Q.3:- Evaluate the need for outsourcing and discuss its limitations.
Global competitive pressures for higher quality products at lower costs, ever demanding customers and emerging technologies are responsible for the continuing emergence of outsourcing as a mode of business. Need for outsourcing is outlined in the following points
(i) Focused Attention Business firms are realizing that focusing their limited resources on a few areas where they have core competence, and contracting out the rest of the activities to their outsourcing partners can lead to better efficiency and effectiveness.
(ii) Quest for Excellence Outsourcing enables the firms to pursue excellence by virtue of limited focus and also by extending their capabilities through contracting out the remaining activities to those who excel in performing them.
(iii) Cost Reduction It has become necessary for firms operating in global markets to maintain quality of products while keeping prices low. Thus, the only way to survival and profitability is cost reduction. The outsourcing partners deliver the same service to a number of organizations and hence benefit from economies of large scale leading to lower cost.
(iv) Growth through Alliance Investment requirements are reduced when some activities are outsourced. Outsourcing also facilitates inter organizational knowledge sharing and collaborative learning.
(v) Stimulates Economic Development Outsourcing stimulates entrepreneurship, employment and exports in the host countries. e.g., IT sector in India has become undisputed leader as far as global outsourcing in software development and IT-enabled services are concerned having 60 per cent of the global outsourcing share in the informatics sector.
But there are certain limitations of outsourcing as given below
(i) Confidentiality Outsourcing depends on sharing a lot of vital information and knowledge. If the outsourcing partner does not maintain the confidentiality it can harm the interest of the party that outsources its processes.
(ii) Sweat-Shopping Outsourcing firms seek to lower their costs by utilizing the low-cost manpower of the host countries. Moreover, the work that is outsourced is not of the type which may build the competency and capability of the outsourcing partner.
(iii) Ethical Concerns In search of cheap labour, manufacturing processes are being outsourced to developing countries where they use child labour/women in the factories and working conditions are unhygienic and even unsafe. This raises ethical concerns.
(iv) Resentment in the Home Countries The process of outsourcing manufacturing, marketing, research and development or IT-based services involves contracting out jobs or employment opportunities from the home country which causes resentment particularly if the home country is suffering from the problem of unemployment.