Outsourcing is a business practice in which a company enters into a contract with another company to provide certain services essential for the operations of the client organization (Duran & Duran, 2009).This practice has increased in the recent past, and the increase can be attributed greatly to the increased use of information technology that has improved communication.
In most instances, the firms contracting other companies for a given task also have the capacity to carry out the tasks domestically. These firms, ranging from small through medium-sized to large organizations, are driven into outsourcing for a number of reasons. It has emerged that services that did not appear to be tradable are now in high demand and form the basis for outsourcing.
All functions needed to run a company can now be obtained off shelf (Engardio, 2006). Firms contract other organizations for services like data management, accounting or editing, data analysis and processing, call center services, or e-mails among many others. The supplying firms are highly specialized in the respective areas and are able to offer the services at cheaper costs as compared to the whole costs that would be incurred by a company performing the tasks in-house.
Outsourcing has increased considerably, particular in the developed countries like the US. In the article ‘Fair exchange: Who benefits from outsourcing?’(In‘The Blair Reader: Exploring Issues and Ideas’ by Kisser and Mandell),Barrera (2004) focuses on the benefits of outsourcing and asserts that the practice is beneficial to both the parties involved and their respective countries.
However, the author also points out that the practice has some weaknesses that have to be addressed by the policy-makers to ensure its effectiveness. This view forms the basis upon which this paper is developed. The paper provides a comparison of Barrera’s views and views provided by other authors in relation to outsourcing.
Outsourcing has been criticized for displacing the local employees and shifting employment opportunities to overseas. However, this practice is beneficial to the two parties involved, both the outsourcing firm and the service suppliers and their respective countries.
The challenges of outsourcing
Outsourcing happens to have certain challenges to the operations of the outsourcing firm and the economic development in the country of origin of the firm. The practice is blamed for the rising level of unemployment in the United States. Wadhwa (2009) terms it a dirty word that involves relieving full-time employees in an organization of their duties to look for these services elsewhere.
The United States is seen as a destination for outsourced jobs, a move that agonizes most of the jobless citizens. The companies outsource these services since the costs of the services are lower compared to performing the tasks by the employees of the organization.
Besides, the rate at which new jobs are created is also not high enough to meet the demands of those rendered jobless due to outsourcing. Barrera (2004) observed that employees in the developed countries lose their jobs due to outsourcing and yet similar well-paying jobs cannot be created at the same rate.
There is often a large time interval between the destruction of jobs and creation of other opportunities. The employees may be forced to seek employment in new fields in new geographic locations. This would necessitate additional training to acquire the relevant skills and adaptation to the new work-environment. Outsourcing is also characterized by increased use of high-tech and occupational services that have rendered many employees jobless.
Outsourcing also appears to be a threat to the proper management of an organization in some sense. Organizations that outsource services may not be in touch with some of their key stakeholders. The poor relationship may be developed between the suppliers or consumers and the business organization that impedes its smooth operations.
Similarly, the company becomes so much dependent on outsourced services that it may fail in case there is a sudden withdrawal from the contract by the supplying firm. In this regard, it has been pointed out that a firm should evaluate the other organization providing outsourcing services before contracting it (Duran and Duran, 2009). Different aspects like cost, time, and quality of the services have to be considered.
Benefits of Outsourcing
The increasing rate of outsourcing as witnessed in the United States can be supported by several observations. Various developments have been witnessed in the business industry that justifies the use of outsourcing. The current international trade that involves shifting of resources to gain a comparative advantage is the fundamental building block behind outsourcing.
Firstly, outsourcing is cost-effective and helps increase the profits of organization. It is aimed at minimizing cost and time for a given task (Duran and Duran, 2009). Outsourcing is not a recently developed idea in the United States. The idea has been in existence whereby the country obtained goods from other countries where they could be produced cheaply. The companies manufactured products from these goods and sold the finished product to other countries.
Barrera (2004) supports this practice and asserts that it is needless to produce some products using many resources when similar products could be obtained elsewhere at cheaper prices. These resources could be channeled to the production of other products that are of high value to the organization. Similar scenario is witnessed in the outsourcing of services. Increased global competition and the economic pressure caused by developing countries calls for replacing full-time employees with contractors (Wadhwa, 2004).
The firms that offer outsourcing services do not incur huge operations costs like consumer benefits or other overhead expenses. The firms make use of few employees with highly specialized skills. As such, they are able to provide the services at relatively cheaper costs to the client organizations.
Thus, outsourcing allows the developing and the developed countries to develop on the products and services that are of the highest possible benefits to the country (Barrera, 2004). The US companies that outsource services have a lean organizational structure that allows improved operations to gain competitive advantage in the international market.
Secondly, the quality of outsourced services is often high. The quality, time, and cost should be the major focus of an outsourcing company (Duran and Duran, 2009). It has been observed that small business organizations need certain technology services and yet they are not equipped to perform the tasks (Wadhwa, 2009).
The firms offering these services often streamline their operations towards specialized lines. The companies can employ the modern technology and machinery that may not be available in the client organization. This implies that if the firms withdraw their services for the client organizations then the latter can suffer consequences of poor quality services.
Besides, in as much as outsourcing is criticized to cause unemployment in the industrial nations, the practice improves the lives of the poor in the developing countries. There is increased level of employment in these developing nations that contribute significantly towards social and economic development in the countries. This helps alleviate poverty and improve the lives of the citizens of the country thereby contributing towards the desired global development.
This is advantageous to the large international organizations that operate across several countries. Outsourcing has the advantage of ‘multi-local benefits administration program, scalable technology, and a consistent employee experience, a single point of contact for managers and members, and cost efficiencies’ (Miller, 2011, p.24). The developing countries provide competitive emerging markets for such huge organizations.
Outsourcing is growing at considerable rate and its positive impacts on economic development at the local and international scene are evident. It is very necessary for organizations that want to extend their operations across different nations. This is essential owing to the current globalization.
It provides a cost-effective way of building strong foundations in one country before settling to operate on the country. After contracting some firm, the management of an organization may focus on other operational strategies as the experts work on the problems at hand. The practice is not without some challenges. However, the challenges can be managed through effective trade policies.
Duran, D., & Duran, I. (2009). Process outsourcing benefits. Annals of DAAAM & Proceedings, 945-946. Retrieved from http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=5&hid=9&sid=674bcd51-71e9-4fc1-8c36-50435a81af78%40sessionmgr14.
Engardio, P. (2006). The Future of Outsourcing: How it is transforming whole industries and changing the way we work. Retrieved from http://www.businessweek.com/magazine/content/06_05/b3969401.htm
Miller, J. (2011). The Touchstones ofSuccessful Global benefitsOutsourcing. Benefits Quarterly, 27(2); 24-27.
Kisser, G., & Mandell, R. (2011). The Blair Reader: Exploring Issues and Ideas. Seventh edition. Boston: Prentice Hall.
Wadhwa, V. (2009). Outsourcing Benefits U.S. Workers, Too. BusinessWeek Online, 5. Retrieved from http://web.ebscohost.com/ehost/detail?vid=6&hid=9&sid=674bcd51-71e9-4fc1-8c36-50435a81af78%40sessionmgr14&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=a9h&AN=43583695.