Outsourcing as a strategic tool - Lab Report Example

?Outsourcing as a strategic tool has gained widespread acceptance by global organizations around the world Outsourcing, which has become a popular trend among the major industries, is a process in which an organization or a company hands over some of its internal operations to a third party. Such activities are prominently seen in the service sector and can either be domestic or overseas. But the recent trend in outsourcing shows an increase in overseas outsourcing than the confned domestic one. “Outsourcing has taken many forms in recent times. Like the past organizations still hire service providers to handle diverse business functions. But now many organizations prefer to outsource whole operations to another company or firm. These outsourcing companies are most commonly known as Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO)” (Meaning of Outsourcing 2008, para. 4). BPO includes outsourcinng of human resource, call center, finance and accounting and even processing activities. Payroll administration, recruitment, training and selection of employees etc are the major human resource jobs outsourced. The countries mostly involvd in outsourcing are the US, Europe and Japan while the countries that fulfill these outsourcing jobs are mainly developing countries like India and China. The jobs that any organization generally outsources are data entry jobs, technical support staff, customer service jobs, accounting or financial jobs and writing jobs which usually consist of proofreading and copywriting. To identify jobs or functions that are outsourced, three organizations in three different sectors are taken into consideration- Bank of America from the financial industry, Microsoft from the IT industry and Ford Motor from the automobile industry. Bank of America: The Bank of America, which is one of the largest banks in the country, is a public company in the financial sector. The Bank of America has adopted outsourcing as a method or tool to meet its strategic goals. This bank first outsourced its IT department and gave its network operation to EDS in India in order to reduce its cost of labour because “a recent study found employees in the U.S. and Europe cost $150,000 a year in salary, benefits and other costs such as real estate. The same jobs can be done in India or somewhere else for $50,000” (Smith 2007, para. 4). Later, the Bank of America outsourced its BPO services to Accenture. The BPO services outsourced by the Bank of America mainly include human resource jobs, which are mainly carried out in the states of Hyderabad, Gurgaon and Mumbai in India. “Bank of America signed a 10-year contract with Exult Inc. to manage much of the bank’s HR function” (Noe et al. 2007, p. 46). The Bank of America had opened two outsourcing centres in India, the first being located at Hyderabad, was established in mid 2004. It has become a grand success for them than they opened the other one in Mumbai. The bank also deals with the method of offshore insourcing for which it had opened a center as a wholly owned subsidiary in another country. One such example is its subsidiary in Hyderabad, India which was set up in 1960 with a strategy of expanding its business. Due to the success of the Hyderabad branch, three more branches were opened in India. The bank of America also signed a collaborative outsourcing agreement with JLL and TCC with respect to providing real estate services to the bank which is an instance of domestic outsourcing. “The new contract with JLL and TCC consolidates Bank of America's real estate service providers from five to two” (Lyne 2001, para. 3). Microsoft: Microsoft, a public multinational corporation in America, is the most prominent business in the IT industry. Microsoft leads the industry by introducing new technologies and providing a wide range of services. Outsourcing is a major technique adopted by Microsoft in its development. Microsoft has adopted outsourcing techniques in various fields. An example of such an activity is the outsourcing of accounts receivable management done in 1995. “In 1995, Microsoft Europe decided to centralize and outsource its accounts receivable (A/R) management on a European scale” (Jacques 2006, p. 29). The production of Xbox- a specialized computer, was a very difficult and complex responsibility for Microsoft to accomplish alone, so they “decided to outsource the assembly and significant logistics function to Flextronics, a Singapore based manufacturer” (Hill & Jain 2008, p. 681). The outsourcing of software along with hardware has been another trend followed by Microsoft. The outsourcing of software services enabled the business to reduce cost and led to its expanding as well. “Microsoft Australia outsourced its software support service to Wang Australia under a three year contract worth around $3.3 million per year and, worldwide, Microsoft outsourced its software packaging and distribution. (Smith et al. 2000, p. 2). Microsoft has outsourcing relation with Infosys Company in India and the last outsourcing witnessed is that of internal IT services of Microsoft. Infosys was to deal with major internal IT services according to the agreement laid down by Microsoft and this enabled the business to reduce its cost of IT professionals as India has high quality professionals who can be made to work at lower rates. The shifting of service is also a part of outsourcing and Microsoft had started to