Why organizations outsource Recently, increasingly rapid changes in all aspects of the environments, and in technology and international deregulation have challenged large corporations to compete on a global scale Kanter, in Hendry, , p.
Critically reviewing the sources of their value-added, many were beginning to contract out non-core functions and move towards to fast-moving, fashion-based industries Hendry, , p.
Hendry also states that the forces of competition were greater by the effects of the recent recession, and cost-cutting in all forms became today essential. Companies were forced to look much harder than ever before at their efficiency. And among measures like downsizing, delayering, internal markets or reengineering, outsourcing also remained a key element of the cost-cutting mix Kakabadse, A. Gaining access to new technology and skills, reducing headcount, enhancing the organization's capability to develop new products and services, are identified as reasons for outsourcing.
Shortening cycle times for market delivery, customer response is also a reason for contracting out Leavy, , p. What to outsource The reasons why to outsource is certainly obvious; however, the most basic strategic choice is what to outsource Leavy, , p. Recently, companies seem to favor extensive outsourcing. More and more companies are being advised to concentrate on core activities and outsource as much as possible the rest.
This approach has so much popular that it is sometimes hard for us to imagine why high levels of integration ever made commercial or strategic sense. For instance, back to the early s, the IT industry was dominated by a small number of manufacturers, like IBM and Digital, which controlled the key technologies in both hardware and software.
These companies sold very high margin products directly to industrial and commercial customers. However, the situation, then, has changed dramatically.
The IT industry has recorded rapid growth through the increasing convergence of computing and telecommunications, and has seen the emergence of a new mass-market segment following the arrival of the personal computer. This explosion resulted in the growing of the sub-supply sector, and gradually, contributed to the emergence of independent service providers in many non-core areas like construction, maintenance, and distribution.
They are competitive in scales and reputation. As a result, today's industry leaders, like Dell and Cisco, now use extensive outsourcing. Cisco outsources most of its manufacturing and much of its product development. All of Dell's software and non-assembly hardware are provided by outsiders. Dell has no plants for making microchips, printed circuit boards, keyboards or monitors.
It takes orders directly from customers and uses third parties for distribution and servicing. Its value proposition is focused on the provision of quality, customization and responsiveness at prices that competitors cannot match Leavy, , p.
James Brian Quinn, an expert in management, cited in Leavy, , p. When properly developed, 'strategic outsourcing substantially lowers costs, risks and fixed investment while greatly expanding flexibility, innovative capabilities, and opportunities for creating higher value-added and shareholder returns'. In terms of what to outsource, Ventkatesan in Leavy, , p. However, outsourcing, in this case, borders a too low level, which limits its potential.
On the other hand, Bask , p. Those services could comprise of transportation, forwarding, warehousing, price ticketing and distribution to retail stores.
Contrarily, Quinn and Hilmer quoted in Leavy, , p. For example, a company may contract with an outside vendor to serve certain customers - a change the customers may not even be aware of. Benefits gain from outsourcing Adopting outsourcing arrangements, companies could get four broad benefits from these strategies as follows: Having other suppliers in charge of supporting goods and services allows companies to concentrate on those activities in which they can establish distinctive core competence.
By doing so, it allows companies for achieving economies of scale, thus producing goods or services more efficiently while improving quality through the application of specialist knowledge. Speed The rapid changes in the environment require organizations to be able to make and implement decisions quickly.
The larger the infrastructure, the slower the company will change. Risk, cost, and market opportunity. Some of the risks involved in outsourcing are geopolitical and economic. In certain "hot spot" areas where there is a great deal of conflict and political turmoil, transferring functions to these regions can pose a threat to the health and safety of the employees as well as the economic well being of the organization Minevich, The terrorist attacks on certain subsidiaries of oil companies and service providers in Saudi Arabia is evidence of the geopolitical risks just as the nationalization of the oil industry in Venezuela is evidence of economic risk.
