Outsourcing: Nature and Concept
Outsourcing is the process of contracting a business function or any specific business activity to specialized agencies. Mostly, the non-core areas such as sanitation, security, household, pantry, etc are outsourced by the company. The company makes a formal agreement with the agency.
The agency then sends the manpower required to the company. The agency charges the company for their services and in turn pays wages to their employees. Global competition has given rise to outsourcing. With the help of outsourcing, companies can focus on their core areas which leads to better profits and increase the quality of their product.
Advantages of Outsourcing
- Overall Cost Advantage: It eludes the need to hire individuals in‐house; hence recruitment and operational costs can be minimized to a great extent. It reduces the cost and also saves time and efforting on training cost.
- Stimulates Entrepreneurship, Employment, and Exports: Outsourcing stimulates Entrepreneurship, Employment, and Exports in the country from where outsourcing is done. Look at the example of India. After the initial success of call centres, there was a sudden emergence of many small scales and medium scale BPo and KPO companies.
- Low Manpower Cost: The manpower cost is much lower than that of the host country. This is exactly the case with India. We have a very large educated workforce. And this causes the labour cost in our country to be much lower.
- Access to Professional, Expert and High‐quality Services: Mostly, the tasks are given to people who are skilled in that particular field. This provides us with a better level of service and fewer chances of errors or misjudgment.
- Emphasis on Core Process Rather than the Supporting Ones: With its help, companies can focus on their core areas which lead to better profits and increase the quality of their product. They simply outsource ancillary services.
- Investment Requirements are Reduced: The organization can save on investing in the latest technology, software, and infrastructure and let the outsourcing partner handle the entire infrastructure.
- Increased Efficiency and Productivity: There is an increased efficiency and productivity in the non – core areas of an organization.
- Knowledge Sharing: Outsourcing enables the organizations to share knowledge and best practices with each
It helps develop both the companies and also boosts goodwill in the industry.
Disadvantages of Outsourcing
- Lack of Customer Focus: An outsourced vendor may be catering to the needs of multiple organizations at a time. In such situations, vendors may lack complete focus on an individual organization’s tasks. And the reputation of the organization may suffer as a result
- A Threat to Security and Confidentiality: The inside news of the organization may be leaked to the third party, so there are security issues. The leak of sensitive information may result in losses to the company and also be an advantage to competitors.
- Dissatisfactory Services: Some of the common problem areas with outsourcing include stretched delivery time and sub‐standard quality.
- Ethical Issues: The major ethical issue is taking away employment opportunities from one’s own country. Instead of creating employment and wealth in the origin country it gets outsourced to another country. In recent times this has been viewed by many as unethical and even unpatriotic.
- Other Disadvantages: Include misunderstanding of the contract, lack of communication, poor quality and delayed
services amongst others.