shift some of its services to India from Texas and North Carolina. It has been revealed that Microsoft also planned to outsource its legal work to India and for this they are expected to sign a deal with CPA Global- a legal process outsourcing company. Ford Motors: Ford motor company, a multinational public company in America, is a very influential player in the automobile industry. It is the fifth largest automaker in the world in terms of sales. Outsourcing in automotive sector has grown immensely during the last 20 years. The main strategy of Ford motors is to expand its business to other countries and for this it used outsourcing as a tool. The company has adopted outsourcing in terms of shifting its functions as various services to other countries. This is seen through Ford shifting several of its services to India. “Ford has shifted much of its computer-aided design and manufacturing development, email processing and application development tasks to a subsidiary in Chennai” (Patel & Aran 2005, p.88). Outsourcing of services in the field of IT has also been shifted by Ford to India. Ford has decided to engage in more outsourcing activities by setting new plants in Mexico. Ford also outsourced payroll as well as time and attendance services. Advantages and disadvantages of outsourcing to the home country: The process of outsourcing is both a boon and curse for the home country. Major advantages and disadvantages of outsourcing for the home country can be analyzed as follows: ADVANTAGES DISADVATAGES 1. Cost effectiveness 2. Greater access to resources 3. Increase in productivity 1. Unemployment 2. Traitorous 3. Loss of skills Advantages: 1. Cost effectiveness Cost efficiency is an outcome of outsourcing and this is the main reason behind adoption of outsourcing process. Outsourcing minimises the cost of the organization in terms of lesser wages and no training cost at all. This, in turn, enables the organization to reduce the price of their product in the home country. So the natives get products at cheaper rates which will reduce their cost of living and simultaneously increase their standard of living. 2. Greater access to resources The home country gets benefits from outsourcing in terms of reduced use of resources. When outsourcing is employed for the production of material parts, the resources used for its production before outsourcing is reduced. Thus, outsourcing gives opportunity to save resources and utilize it for other productive purposes. Outsourcing also helps the company to be invulnerable to the market fluctuation within the country.  3. Increase in productivity Outsourcing increases the overall productivity of the organization and, thereby, increases the total assets of the country. When an organization enganges in outsourcing, it can concentrate more on the activities within the state, which results in increase of their efficiency. This can then contribute to the overall capacity of productivity. Disadvantages: 1. Unemployment The major drawback of outsourcing in any country is the fact that it increases the unemployment rate of the home country. Outsourcing is a function of transferring jobs at a lower cost to other countries. “Ford motor company announced plans to close fourteen thousand plants in North America and cut between twenty-five thousand to thirty thousand jobs by 2012” (Ching 2009, p. 22). 2. Traitorous The process of outsourcing is considered traitorous or unpatriotic since it provides employment opportunity to the people of other countries through the transfer of jobs of the natives to them. This is a clear action against one’s own country. 3. Loss of skills Outsourcing results in loss of skills of the native people as it curtails the opportunity of development by transferring thier jobs to foreigners. The workers employed in outsourcing activities improve their skills throughout their jobs, which makes them more efficient than the natives. “The drive for market share in the global IT outsourcing market has produced more CMM Level 5 software centers in India than anywhere else in the world” (Mitchell 1998, para. 3). Recommendation: Major recommendations to improve the condition of home country in the case of outsourcing are: 1. Government should impose regulations on outsourcing through effective legislation of law. 2. Amendment in the licensing of organizations should be made in favor of natives. 3. Job security of the natives should be guaranteed by the government. Reference List Ching, J. 2009. Outsourcing U.S. Jobs. 1st edn. The Rosen Publishing Group Inc. New York. Available at Hill, CWL & Jain, AK. 2008, International Business. 6th edn. Tata McGraw-Hill, New York. Available at Jacques, V. 2006. International Outsourcing Strategy. Editions Publibook, France. Available at Lyne, J. 2001. Bank of America Signs Collaborative Outsourcing Agreement with Trammel Crow, Jones Lang LaSalle. Conway Data Inc. Available at Meaning of Outsourcing. 2008. Articles Base.com. Available at Mitchell, A. 1998. India Maintains Outsourcing Advantage. Commerce Times. Available at Noe et al. 2007. Fundamentals of Human Resource. Tata McGraw-Hill Edition, New York. Available at Patel, A & Aran, H. 2005. Outsourcing Success: The Business Imperative. Tata McGraw-Hill Edition, New York. Available at Smith, R. 2007. More Jobs Going Offshore? You Can Bank on it. Job Bank USA. Available at Smith et al. 2000. Managing the Outsourcing Relationship. ACMAD, Australia. Available at Read More