Outsourcing
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Outsourcing can be defined as the process of subcontracting a product design or manufacturing to a third-party company (Venture, 2009). Outsourcing has increased in popularity in the past several years. Since mid 1980s, technology has made it possible for a lot of small businesses to start up contracting services to other companies at a cheaper rate than they could do themselves. Consequently, the majority of the outsourcing has turned to “off shoring” where services are provided to a company from outside the U.S., e.g. China, Mexico, India, and others.
For several people, especially for top managers, outsourcing is a very advantageous option. It benefits the company as a whole. Companies can cut 20% to 70 % of their labor costs by moving jobs to low-wage countries (Jennifer, 2004). Nonetheless for many Americans, the word outsourcing is synonymous to “job losses”. It has met much resistance in the U.S. and remains a hot topic in businesses throughout the world.
What are the advantages of outsourcing?
The main advantage of outsourcing is to save money (Keith, 2002). Some services with the same level of quality are offered in countries like India, China or Mexico for a much lower cost.
You can see an increase in your business. Companies can see increase in their profits, productivity, level of quality, business value, business performance and much more.
Companies can concentrate more on their core business. “One popular way this is described is that you should decide what you are good at and outsource everything else; i.e., focus your company on your core competency, and let someone else do the rest” (Keith, 2002, pg.1).
Companies can benefit from time zones differences. Work can be continued by the outsourcing partner even after employees in US go home. This enables the work to be completed much faster and gives your business a competitive advantage.
What are the disadvantages of outsourcing?
One disadvantage to outsourcing is that is difficult to have a close supervision. “You are putting part of your company in someone elses hands” (Keith, 2002, pg. 1). Professor Mohanbir Sawhney of Northwestern Universitys Kellogg School of Management says: “How do you manage employees you cant even see?” (n.a., 2006, pg. 1)
Loss of competitive jobs to other low waged countries. United States had lost thousands of jobs due to outsourcing.
Companies may incur in quality problems. In the event that the finished products do not meet quality standards, the manufacturing process must be repeated by a different vendor.
Difficulty in managing cultural differences and communication between countries. American culture and lifestyle are different or even opposite from those in other countries.