is the outsourcing of IT services by companies in Europe and USA to firms in Asia, for example China and India. Therefore, it can be seen that outsourcing leads to the reduction of costs by a large margin. The sharing of risks is another advantage associated with outsourcing. It is important to acknowledge that risk analysis and ways of mitigating risks is very important in a business. Ideally, no business wants to take unnecessary risks (Wee, Peng & Wee 2010, p.2081). If the risk can be avoided, it is better to do so promptly. Looking at outsourcing with respect to its relationship to risk, it can be acknowledged that it has the ability to spread risks over a wider range of stakeholders. This is specifically relevant to specialized services for instance IT, engineering and production. A good example of this is a company which outsources the production of a specific machine component which can only be manufactured by a multi million worth machine. Outsourcing the production of this component to a company which produces it an economical price is an act of spreading risks. Outsourcing the development of specific software to an IT firm also spreads risks as opposed to an organization attempting to develop the software internally. From the above, it can be seen that outsourcing / offshore outsourcing leads to sharing of risks which is healthy from a business perspective. Outsourcing also provides an organization with an opportunity by focus to the important/ core matters (Pouder, Cantrell & Daly 2011, p.6). Looking at an organization, one acknowledges that there is a rank of activities with respect to their importance to an organization. A good example of this is the comparison between cleaning services and broadcasting in Media Company. It can be noted that cleaning does not contribute to the ‘ideal’ product of the company (broadcasting) but it provides a good environment for the broadcasting to take place. Therefore, broadcasting is a core activity while cleaning is not. Therefore, the outsourcing of cleaning services to a cleaning company will give the media company more time to work on the core processes of the organization. This consequently leads to an increased performance and efficiency. Therefore, organizations should outsource non-core processes to external organizations in a bid to focus more on the core processes. Outsourcing also leads to an increase in the operational efficiency of an organization (Pouder, Cantrell & Daly 2011, p.4). On this point, it can be noted that organizations normally avoid a lot of processes when they outsource. This means that the organization has more time to concentrate on the core processes as it has been seen above. Due to the fact that the outsourced process is outsourced to expert firms, it is certain that the deliverables of the firms meets the stands which are desired by the outsourcing firm. Moreover, the deliverables are delivered within the required timeframe. This is major contributor to the overall efficiency of a firm. On the point of efficiency, it is also important to discuss about the time saving characteristic associated with outsourcing. Generally, it is easier to get something done by a person who has the experience to do that specific thing in addition to the person having the required infrastructure to do the specific thing. This is the replica of this case but on a larger scale when it comes to outsourcing/ offshore outsourcing. In this competitive world, the saying ‘time is money’ is very common, therefore, adopting an outsourcing strategy for a firm leads to good time management which in turn contributes to the overall efficiency of an organization (Pouder, Cantrell & Daly 2011, p.4). Another advantage of outsourcing is that it leads to the development of internal staff. Outsourcing may either be done onsite where the specialists/ experts come to the outsourcing firm and works from there or off site whereby the firm to which the work is outsourced to works from its own location. In an instance whereby the work is done onsite, there is an opportunity for the development of the internals staff of an organization. This is due to the fact that the internal staff will get an opportunity to learn from the experts. This is very important in this modern world since employee development is a major factor to consider with respect to the sustainability of a business organization. An example of this is whereby a manufacturing company outsources the repair and maintenance of a condenser to an engineering firm. Since the condenser is repaired and maintained onsite, the engineers of the manufacturing company have chance to learn from the condenser expert engineers, hence leading to state whereby outsourcing would no longer be required; hence saving costs of outsourcing and also empowering the employees. Lastly, staffing flexibility is another advantage of outsourcing (Kathawala, Zhang & Shao 2005, p.186). Human resource management is a major process in any organization. It is the desire of every organization to ensure that all the available human resources are used effectively towards ensuring that an organization reaches its goals. The flexibility of staff which is associated with outsourcing is a plus to human resource management. As seen previously in this essay, a firm has the benefit of acquiring professional staff in any area which is outsourced. In so doing, an organization has a potential to get expertise to work on the processes which are outsourced; hence increasing is labour force without having to employ all the people permanently. Outsourcing also enables an organization to handle emergencies with a greater ease due to its ability to pool a large workforce together within a short duration of time. Another advantage associated with outsourcing is that it allows an organization to get access to technologies which it would not have been able to attain individually due to their sophistication and high costs. As a indicated earlier, this easy is meant to analysis the advantages and disadvantages of outsourcing/ offshore outsourcing after which it will weight them against each other with an aim of identifying whether the advantages outweigh the disadvantages. The following section will discuss the