Emerging Modes of Business

Outsourcing

About four out of five of the world’s 500 largest companies outsource their work to India. But what does this outsourcing mean? And how does it benefit the country and its workforce? In recent times outsourcing has also been in the news due to the ethical questions it raises. Let’s find out more about it.

Suggested Videos

Play
Play
previous arrow
next arrow
previous arrownext arrow
Slider

 

Introduction to Outsourcing

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.

Outsourcing

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
    other. 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.

Solved Examples For You

Q. Which one of the following is a category in which Business Process Outsourcing can be categorized?

  1. Back office
  2. Front office
  3. Offshore
  4. All of the above

Sol. The correct answer is the option ”D”. In this, kind party agencies perform your back office as well as front office data entry tasks effectively in quick turnaround times. In the 90s we used it to refer to big business sending jobs offshore.

Q. Outsourcing _______________.

  1. restricts only to the contracting out of Information Technology Enabled Services (ITES).
  2. restricts only to the contracting out of non-core business processes.
  3. includes contracting out of manufacturing and R & D, as well as service processes-both core and non-core-but, restricts only to the domestic territory
  4. includes off-shoring

Sol. The correct answer is the option ”D”. It is a practice of reducing cost by a company by transferring a part of the company to another company. It includes offshoring i.e. relocating a part of the business to another place for reducing costs.

Share with friends

Customize your course in 30 seconds

Which class are you in?
5th
6th
7th
8th
9th
10th
11th
12th
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
tutor
tutor
Ashhar Firdausi
IIT Roorkee
Biology
tutor
tutor
Dr. Nazma Shaik
VTU
Chemistry
tutor
tutor
Gaurav Tiwari
APJAKTU
Physics
Get Started

5
Leave a Reply

avatar
5 Comment threads
0 Thread replies
1 Followers
 
Most reacted comment
Hottest comment thread
5 Comment authors
sauravRishikeshImran HanifOPPN MEDIAStanlays Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Stanlays
Guest
Stanlays

Nice to meet you

OPPN MEDIA
Guest

oppnads.com, Thank you for the knowledgeable post which has helped me a lot. Keep it up for providing valuable information..

Imran Hanif
Guest

Any businessman is accurately tested when he or she decides to exploit the right opportunity at the right time. These businessmen not only decide, but also have the courage to put their decisions in execution as well. E-Businesses are one of them.

Rishikesh
Guest
Rishikesh

Its vey helpful i think there is a small mistake in advantages of e-business
i.e cheaper than traditional business. but its written cost taken to setup a e-business is much higher than traditional business.

saurav
Guest

thanks

Stuck with a

Question Mark?

Have a doubt at 3 am? Our experts are available 24x7. Connect with a tutor instantly and get your concepts cleared in less than 3 steps.

Download the App

Watch lectures, practise questions and take tests on the go.

Customize your course in 30 seconds

Which class are you in?
No thanks.