What is outsourcing? Explain the advantages and disadvantages of outsourcing.
Solution:
Outsourcing is the process of contracting some business functions to specialized agencies. The company benefits in two ways.
1. It reduces its own cost
2. It uses the expertise of the firm which specializes in a particular kind of service.
Advantages of Outsourcing:
1) Overall cost advantages-
It reduces the cost and also saves time and effort on training costs.
2) Stimulates entrepreneurship, employment, and exports-
Outsourcing stimulates entrepreneurship, employment, and exports in the country.
3) Low manpower Cost-
The manpower cost is much lower than that of the host company.
4) 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.
5) 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 products.
6) 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.
7) Increased efficiency and productivity -
There is increased efficiency and productivity in the non-core areas of an organization.
8) Knowledge sharing -
Outsourcing enables the organization 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 / Limitations of Outsourcing
1) Lack of customer focus-
An outsourced vendor may be catering to the needs of multiple organizations at a time. In such a situation, he may lack complete focus on an individual organization.
As a result, the organization may suffer.
2) A threat to security and confidentiality -
The confidential information of the organization may be leaked to the third party, so there are security issues.
3) Dissatisfactory services -
Some of the common problem areas with outsourcing include stretched delivery time and substandard quality.
4) Ethical issues -
The major ethical issue is taking away employment opportunities from one's own country when the function is outsourced to a company from another country.
5) Other disadvantages -
i) Misunderstanding of the contracts.
ii) Lack of communication.
iii) Poor quality and delayed services.
