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What is Outsourcing? It is a process in which company delegates some of its in- house operations to a third party. Clients inform the provider about what they actually want and how they want the work to be done. They authorize the provider to operate and redesign the processes to ensure the efficiency of the work. It is different from contracting as in outsourcing the processes and operations are in control of third party whereas in contracting, the control of operations and processes remain with parent company. So it can be said that in outsourcing third party gains full control.
It is estimated that outsourcing market will grow in coming few years with increase in number of companies providing outsource services to international market.
With increase in entry of such companies in the market, businesses have become experienced with clear objectives which ultimately decrease the level of risk involved.
Strategic Management Option Outsourcing is not just about cost- cutting, it is considered as a strategic management option in the world today. Business objectives are achieved by the companies through operational excellence and market position. Companies outsource their operations so that they can focus on their core competencies. As their focus on core operations helps them be competitive in the global market.
Effects on Economies However, the concept of outsourcing has been criticized by some of the parties in US and UK as they feel it leads to job losses to these countries. They feel that it is threat to their economy as it is the reason for unemployment in their countries.
On the other hand, It not only has benefits to the company but also provides positive implications and larger effects.
It ensures that companies can provide less cost to their national consumers or for investors so that they can reinvest. It helps in generating revenues as it establishes the demand of national products in the foreign market, especially the hi-tech products. Although, there is a loss to national jobs in this process but as it generated additional value for the economy other jobs can be filled. It has positive as well as negative effects.
• Concentration on core competencies
• Better technologies at lower rates.
• Skilled manpower at affordable prices
• Tax benefits
• Competitive advantage
• Increased productivity
All the above mentioned effects of outsourcing, directly or indirectly helps the economy to grow by generation more revenues and by making the companies globally competitive in the market. For e.g. If we talk of Software Outsourcing, it provides better technology to companies at lower cost and the efforts of skilled manpower i.e. software developers at an affordable prices.
• Hidden costs
• Unreliable Vendors
• Loss of control
• Negative long term effects on business.
These are some of the negative impacts but as per global business understanding positive effects have a very large and positive impact on the economy that it covers its negative effects.
Global Outsourcing-development in global economy Global outsourcing is considered as a business solution to maintain profitability and market share by the companies. It is natural development of outsourcing in the global economy. It minimizes the geographical and political risk and balances the supply of specific talent.
It is thus stated as inevitable and real part of the global markets and is considered for its desirable benefits. It helps in creation and expansion of new markets. It promotes the global citizenship effectively and efficiently. It also enhances diversity and technological innovation with recognizing the benefits to the global economy.
As there are large cost variations from country to country, global outsourcing is of course not the easiest business decision for the companies. Companies need to take into consideration the different risks involved in this process i.e. economic, political, geographical, cultural, legal, competency and infrastructure risk. But again there are the risks which have to be taken into consideration if a company enters any international operation. So to enter in a global market these are the risks which have to be considered by any company.
It is not just about acquiring resources and skills in a low cost country, it has now become more complicated as companies are now emerging for quality and speed to the market. It provides flexibility to the companies so that the outsourced operation can be shut down when not required.
Global outsourcing is driving the world towards knowledge-based economy from information economy. It enables sharing of knowledge throughout the developing and developed world which ultimately results in emerging of regional specializations.