In today's global environment, technology and the restrained economy, it is wise to realize outsourcing as cost cutting and improving production. Outsourcing is a business strategy in which companies can enter into contracts with other companies, sometimes with foreigners, to provide business services or component products (Abrams 194). US multinational corporations have begun to take advantage of reducing barriers to trade and communication technologies to transfer production to low-wage countries such as India and Sri Lanka. Outsourcing is an increasingly popular tool for companies to increase efficiency, although some companies do not realize that outsourcing can be a disadvantage. Outsourcing can cause problems if not treated correctly, but wise outsourcing can lead to many long-term benefits.
Cost reduction is the number one reason for outsourcing. "Outsourcing converters convert fixed costs to changing costs, capitalize on other parts of their business and allow them to avoid large spending" (Outsourcing Benefits for Small Businesses). Outsourcing can also make the company attractive to investors as more capital returns to revenue-generating functions. There is a huge difference, thousands of dollars, when comparing US wages with wages in third world countries.
We can send assignments and pay minimum amounts. "Outsourcing involves delegating certain tasks or goals to organizational segments that belong to other organizations that provide a better price ratio or expertise in the field of expertise" (Arsenie-Samoil 789). Service costs related to the home industry include profits from foreign companies, but the overall cost of the home company is lower and foreign payments are lower. Additionally, if a company has a feature or service that is extremely costly, the company may consider outsourcing this feature to an overseas company. Internet and other communication technologies have made international business simpler and cheaper at once.
Furthermore, outsourcing can increase efficiency. In today's global environment, a business plan is critical to defining the company's goals and preparing an efficiency schedule. The plan must take into account the production process and its stages that can be shortened by increasing efficiency. As the market evolves, large companies are looking for new ideas and ways to streamline processes. Companies that fulfill all aspects of in-house services have higher research and development and marketing costs, while outsourcing or foreign cost structures are cheaper. This reduction will give the company a competitive advantage.
Outsourcing is to be considered when the volumes are weak or if the company had to dismiss employees due to a recession. Furthermore, outsourcing is a great way for new companies to hire more experienced or more skilled workers. Many companies require variable work or outsourcing in busy times or large special orders.
"Using a changing workforce can better control overloaded costs because you can hire these staff in a timely manner, but you do not have to be slow to payroll" (Abrams183). These foreign companies are responsible for retaining the equipment needed to produce workforce, facilities, and parts or services. Outsourcing gives the manager the opportunity to focus on the basic operations of the company as they perform other tasks.
The productivity of a company can increase as operations over time shift into 24-hour operations. When there is a day in the United States, there are nights in foreign countries. Additionally, a company that performs all tasks within its own home passes higher costs to the consumer, which is less than the demand for a product or service.
Another task of the company is to reduce labor costs. This may be variable to fill and attract short-term projects for staff and temporary staff may not meet their expectations. Outsourcing allows the company to concentrate on human resources where they need it. "Savings arise from lower employee needs (eg money, time and infrastructure savings), and the company no longer has the responsibility and the human resource problems" (Arsenie-Samoil 792). The responsibility is transferred to the supplier and the domestic company can be expanded without their own resources. Outsourcing allows the company to focus on core business by directing peripheral activities to quality quality and allowing the manager to prioritize it.
Like any business strategy, there are potential pitfalls with outsourcing, diligence, and planning that can lead to a successful business. Business executives must ensure that the supplier actually performs the necessary tasks. In our country, almost every employee is backing up, but most overseas companies resign from criminal inspections. You never really know who's doing your job unless you're trying to get to know the outsourced company. Another issue is cultural differences and linguistic difficulties with communication with foreign outsourcing companies. However, many overseas countries have improved their English proficiency and are more valued in education ("Advantages of outsourcing to small businesses"). The outsourcing company must be ready to handle its projects with time differences and cultural barriers. The outsourcing company must have clear guidelines for the production of quality goods and services. Confidentiality is a problem and extremely secretive or important information can not take part in outsourcing tasks. Responsibility when outsourcing is a complicated task.
Technological progress has resulted in globalization. You can now communicate and trade with the other half of the world. In order to maintain competitiveness and increase efficiency, companies are now considering outsourcing a viable option. The quality of the services provided and customer satisfaction are top priorities. The company may decide to outsource it because it has to reduce costs, relocate work to focus on core business and increase efficiency. However, it is important that the owners analyze the relevant costs before outsourcing. Some degree of control is waived and the quality can be influenced. The management must be ready to deal with the oceans, time differences and cultural barriers. Outsourcing is a common practice and companies need to maintain this in a constantly changing global marketplace. Companies need to decide whether the benefits outweigh their risks and take the additional short-term improvements instead of the long-term goal.
Abrams, Rhonda. Successful Business Plan: Secrets and Strategies. Palo Alto: The Planning Shop, 2010. Print.
Arsenie-Samoil, Mihalache D. "Outsourcing Company Accounting". University of Ovid
Annals, Economic and Sciences Series. 11.2 (2011): 788-793. Web. April 2, 2014
"The Benefits of Outsourcing for Small Businesses". New York Times: Small Businesses.
AllBusiness.com Inc. January 1, 2008 Web. 2 April 2014.
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