Page 597 - Encyclopedia of Business and Finance

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Outsourcing in the Business Environment

WHY OUTSOURCE? such as bankruptcy, business ownership change, financial
The reasons for outsourcing are more than just reducing difficulty, and reorganization.
costs. Bulla suggested that companies outsource in order Next in the chain of benefits comes the company who
to: contracts the work in a foreign country. The company
benefits because it can increase its production, and hire
• improve company focus
more workers. The workers compete for higher paying
• gain access to world-class capabilities jobs than they would have otherwise, raising their stan-
• manage difficult or out-of-control functions dard of living. The tremendous growth potential in some
areas has the attention of PricewaterhouseCoopers, which
• reduce or control operating costs
pointed to the city of Coimbatore, India, as a center for
• gain resources not otherwise available growth because of its plan for a new IT park. The coun-
try and the city benefit from the new income, thus
Of course, another reason is to free internal resources
enabling improved infrastructure for the benefit of all.
for other purposes. For example, Datasweep Inc. (which
was acquired by Rockwell Automation in 2005), a com- One group of people often overlooked in this benefits
pany whose software helps manufacturers manage facto- discussion is the population of female workers with mod-
erate education who are able to gain higher-paying posi-
ries more efficiently, hired eight programmers in India
tions because of the influx of business process outsourcing
and China to translate its product into Japanese and con-
and IT-enabled services. This new ability has enabled a
nect its programs with software from SAP, a German soft-
ware maker. Many other companies are reaping the same social empowerment previously denied young women, and
benefits from outsourcing through the use of educated but eventually leads to a more equitable position in society.
lower paid overseas employees performing the routine
business tasks. Companies are able to use their U.S.-based DISADVANTAGES OF
staff to focus on innovation. OUTSOURCING
Even though there are numerous advantages to outsourc-
ADVANTAGES OF OUTSOURCING ing, there are just as many disadvantages. One main issue
Outsourcing is one of the most popular trends in business surrounding outsourcing is the number of American jobs
today because of the benefits it offers. For the company being moved overseas. Another issue regarding outsourc-
sending work out, the consumer, the economy in general, ing is the inefficiencies that it creates for businesses
and for the country and company receiving the work, the because of communication barriers. For example, cus-
economic benefits are clearly seen. The benefits of free tomers may have a hard time getting their technical-sup-
trade are enormous: Companies pay less for goods and port questions answered because of language differences.
services, creating more wealth for shareholders, and caus- In some cases the vendor and customer are not available at
ing prices to go down or remain the same for consumers, the same time because of the difference in time zones.
raising the standard of living for the whole country. For Unqualified employees and incompetent vendors are
the country receiving the work, there is higher employ- other problems that arise with outsourcing. Customers are
ment, more competition for skilled employees, higher rev- not always satisfied with the quality or price of their serv-
enues for the government in the form of payroll taxes, and ices and companies can incur losses for their production
a higher standard of living overall. and IT support. Outsourcing can cause a company to lose
control of the part of the project that they have out-
Companies saving as much as 80 percent on salaries
sourced, especially if the company does not hire an expe-
lead to more wealth going to shareholders. This frees up
valuable resources to be used in more productive ways. rienced manager when outsourcing.
The cost savings enabled by these moves lower prices for When IT security is outsourced, contractors overseas
consumers, increasing their buying power. Many people are given access to a company’s business environment.
are concerned about the future and current implications Companies must control the level of access given to
of outsourcing, as the results of the surveys show. In some providers and verify that the employees hired overseas
cases jobs, estimated at around 2 percent so far, are actu- meet the company’s screening standards. Companies that
ally lost. Thus, supporting proponents of outsourcing sug- outsource must ensure that their data and networks are
gest that this process hardly contributes to the protected.
unemployment problems caused by a weak economy. The Outsourcing certain jobs in a business takes a great
findings of the U.S. Bureau of Labor Statistics showed deal of time and planning and should be carefully evalu-
that, in the first quarter of 2004, 70 percent of all job ated. Eric Wahlgren found that the process of outsourcing
losses were a result of internal company restructurings, can be burdensome for some small companies because

574 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION