What are the advantages and disadvantages to outsourcing in the global marketplace?
In these times of great globalization where many countries have erased their borders when it comes to trade outsourcing has become an option for many companies. Whether or not to outsource is a key question that companies must consider. According to the Pros and Cons of Outsourcing, Ð²Ð‚ÑšThe decision to outsource or not is a matter of finding the right balance-the balance between managing labor costs, workflow, employee capabilities, customer commitments, core competencies, and even short- and long-term risks.Ð²Ð‚Ñœ (Motley-Saunders, p.1) There are many advantages and disadvantages to outsourcing. These advantages and disadvantages will be discussed in this paper.
There are many advantages of outsourcing. Many companies like to outsource because they cannot afford to hire people with the expertise to do it internally. Therefore outsourcing can help reduce cost because the company doesnÐ²Ð‚™t have to increase their payroll because they can spend less by outsourcing certain contracts. Looking from a business standpoint, all companies want what is the best for the company and therefore expertise is needed and sometimes a company may have to get expert help by outsourcing. With increased competition in our global economy, outsourcing will help companies by giving them a chance to focus on other driving factors that will increase the companyÐ²Ð‚™s performance.
Outsourcing offers a different perspective other than that of the companyÐ²Ð‚™s. This will help the company by ensuring that there will not be any bias or favoritism because the company that handles the outsourcing is an external company and therefore hold no bias. This will ensure more effective decision making since the outsourcing company can perform its duties without any personal preference or bias. Another perspective can also open the door to many new ideas.
Outsourcing will enable the company to save money because with outsourcing the company only seeks external help when they need it so unlike internal workers who are always being paid whether or not the workload is heavy or not outsourcing is only sought when help is needed. Companies who outsource are able to more efficiently use their resources and take on bigger tasks because they are able to lean on external assistance and expertise.
With different markets in the global market, a lot of money can be saved by outsourcing to countries where it may cost less to get assistance and expertise. Companies can save a lot of money if they outsource by lowering their cost of labor by giving out contracts to companies in countries where labor is cheaper.
Outsourcing provides companies with more cost effective ways to do business and it also saves companies a lot of time because they can focus their attention on other areas of the business. Outsourcing also reduces operational costs because less will be spent to outsource then to setup a department of experts on a specific area of expertise. According to John Bugh, Ð²Ð‚ÑšThe more back-office functions that can be offloaded, the more effective the organization. An important facet of business process outsourcing is its ability to free top executives from some of their more mundane day-to-day process management responsibilities. On average, executives spend 80 percent of their time in the management of details and only 20 percent on formulating strategy. But when a business process is outsourced, this ratio can be easily reversed.Ð²Ð‚Ñœ (John Bugh, p.40)
Outsourcing can also be beneficial to the customer because customer service is increased because call centers that are based overseas makes it possible for people to get customer support at different times because of the different time zones. Customers being able to be assisted at all times will increase their customer satisfaction. Customer satisfaction will increase the companyÐ²Ð‚™s growth because the more satisfied customers, the more sales and growth. In our global market, multi-national companies can outsource to several nations to ensure that there will be global expertise in all areas.
There are also disadvantages to outsourcing that need to be considered. Some people argue that outsourcing is not as cheap as it seems and it may be not as pleasing to the customers as assumed by many people.
One of the disadvantages of outsourcing that is often overlooked is the effect that outsourcing has on internal employees. Outsourcing may cause employees to believe that they are not qualified enough to perform certain task and this may let them lose confidence in their work and therefore lower their quality of work. Another issue that is often not considered by companies is the number of people that work internally that will lose their jobs. Even though companies are interested in profit, sometimes the cost of the profit has to be considered, the employees may lose their sense of job security and therefore not feel obligated to the company anymore when they become aware of certain tasks being outsourced.
Business involves many risks and outsourcing is one of them. There is no guarantee that outsourcing will actually be beneficial to the company. "At least 50 percent of outsourcing deals fail, and 80 percent don't produce any savings at all," according to the Gartner Group (Motley-Saunders, pg 2). There is usually a sense of loyalty among employees and their company but this loyalty will more than likely be non-existent when it comes
Economic Advisers, Gregory Mankiw. He said: "outsourcing is just a new way of doing international trade," which makes it "a good thing." In the last decade most economists are a proponents of offshoring services outside of the US.
They say that the benefits of outsourcing exceed the
disadvantages. The main discussion is more likely a…show more content…
If hitech industries are no longer competitive, where will new jobs be created?’
This previous theoretical introduction didn’t made the discussion between the pros and cons yet clear. It simply shoes some arguments of a proponent and a opponent. We still need hard evidence from both parties to give a good view on the truth.
Opponents of outsourcing are talking about the fact that American workers are losing their jobs cause of the labor movements. This is off course a fact, but what are the actual numbers ?
The Mckinsey Global institute (2003) notes that in the upcoming 5 years , the growth was going to be around 30-40%. Forrester Research predicts that the total outsourced jobs will be around 3,3 million in 2015. According to projections, the hardest hit sectors will be financial services and information technology (IT). In one May 2003 survey of chief information officers, 68 percent of IT executives said that their offshore contracts would grow in the subsequent year (Mckinsey Global institute,2003).
Therefore, at first sight the perception of the opponents is really sustainable. The total growth in the last two years (2002-2003) was really good, the productivity growth was even greater. The overall job growth have been really alarming. This indicates that the opponents are right in their perception.
Controversially, if you unpack the numbers,