Most companies start as a small business and do most of the work themselves by taking on the responsibility for marketing, sales, technology, and other components of the business. When the business grows, it becomes more difficult for them to handle all of these tasks. At this point, companies likely decide to hire someone from another company to do some of their tasks for them in order to focus on the core business. This process is called outsourcing: It's the practice of transferring any task, operation, job or process that could be performed by employees within the company to a third party.
Outsourcing has become a major trend over the past decade. There are many reasons why companies decide to outsource. For instance, globalization results in many companies competing in marketplaces making it difficult for them to retain a successful competitor. Therefore, many companies decide to outsource parts of their company in order to maintain competitive. Additionally, it is an easy method for corporations to maximize their profit due to lower labor costs. Since labor remains one of the biggest costs of the company, they have to pay an average wage and provide some health benefits. However, outsourcing a part of the business can reduce labor costs significantly since it gives companies the flexibility to employ workers when it is required. Apart from the financial benefits, more and more companies, small and large, turn to outsourcing as a way to grow since they can expand and gain access to resources that are not available integrally. New market areas can also play a role in the decision of outsourcing, for example, by taking the point of production or service delivery closer to their end users.
In contrast, there are several reasons why companies should not outsource parts of their business. Firstly, outsourcing means dependence on other companies. The financial well-being of the company is tied to the outsourcing company which can have a negative effect on the company. In case the outsourcing company goes bankrupt, they would leave the company with a huge problem. Additionally, outsourcing has many hidden costs, which can lead to spending more money instead of saving it if terms and conditions are not clearly defined. Furthermore, outsourcing leads to unemployment in their home country since they can find lower paid workers who do the work for them. Moreover, outsourcing provider may work with other customers as well and consequently might not give full time and attention to a single company. This may result in delays and imprecisions in the work output. Besides that, not understanding the culture of the outsourcing company and the location where the company outsources can cause communication problems and lower productivity.
A recent development among top global companies in Europe and America is to outsource costumer support like call center services to developing countries in Asia, especially to India. The reason why companies settle down call center in India is due to the fact that India has a wide variety of advantages that other countries do not offer. As the largest English speaking population outside of US, India offers an excellent education system providing more than a million high quality English speaking graduates every year. Additionally, the Indian government has actively supported the call center services industry by allowing duty free imports of capital goods and tax exemptions. Moreover, it has invested billions of dollars for infrastructure development in transport, communication systems, and broadband computing which shows that Indian call center companies are highly adaptive to global trends. Apart from that, the costs of employing, providing offices, training the worker, and paying taxes can be quite high in their home country, whereas an outsourced call center in a country like India can save up to 60 %. Furthermore, outsourcing call centers help companies not only to improve the profit but also to concentrate on core businesses and to become more productive.
Another of the most frequently outsourced business tasks is manufacturing. For many similar reasons as the Indian call center services, European and American manufacturing companies move their production out of their country to China to save a significant amount of money. China is more beneficial when it comes to manufacturing over other Asian countries. One reason is the experience and education the country has in delivering products that reach the standards that are required by both western legislation and consumers. Additionally, Chinese labor is cheaper even though they provide the same quality. Moreover, there are fewer regulations regarding labor conditions, use and disposal of materials, which encourage companies to settle down their productions factories in China.
In conclusion, outsourcing is an arrangement in which work is done by people from outside a company, usually by a company that is specialized in that type of work. It can have a positive but also a negative impact on companies and society.
One the one side, outsourcing can have beneficial impact on the company regarding money- and time saving. It can be really effective to hire experts in some areas of the company and work close with them; especially small businesses can benefit from this since it gives them access to more knowledge and the opportunity to grow. Moreover, settling down companies in foreign countries helps to build up other countries' economies, such as China's and India's, and make the global economy more stable, balanced and powerful. It offers job opportunities and a higher living standard in developing countries. Apart from that, our society can also profit from outsourcing. It gives us the access to a wide range of high quality products at low prices.
However, there is another side to the issue of outsourcing that needs to be considered. Not all people benefit from outsourcing. Outsourcing can have negative impact on society such as unemployment in western countries caused by the availability of cheaper labor in Asia. Local workers are forced to find new jobs, which can lead to the fact that they need to move to another community to find one. The reason why our society gets so many high quality products at low prices is caused by the abuses of foreign employers by not providing humane working conditions. Outsourced work may be performed in sweatshop by children, or in bad working conditions. Additionally, time zones and languages between the companies can be different, which makes it difficult to work effectively since messages can be misleading. Moreover, outsourcing has many hidden costs, which can end up in spending more money instead of saving it.