Outsourcing

| March 6, 2020

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Contents

Introduction. 2

Change Forces Affecting Outsourcing. 2

Stakeholders and their Influence on Outsourcing. 6

Businesses Organizations. 6

Countries and Different Geographical Locations. 7

Conclusion. 9

References. 11

Outsourcing

Introduction

Outsourcing is becoming a common trend in the current business world. Basically, it is a practice by a business organization to cut down on the costs by having portions of its work assigned to outside suppliers instead of having it completed internally (Grossman & Helpman, 2005). It becomes a cost-saving process for an organization when effective implementation takes place. For instance, there are cases where it is more cost-effective for an organization to purchase goods from another company as compared to the cost they would have incurred had they produced the commodities internally. In such a case, the company would cut on costs by having another company purchase the goods on its behalf (Grossman & Helpman, 2005). For example, an organization may opt to outsource its bookkeeping duties to a firm that focuses mainly on accounting if such a movie proves to be cheaper as compared to keeping an in-house accountant. Other than cost-saving which is the main reason for outsourcing, companies may have other reasons. First, where a corporation wants to focus on the primary objectives that it puts forward, it would prefer to have other duties that are not core accomplished by people or organizations that are specialized in handling such duties. Outsourcing has been known to improve the efficiency of the organization in realizing its primary objectives as well as in streamlining production and, thus, ensuring greater productivity (Grossman & Helpman, 2005).

Change Forces Affecting Outsourcing

In the process of making outsourcing decisions, different aspects and measures are important. They influence the level of success of the outsourcing process. Change forces are the various issues relating to outsourcing that have an impact on the decision to choose a given partner for outsourcing or, in some cases, to change an outsourcing partner. One of the major change forces is legal considerations. The laws and legalities relating to business and outsourcing vary from a country to another. Legal issues are of importance when it comes to outsourcing since an efficient outsourcing process is not achievable without a clear understanding of the various legalities involved. Therefore,it necessary for a person or organization with an intent to engage in outsourcing to have clear knowledge and understanding of the legal measures applicable in the home country of the firm they intend to engage in the process of outsourcing. The organization must take the necessary steps in gaining knowledge on the different enforcement-related legal protections that are required in the outsourcing initiative. Among the various issues to take into consideration is a matter of preservation of client confidentiality and vital information about the outsourcing process (Yang, Kim, Nam & Min, 2007).

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Besides legal issues, geographical risk should also be considered. Geographical factors constitute an important element that an organization or a country must evaluate before completing outsourcing agreements. An organization cannot afford to engage in an outsourcing agreement with another organization or individual without having developed a clear understanding of the geographical issues that relate to the country in which they are based. Being an issue of importance to the success of the organization, outsourcing arrangements should be made in such a way that nothing is left to chance. In essence, there is a need to take into consideration any possibilities of change in the political set up for the countries involved in business and the probability of an occurrence of disruptions of any form that may affect the process. An important aspect of outsourcing involves taking into consideration the political functions of the existing government and the reputation it has established within its boundaries and within the international domain. Furthermore, there is the need to consider the participation of the government in supporting the outsourcing industry in terms of both investment and domestic policy and its attitude towards industry bodies and associations (Assaf, Hassanain, Al-Hammad & Al-Nehmi, 2011).

The issue of time zone differences is another significant change force of essence when it comes to outsourcing. Different regions across the globe have varying time zones, and this influences the nature of outsourcing activities that can take place. The variations are a major factor in outsourcing, and they have a significant influence on decisions relating to this business strategy. For instance, big differences in time zones have a negative impact on outsourcing. Therefore, it tends to have negative implications for a company’s choice of an outsourcing destination. They certainly lead to a higher possibility of delays in communication as well as an increase in frustrations relating to the synchronization of work between an organization and its outsourcing partner.

Besides, culture is an issue that cannot go unnoticed when it comes to outsourcing. It is a crucial variable that affects the operations of organizations and individuals in many ways. Owing to its diverse nature, it its influence on outsourcing cannot be overlooked. Compatibility between cultures is an important consideration for the parties involved in an outsourcing agreement. Before making an agreement on how to facilitate the strategy, the parties involved need to ensure that they assess the compatibility of the existing cultures. For instance, there is the issue of a language barrier whereby differences relating to values and culture as well as the rarity of the face-to-face communication between partners may pose serious problems for overall business performance. More importantly, these cultural issues may result in failure to broker an outsourcing agreement between partners’ at the outset. Ensuring that a considerably large share of the issues is mutually agreeable between the partners is an important step in building a successful outsourcing agreement and for maintaining a good business relationship (Winkler, Dibbern & Heinzl, 2008).