disadvantages of outsourcing. One of the major disadvantages of outsourcing is hidden costs. This is one of the major problems which organizations face while carrying out the outsourcing process. The hidden costs result from inconclusive/ contentions clauses in the initial agreements between the outsourcing firm and the firm to which processes are outsourced to. In order to counter this problem, organisations are advised to engage business and law professionals who have adequate knowledge on the outsourcing process; and in so doing, possible clauses which may lead to hidden costs later would be dealt with early (Michela & Carlota 2011, p.276). Another disadvantage of outsourcing is the exposure of critical information and data to third parties. During the outsourcing process, the outsourcing firm is liable to provide crucial data to the firm to which it has outsourced services to. In so dong, the company exposes information which was meant to be confidential to third parties; hence leading to a breach of confidence (Herath & Kishore 2008, p.318). It is not always certain that the firm to which access of crucial data has been given to would uphold the level of confidentiality desired by the outsourcing company. At times, the firm may provide the data to other people or corporate who would in turn do a lot of harm to the company. Another major disadvantage of outsourcing is that the firm to which processes have been outsourced to do not give customers the focus which the outsourcing company would have given to them (Song, Lee & Lee 2011, p.1). This is due to the fact that the outsourcing company and the company to which processes have been outsourced to do not share a common vision and mission. As a result of this, the firm to which processes have been outsourced to does what it has to do just for the sake of profit making. This may in turn lead to a negative effect on the market of a company. An example of this is the current trend to outsource call centers and customer care services to external organizations. If the firm to which the provision of the above services does not treat the customers with the decency and respect which is expected of a customer care representative, it will end up creating a bad image for the company and ultimately lead to a loss of market share. For this reason, it is always advisable for an organization to source for the best professionals in the market to ensure that they have a chance of getting professional services. Another major disadvantage of outsourcing and offshore outsourcing is that it leads to a loss of control over the processes which have been outsourced by a firm (Ordoobadi 2003, p.1). This is a major problem to an organization especially in instances when it wants to change its operations and processes. For instance, an organization may want to include some new component or feature in a specific product but may find it hard to do so until the contract with the firm to which it has outsourced the production of the product expires or is terminated. Moreover, an organisation control on the speed, quality and other factors affecting production and service delivery is hampered. With respect to offshore outsourcing, it has a tendency to create unemployment in a country (Tambe & Lorin 2010, p.62). This is due to the fact that the services which have been outsourced abroad are job potential positions which have been deprived from the home population. For example, in instances whereby there is a lot of outsourcing of IT job in a country, there is a tendency to the creation of unemployment for IT professionals. This is not good from the perspective of the national economy. In addition to this, offshore outsourcing leads to the under development of talent in country. Generally, talent is developed via experience. However this is not applicable in cases such as the IT scenario given above. If this is continued for a long time, it may lead to the phasing out of a talent in a country. Therefore, unemployment is a byproduct of offshore outsourcing and forms a major disadvantage of the process. Lastly, there are certain risks in instances whereby the firm to which services have been outsourced to goes out of business. This may either be due to various market forces or mismanagement. In such an instance, an organization which had outsourced services to such a firm stands to lose a lot ((Weerakody & Irani 2009, p.623). From this essay is appropriate to conclude that outsourcing and offshore outsourcing is a good business practices. Looking at the advantages and disadvantages, one can acknowledge that the advantages outsourcing outweigh the disadvantages. Looking at the disadvantages of outsourcing, it realized that most of them can be countered with if the outsourcing process is done by qualified and competent people. This will ensure that all the factors which affect outsourcing will be taken into account when the process is being carried out. With respect to offshore outsourcing and its relation to unemployment, it should be acknowledged that we live in a globalised world; therefore there is a need for the integration of social and economic activities (Michela & Carlota 2011, p.276). It should also be taken into account that the reduction of operating costs so as to maximize profits is a major objective of businesses organisations (Weerakody & Irani 2009, p.613). Therefore, there is a need for the establishment of appropriate measures to govern the social, economic and environmental aspects of a country in order to govern unemployment. In conclusion, it is appropriate to state that outsourcing and offshore outsourcing are beneficial business practices. The essay has discussed major advantages of outsourcing which a business organization is due to benefit from its embracement of outsourcing. There are also some disadvantages of the practice which have also been discussed in detail in the essay. However, it can be seen that the advantages are more than the disadvantages both in number and weight. Therefore, from this essay, business organisations can be advised to embrace outsourcing and offshore outsourcing into their business practices. References Herath, T., & Kishore, R., 2008. 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