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Pros and Cons of Outsourcing

Background

Outsourcing refers to the process of contracting with another company or an individual in order to perform a certain function. Generally, in the outsourcing model, the functions that are being outsourced are non core to the business. In today’s world, companies have been regularly outsourcing narrow functions such as payroll, data entry and billing. The common forms of outsourcing are information technology outsourcing (ITO), Business Process Outsourcing (BPO), knowledge process outsourcing ( KPO) and legal process outsourcing ( LPO). The firms that provide the outsourcing services are known as third party providers or service providers. Knowledge process outsourcing is the process of outsourcing knowledge related and information related work. Some examples of knowledge process outsourcing are data analytics, market research services, business research services, investment research services, patent research, editorial business services and legal process services. A cost benefit analysis should be implemented before deciding to outsource operations. Some of the advantages of outsourcing are:
1) Cost Savings: Companies always tend to outsource to low cost economies where there is labor arbitrage.
2) Helps a company to focus on core business.
3) Cost restructuring: Outsourcing changes the operating leverage ratio of an organization and makes variable costs more predictable.
4) Improve quality
5) Access to diverse talent
6) Operational expertise
7) Capacity management
8) Enhanced capacity to innovate
9) Reduced time lag for introducing a product in a new market
10) Risk management
Objectives:
Following my discussion, you will:
- Have the knowledge to make decisions regarding outsourcing your business operations
- Be aware of the pros and cons of outsourcing

Video: Pros and Cons of Outsourcing

Description of the video
The video discusses the pros and cons of outsourcing. The video states that outsourcing can help in saving time. Saving time results in cost savings. Outsourcing results in cost savings and cost restructuring. An entrepreneur can entrust the task of web page development to a third party web page designer. This will allow the entrepreneur to concentrate on the core operations. Outsourcing allows a firm to perform two tasks concurrently. Outsourcing allows a company to leverage for growth. Outsourcing allows an entrepreneur who has started the business to experience growth at a faster pace. Outsourcing allows a firm to have access to resources that it might not have access to in their own countries. Outsourcing gives the firms access to diverse talents. Outsourcing helps in innovation and is the catalyst for change. It helps in reducing the time lag for introducing a product in a new market.
The video states that outsourcing might not work out for everyone. It might prove to very costly if procedures are not written out properly for the third party providers. Outsourcing might prove to be very expensive if the workforce employed by the third party provider is not adequately trained to handle the operations. Outsourcing might not work out in the short run if there is misalignment of the skills set. It is essential for companies that are considering outsourcing their operations to follow the right steps and perform a thorough due diligence process. Outsourcing can also prove to very controversial due to the business ethics issue.

Summary
The future of the outsourcing industry appears to be a reasonably bright one. It will continue to be one of the top business trends. The slow economic recovery will cause information technology companies to offshore more in order to facilitate cost savings. The issue of Outsourcing is very controversial due to the business ethics issue. There will always be winners and losers when then there is outsourcing. The main problem is that the winners do not adequately compensate the losers.

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