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Various Benefits of Outsourcing Against the Disadvantages

Essay by   •  August 10, 2011  •  Case Study  •  969 Words (4 Pages)  •  1,286 Views

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Abstract

The report is an analysis of the various benefits of outsourcing against the disadvantages associated with it. It highlights the benefits and clears the misconceptions that are associated with it.

Outsourcing

According to C.W. Axelrod, Outsourcing is, "the provision of certain goods or services by third party specialists in direct/ indirect exchange for money" (Axelrod 2004, pg 1). It means hiring specialist organizations which may be located overseas to carry out some of the activities of the business in return for money. The outsourcing industry started in the 1980's in India when few airlines began their back-office operations; and since then, there's been no looking back. Today this industry is synonymous with 'sunshine industry' or 'youth oriented industry'. Its constantly increasing importance can be gauged from the fact that the government is planning a separate ministry to look into the affairs of this sector.

Outsourcing: The Need of today

The government's decision to have a separate ministry for this industry, itself speaks volume about the vitality of this sector. This industry has truly proved to be a beacon of hope for professionals who are unable to find a full time job and at the same time it has also helped the young graduates gain experience and business skills before embarking on a full- fledged career. A major reason supporting outsourcing is the significant savings of costs, specifically on labor which on usual basis represent 60-100 percent of total cost of the business, by approximately 75 percent (Goldsmith 2003). Another reason why outsourcing has become the need of the companies is that it helps the organizations in increasing their yield and quality, which in turn enables them to improve the value as well as the performance of their business. This not only leads to an increase in the profit levels but also enables the firms to save on time, effort, capital resources and manpower (www.outsource2india.com). Statistics show that companies benefit by as much as 30-40% as a result of outsourcing. Outsourcing the jobs overseas enables the organizations to get outside expertise and in many cases enjoy the benefits of time zone difference as well. Outsourcing enables firms to focus more on their core competencies and utilize the manpower more productively, thus increasing the efficiency. With the specialized services at their disposal and that too at cheaper rates the firms are able to provide a competitive edge to their business in the market and thus develop at a tremendous rate. The chart below shows the reasons in support of outsourcing:

Outsourcing: Is it a Threat?

Irrespective of the benefits associated with it, Outsourcing faces a lot of criticism. The critics of outsourcing strongly believe that it results in a loss of large number of jobs in the country outsourcing its jobs overseas, which cannot be considered ethical. Even the estimates show that about 4 million jobs have moved from the west to the developing

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