Other risk factors that a business must consider are quality of service, loss of operations control and security of data and stored information Sinnett, In addition to understanding the risks associated with a particular outsource market, organizations must also consider the cost of outsourcing and must be familiar with foreign wage structures. To be sure, there are skilled workers in many areas of the world who are willing to work for lower wages than workers in the U. Other costs include infrastructure costs, taxes and regulatory fees.
Finally, a company needs to determine market opportunity and identify those countries that provide workers in their particular industry. A skilled workforce and established infrastructure will allow a company to expediently bring products and services to a market without sacrificing quality. Conversely, a company needs to also be ready to cease the operation in the event that the demand for the outsourced product or service declines Minevich, Before entering a global outsourcing market a business needs to determine what types of products and services are best suited for outsourcing.
When global outsourcing first came into play, the production of labor-intensive products and manufactured goods was transferred abroad. At the time, labor-intensive products and manufactured goods were some of the only products that could be produced more efficiently in other countries. However, as time went on, advancements in the overseas economies and technologies made it possible to outsource products and services that required more advanced technology and know-how.
This constant shifting and advancement allows for the creation and emergence of other outsource markets that specialize in different types of production. For example, consumer goods and textile manufacturing were some of the first products to be outsourced to China. However, as that market matured and economic development expanded, China as well as other Asian markets became outsource locations for products and services that required more advanced technology.
In particular, electronic components, telecommunications equipment, microchips, and computer boards were produced in China, Taiwan and Hong Kong. This left the textile and other labor-heavy markets for other countries where such products could be produced in a similarly efficient manner. The industry that has been most affected by global outsourcing has been information technology. India has become a leader in this area because as demand for technology and its inherent complexities and costs grew, so did India's ability to provide low-cost, but capable assistance.
During the s, many U. Global Outsourcing Overview The concept of outsourcing began when large companies decided to eliminate routine work that could be performed by third parties at a lower cost. Outsourcing Strategies Generally, there are two basic models used in outsource strategies: The Outsource Model Within the outsource model, functions are transferred overseas and performed mostly by third-party providers.
Information technology outsourcing, or ITO, is the transfer of the development and processing of information technology systems such as help desk functions, systems administration, network management and web development. Business process outsourcing, or BPO, is the transfer of the management and processes of certain business operations like accounting, human resource functions in particular payroll processing and health benefits management , and customer service call centers Sen, The Captive Model BPO and direct foreign investments form the basis for yet another method — the captive model.
Applications Considerations When a business decides to enter the global outsourcing market, there are a number of factors that contribute to that decision. Risk Some of the risks involved in outsourcing are geopolitical and economic. Cost In addition to understanding the risks associated with a particular outsource market, organizations must also consider the cost of outsourcing and must be familiar with foreign wage structures.
Outsourcing Research Papers Outsourcing research papers discuss the strategic management option of sending work outside of a corporate structure. This is a research paper topics suggestion on Outsourcing from Paper Masters.
Outsourcing research paper 1. Critical Aspects of Governance in Outsourcing: Insights from Industry* Markus Biehl1, Kaustuv Halder2, Michael Hart3 Toronto, Ontario September ABSTRACT.
There are two subgroups within the outsource model: Information technology outsourcing and business process outsourcing. Information technology outsourcing, or ITO, is the transfer of the development and processing of information technology systems such as help desk functions, systems administration, network management and web development. A research and education initiative at the MIT Sloan School of Management Global Outsourcing of Professional Services Paper Satwik Seshasai Amar Gupta January Global Outsourcing of Professional Services Satwik Seshasai Massachusetts Institute of Technology Email: [email protected]
Feb 24, · Research Paper on Outsourcing Outsourcing is a strategic decision of a company to use an outside organization to perform work that is typically done within that company. This strict definition of the term covers only activities that were once internal to the company and includes only the process of moving the activity to the outside. Outsourcing to India Research Paper This sample Outsourcing to India Research Paper is published for educational and informational purposes only. Free research papers are not written by our writers, they are contributed by users, so we are not responsible for the content of this free sample paper.