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Effective outsourcing allows companies to focus on their core business - Essay Example

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Effective outsourcing allows companies to focus on their core business In the current competitive global economic environment, companies have to apply every possible strategy that will enable them maintain their profits at a good level. One of these strategies is outsourcing…
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Download file to see previous pages For example India has about 5-6% of the global outsourcing market share and from it, it was able to generate revenue of US $ 10.9 billion in the year 2008 (Bijan 2009). By description, outsourcing is a process by which a company contracts a third party to perform for them a particular function that is not considered as one of the company’s core activities. The third party can be another company or a person. Outsourcing is more prominent in countries with high wage rates where companies outsource their non-core functions to countries with low wage rates for example China and India. The main advantages or reasons for outsourcing include gaining access to globally competitive capabilities, control and reduce operation costs, accelerate re-engineering benefits, share risks, and reduce time and efforts for marketing. It also enables a company to utilize resources that are not available internally, free their resources for development of other resources and improve their focus on the core business activities of the company (Bijan et al 2002). The intention of this essay is to show how effective outsourcing enables/allows companies to keep a focus on their core businesses. Various writers have identified various dimensions that should be considered when making outsourcing decisions. This paper gives a discussion of four of these namely, core competencies, spatial, geographic and product innovation dimension. Under core competencies dimension, a company should not only consider growing in size and scope but it should also ensure that it maintains it specializes in and sustains focus on its core competencies. This means it should not only focus on repetitive tasks but extend to include a wider range of activities. These include knowledge-intensive tasks and sensitive functions for example R&D and design. This will enable the company to increase knowledge from external sources and hence be flexible in responding to challenges and pressures from competition (Stark et al 2006). According to (Bijan et al 2002) the process of outsourcing non-core activities allows a company to step up its resource allocation and managerial attention to those tasks it does the best. These tasks constitute the core business activities/core competencies of the company. This leads to workers and managers being more committed to the company’s core activities. This in turn increases flexibility and responsiveness which generate beneficial impacts on the performance of the firm. Such a specialization leads to high quality production. This is important in the current local and global sectors and markets characterized by very competitive pressures, complex technologies and short product life cycle. Another dimension to be considered in outsourcing decision making is spatial dimension. In this dimension, the company should explore the geographic span of the outsourcing activity. This includes the spatial distribution of all activities that are to be outsourced and the geographic extend of the value chains that will result from this. Dhanapal et al (20080 explains that this dimension has to receive adequate attention because it can result to larger inventories, greater flexibility and longer lead times. Larger spatial span can also result to coordination and communication difficulties and lowered advantage of costs that are fixed in nature. The company therefore has to consider the competitive advantages of the territories and competitive strategies of their firms. In the ...Download file to see next pagesRead More
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