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Discuss The Advantages And Disadvantages Of Outsourcing

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Outsourcing, according to the dictionary definition, is ‘the contracting or subcontracting of noncore activities to free up cash, personnel, time, and facilities for activities in which a company holds competitive advantage. Companies having strengths in other areas may contract out […] aspects of their businesses to concentrate on what they do best and thus reduce average unit cost’. (Businessdictionary.com) In other words, it is just a strategy of transferring particular business functions or tasks to outside suppliers instead of completing them internally. In today’s business world, this practice is widely used by considerable number of companies, especially those operating on the global level – outsourcing enables firms to focus on their main long-term goals by relieving them from marginal activities that are being entrusted to external organization. Still, outsourcing is not purely riskless and there is always a certain degree of hazard that the company …show more content…

(Stimpson P., Smith A., 2011, p. 135) What is more, firms might use low-cost workforce and with the help of the newest telecommunications move operation or data centers to low-cost areas. Outsourcing can also eliminate or significantly reduce operating and overhead costs like factories, buildings and its maintenance, taxes, insurance, security or utilities. Additionally, businesses outside the U.S. and some other European countries are often subject to smaller number of various regulations concerning labor conditions, use and disposal of materials, right-to-work laws and other areas of manufacturing that raise the cost of producing goods in more developed and regulated countries. (Smallbusiness.com) At the same time, in particular cases using an outside vendors may result in higher costs that the company expects, which might be considered as a

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Establishing an internal new venture: This alternative will enable the company to design and produce their own products. And will give them full control over the production and sales. But it will require more research and development efforts since this is a new market for the company. It will also be so expensive to invest in this new product line.

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Sills explains how it is determined whether the company outsources production of a certain product or make it in America. Sills tells Davidson: “the main thing I think about is survival.” Parts that need skilled workers have to be made in America to assure quality. Standard Motors needs the highly skilled workers from the United States to assure quality of their parts, so “even if Mexican or Chinese workers could do Maddie’s job more cheaply, shipping fragile, half-finished parts to another country for processing would make no sense.” Parts that don’t need to be high quality are outsourced because the company simply can’t afford to make everything in the United States.

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Outsourcing is one of the numerous resultants of globalization. Companies from different nations (by and large created nations) outsource their fabricating, marketing, and other back end tasks to other nations. This demonstrates to be cheaper for them as there is a tremendous money distinction between the two nations. Numerous times, companies get to total their work in fair half the cost of what they utilized to pay already.

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Companies will want low costs; this means that they will most likely operate their factories in a country that has relaxed laws or tariffs/taxes/etc. (Czinkota, 2011) Manufacturing in USA costs very much due to the laws and taxes imposed on them, which is why Apple chooses China, as Chinese costs are much lower than their American counterparts. While they manufacture their products in China, it is designed in California, USA, and the resources come from different parts of the world. (Czinkota, 2011)

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