Outsourcing, Wikipedia page
Outsourcing is a process in business where a company pays another company to provide a business function. This contracting of in-house functions to outside companies allow for specialization. By utilizing someone who knows a specific subject or task very well and only does that task as their job, the hiring company can save the time and effort from the learning curve of doing that task themselves. Outsourcing is an official contract between two companies, but they remain separate entities.
There are quite a few benefits and advantages to outsource. It can save the company money by outsourcing to low cost economies. It can provide the company with more time to focus on their core business, which will likely boost productivity, as opposed to having to figure out how to do the outsourced service on their own. Some other advantages include: cost restructuring, quality improvements, access to more knowledgeable and experienced professionals, contractual assurance of penalties if service outsourced does not meet standards, decrease in time investment to get job done, scalability,
There are different kinds of outsourcing. Most commonly you hear about companies outsourcing the manufacturing of their products to third world countries. This is a controversial topic. From a strictly business perspective, outsourcing manufacturing is a necessary requirement to compete. If the industry is already outsourcing manufacturing to China and Vietnam to keep costs down, it is nearly impossible to remain competitive if your products cost significantly more. It is rare that a company will be able to keep sales high for a sustained period of time, even with differentiation strategy unless they have significantly loyal customers and distinctive competency.
The new trend of outsourcing one hears about it for IT. Most companies are lost when it comes to the newest technologies such as “the cloud,” or security data systems. Information technology is perhaps the most outsourced service, especially in the Silicon Valley. The information needed for a successful IT department can be very costly if tried to kept in-house. Outsourcing is a cheaper and quicker solution short-term. However, in the long-term, there are disadvantages to outsourcing.
As mentioned, the cost-effectiveness of outsourcing is up to the company. Each situation should be carefully considered before the decision is made, long-term and short-term needs should be considered. There may actually be ways that a company can cut costs without having to outsource; this in itself can be a creation of competitive advantage and positive feedback on the company. Another major disadvantage is the loss of valuable information the company would gain from doing the service themselves. For example, trend complaints in customer service could be valuable insight into fixing and improving a product. It also opens up the door for the company's outsourced to, to charge a premium price; if the company outsourcing becomes too dependent on their services, they can be taken advantage of. Outsourcing can also cast a negative light on the company as “taking advantage” of the poor or oppressed. Corporate social responsibility is a much more important topic these days than it once was. With more connected societies and a “smaller world” through the internet and social networking, bad media can spread like wildfire quickly and effectively. Nowadays, outsourcing mishandled has the power to fail a company.
There are a few ways company's that outsource to third world countries can counter this threat. In the past, companies in the past have pointed fingers at who is responsible for poor working conditions and bad products; companies that outsource claim no responsibility for problems or mistakes claiming that the outsourced company is responsible for the problem. The issue with this is that a company that outsources (a subcontractor) can subcontract even further and outsource even further, this pushing the blame on yet another company, until we all lose track. The important message is that going this doesn't fix the problem. If a company attempts to actively monitor their activities and the effects of their company on the public, it can be a significant step in solving public relations problems. Possibly even further, it could solve the problem and actually improve people's lives. For example, Nike was heavily criticized for exploiting people in third world countries. Since then, Nike has admitted the problem and taken steps to attempt to control the issue. They have established a standard within their industry of quality products and responsibility for outsourced products, as well as where they have come from. While Nike today, is still trying to solve the problem in some countries, they have enacted steps to show people that they are trying. After Nike did this, many of the major boycotts ended and the issue has for the most part become less of a scandalous issue.
The major controversy one hears about these days is to stop outsourcing, and keep jobs in America. President Obama has made an address on this issue. Recently it was on the news about promoting the purchase of Christmas presents that were “made in America.” The problem with this is that people are thinking that once these manufacturing jobs are given to China, there is nothing else America can do. What they are not looking at is the new directions and opportunities America can seize. For example, the green revolution is a great source of opportunity for the United States. No other country in the world has the capabilities and resources that the U.S. has in bringing about a global green revolution. These are specialized jobs that would be exclusive to the U.S. for many years, and if cultivated as a true specialty, the U.S. could charge a premium for its products and services. China's specialty is manufacturing, they are the country who is known to do it best. America has an opportunity to elevate the specialty that the U.S. can do best. It's similar to quitting your job as a waiter after you graduate college, to get a better job as an accountant.