Moreover, resources constitute a major component of business decision-making today. In many cases, countries differ in terms of the range of resources available and the talent pool that can be mobilized in the outsourcing process, and this has a direct impact on the success of each business transaction. Before making the decision to engage in such a business endeavor with an organization or individual, one needs to consider whether the talent pool available has the required level of skills to meet the outsourcing initiative. Lack of the relevant level of skill affects the quality of output. It is essential for business managers to gather information regarding the percentage of the workforce that has the required skill levels and to determine the level of expertise that can be achieved through training. Furthermore, the management of the contemporary business organization needs to keep in mind changes in the supply of skilled labor supply is in each region as a way of determining their ability to meet its business requirements.

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Finally, technological infrastructure also affects the outsourcing process in a profound way. Before making a decision to enter into an outsourcing arrangement with an organization or an individual, corporate leaders ought to consider the technological infrastructure deployed by various potential partners. In this regard, one should consider connectivity, availability, quality and the level of security guaranteed in the infrastructure in addition to the availability of backup plans. Nevertheless, there are some instances where unexpected failures in technological infrastructure occur. However, it is, important that business transactions should continue to run without any disruptions despite such failures. The reliability of the technological infrastructure constitutes an important change force in outsourcing because the chances of a successful outsourcing arrangement increase considerably when chances of disruption remain low.

Stakeholders and their Influence on Outsourcing

Businesses Organizations

Business organizations are one of the main stakeholders when it comes to outsourcing because the model involves having a service performed by an outside business entity on behalf of the contracting organization. Many businesses have ventured into outsourcing due to the various benefits that come with it. For instance, it might be cost-effective for an organization to have some of its services accomplished by another organization.

In addition, different businesses tend to have varying levels of influence on the outsourcing issue. In the dawn of the industrialization period, a common belief emerged regarding to growing demand for efficiency among business organizations. To fulfill this need, major companies started engaging in a host of activities to reap the benefits of economies of scale and scope in the business environment. In the early days of technology development, outsourcing was a somewhat costly venture given the high transportation costs involved and the inefficient technology used. However, recent times have seen the development of the business environment through an increase in the level of technological advancement. The results of such improvements are a significant enhancement in efficiency especially in transportation, thus, significantly reducing the costs incurred during coordination (Tate, Ellram & Brown, 2009).

Furthermore, business operators influence outsourcing by shifting their partnerships from regional to international ones. The level of influence depends on the costs involved. The influence has been growing over time especially because of cost reduction. Conversely, outsourcing affects businesses in various ways. If properly implemented,it can improve the financial position of organization through reduced operational costs. It results in cutting down on costs that would otherwise have been incurred by the respective organizations (Tate, Ellram & Brown, 2009).

Countries and Different Geographical Locations

According to Ranganathan and Balaji (2007), outsourcing is very much dependent on the country or region from which the services come. Thus, the choice of country is an important aspect of this consideration in making a decision concerning outsourcing. In considering the partners to work with, most companies are likely to take into consideration the country or region of affiliation for the partners that they wish to work with. The country or region from which an outsourcing organization operates plays an important role in the sense that it has to ensure that the outsourcing process is rendered a success through the deployment of country-specific regulations, safeguards, approaches, cultural values, and guidelines. In this regard, one should consider the infrastructural and institutional development being promoted in the country or region. For instance, the relationship cannot be successful in those cases where the country involved has a poor record in terms of infrastructural development. In contrast, it becomes easy for outsourcing goals to be attained in countries with substantial institutional developments. Therefore, the countries or region of origin has a strong influence on outsourcing outcomes (Ranganathan & Balaji, 2007).

Meanwhile, the most crucial consideration is institutional development. A country or region with weak institutions is likely to attract fewer partners for outsourcing as compared to those with more enhanced and well-developed institutions. At the same time, it is worthwhile to note that outsourcing, can also contribute to the economic advancement of a country. Through, countries get exposure to new business practices. Moreover, the resulting financial benefits of cross-country business partnerships tend to trickle down to the institutional environment by acting as a force of change in terms of how business activities are conducted. In the meantime, the targeted countries benefit immensely from foreign exchange following increased transnational cash flows. This approach enables a country to make surplus income in the international market (Ranganathan & Balaji, 2007).

