Outsourcing is the process of contracting business functions to someone else. If a business needs expertise or skills that they don’t have within their company, they often turn to outsourcing to solve their dilemma. Outsourcing can trace its roots to large manufacturing firms, which hired outside organizations to produced specialized components they needed for their products. For example, automakers, hire different companies to make air conditioning units, radio systems ect. One of the biggest advantages of outsourcing is that companies can obtain cheap labor.
A company can get work done at a fraction of the cost it would have spent locally. The quality of products will also be about the same, if not better. The differences in pay and standard of living between Asian and Western countries allows companies to pay much lower wages to their workers. For example, Apple’s products are made by a company called Foxconn who pays its employees about 51 cents per hour. Some people can look at this and be appalled, however that is much more than what workers normally get paid in other companies. If the iPad were to be made here in America at $15. 7/hour (average U. S hourly rate) the iPad would cost $14,970. No one in his or her right mind would pay for that much for an iPad. So we can certainly see the impact outsourcing has on our products. The dramatic reduction in labor costs can translate into more money on hand for the organization or company. Therefore, it can lead to more money to invest in other ventures or to improve the firm. Also, outsourcing to a company like India can lead to a reduced overhead cost. Instead of renting/buying a warehouse for storage in the United States, a company can save a lot by outsourcing.
Some other factors that make outsourcing so great are that, a company can focus on its core activities rather than supporting ones. Outsourcing is a supportive process that allows companies more time to strengthen the core of their business. To add to that, outsourcing also adds swiftness and expertise. Most of the time a company is outsourcing to a vendor who specialize in their field. These outsource vendors already have specific equipment and technical expertise. This allows for quick integration and better customer satisfaction.
Although, some may argue that outsourcing is taking away jobs from the United States, it is also adding jobs to developing nations. People in developing nations live in extreme impoverished conditions. They desperately need jobs so they can feed their families and educate their children. Outsourcing can eventually create booming economies. When more people acquire jobs, they will have more money to spend on the local market. In conclusion, outsourcing is a great tool when used properly. It has a bad reputation because some companies abuse their power overseas. They pay too little to peasants to work for them.
However, I think it is vital for a global growth. As jobs are passed down to developing nations, we are helping them grow at a faster rate. This in-turn creates healthier families and more educated children. Organizations see a dramatic increase in savings when going abroad. A company can save as much as 60% when they outsource their operations. To me that is a great opportunity for any size business. However, organizations have to think about the impact they have on the people they hire abroad and as well as the environment. Many companies neglect those two factors and earn a negative reputation.