Essay About Hidden Costs And Hidden Costs Of Global Outsourcing

The Hidden Costs of Outsourcing
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[pic 1]THE HIDDEN COSTS OF GLOBAL OUTSOURCING[pic 2][pic 3]TABLE OF CONTENTSIntroduction………………………………………………………………………………….
Over the last century, outsourcing production has gain a lot of popularity among firms as they are a way to cut some costs and increase their profits. Most companies have looked towards China, Brazil, India, and other dynamic countries which have a potential to generate the huge demand for goods and services. However, the problem that companies are facing today is coming up with a strategy that covers all the cost factors associated with outsourcing. Since the early 2000s, oil prices have tripled making cargo-ship fuel much more expensive, and wages in China are now five times more than what they used to be and continuing to rise at an annualized rate of twenty percent. However, that isn’t all that is affecting the outsourcing strategy, American labor unions have also learned a thing or two about today’s economic reality and even they are obliged to become globally competitive. Also, with the natural-gas boom that the United States has recently witnessed, it lowered operating and facility costs in the United States, but in Asia the cost is still four times the amount the United States is currently dealing with. These overlooked factors add up to 14-60 percent of the purchase price of the good and services that are created overseas. Luckily, for most firms the increased profits they are making are covering the costs for now. Cost of an Outdated Outsourcing StrategyThe reduction in costs that outsourcing provides involves rationalization and the need for a reassessment of the current outsourcing strategy in terms of revenue versus decisions that can drive costs. Since the market is dynamic and shifts over time, firms may see an increase in logistics, transportation, in-transit handling damage, and other hidden management costs. A complete analysis of all costs that could arise should be taken into consideration and in few instances, the results may conclude that the firm stay or return to their original countries.Cost of Management and Coordination of ContractorsWhen you look at all the transactions that take place in any given day for a firm, one can only imagine the amount of work it takes to make sure that everything is running smoothly. Managing the center of production from another country requires a significant amount of work that would involve invoicing, auditing, ensuring cost centers are charged correctly, and making sure that employee time is recorded properly. For some companies, assigning someone to handle the offshore facility is a must to make sure projects move forward and the work needed gets done. The bottom line of it all, firms should expect to pay an additional 6-10 percent on just managing the offshore facility. This cost would include the cost of travel for the person overseeing the production for the offshore facility.