Workforce

A workforce is composed of people with knowledge and skill in a particular field. For instance, a person working as an accountant should have strong skills relating to accounting and bookkeeping(Tate, Ellram & Brown, 2009). Professionals in various fields make up one of the most important stakeholder groups in outsourcing. In the first place, these are the people responsible for the existence of the whole process of outsourcing. Corporations often outsource some of their business processes in search of professionals with the skills necessary to accomplish particular tasks. The expertise of these professionals comes into play owing to many factors including the quality of skills and the cost involved in having such professionals operating within the operational processes of an organization. This implies that outsourcing of the professionals may be due to the possession of better skills or the cost-effectiveness that would otherwise not have been achieved through an internally available workforce. As a business practice, outsourcing also affects different professionals in various ways. For instance, due to outsourcing, these professionals derive more experience in their field of work through working in different environments, thus, enhancing their technical skills in handling tasks in their area of specialization (Tate, Ellram & Brown, 2009).

Potential Solutions and Justification

One of the main issues in outsourcing relates to cultural differences and complexities. Cultural complexities are important issues of consideration in the determination of the fate of an outsourcing agreement. Cultural complexity is an issue that can be dealt with by an act by the organization to study the differences in the communities involved beforehand. Therefore, cultural synchronization and coherence can be realized by having multi-cultural sensitization programs in place for both the service provider and the outsourcer (Herath & Kishore, 2009).

Besides, there are situations where an organization develops the notion that it can set itself free of the non-core activities by delegating them to an outsourcer. To avoid laxity, organizations should ensure that follow-up is made even after delegating these duties. In addition, the organization should further put in place measures for monitoring and exercising total control over the outsourcing process (Freytag, Clarke & Evald, 2012).

Finally, in the case of legal issues, situations may arise where certain laws make the contractual agreement between the service provider and the outsourcer vague. Such a scenario then nullifies any decisions arrived at between the parties involved (Herath & Kishore, 2009). To avoid such issues, parties to the contract have an obligation to conform to the laws of the host country. In decision-making, there should be involvement by individuals from both sides of the contract and a clear understanding of the regulations and legal issues that are likely to influence the terms of the partnership (Herath & Kishore, 2009).

Conclusion

Outsourcing is a practice that has various merits as well as demerits. One of the main advantages of this business practice is its ability to enable business organizations to cut down on operational costs through access to cheap labor. However, it also has several demerits. For example,it is time-consuming on the part of the outsourcing organization. The process may involve too much wastage of time and resources for the organization during efforts to broker a deal. To avoid this problem, some business operators simply choose to have the duty performed from within the organization. Furthermore, there may be miscommunication between the outsourcing organization and the service provider resulting in a delay in the business process. Either way, it is imperative that the stakeholder puts in place the necessary measures to deal with the main challenges associated with outsourcing. Most importantly, institutional development can play a vital role by ensuring that host countries provide an enabling environment for the providers of outsourcing services.

References

Assaf, S., Hassanain, M. A., Al‐Hammad, A. & Al‐Nehmi, A. (2011). Factors affecting outsourcing decisions of maintenance services in Saudi Arabian universities. Property Management29(2), 195-212.

Freytag, P. V., Clarke, A. H. & Evald, M. R. (2012). Reconsidering outsourcing solutions. European Management Journal30(2), 99-110.

Grossman, G. M. & Helpman, E. (2005). Outsourcing in a global economy. The Review of Economic Studies, 72(1), 135-159.

Herath, T., & Kishore, R. (2009). Offshore Outsourcing: Risks, Challenges, and Potential Solutions. Information Systems Management26(4), 312-326.

Ranganathan, C. & Balaji, S. (2007). Critical capabilities for offshore outsourcing of information systems. MIS Quarterly Executive, 6(3), 147-164.

Tate, W. L., Ellram, L. M., & Brown, S. W. (2009). Offshore Outsourcing of Services: A Stakeholder Perspective. Journal of Service Research12(1), 56-72.

Winkler, J. K., Dibbern, J. & Heinzl, A. (2008). The Impact of Cultural Differences in Offshore Outsourcing: Case Study Results from German–Indian Application Development Projects. Information Systems Outsourcing, 471-495.

Yang, D., Kim, S., Nam, C. & Min, J. (2007). Developing a decision model for business process outsourcing. Computers & Operations Research34(12), 3769-3778.

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