Question 3: Evaluate the need for outsourcing and discuss its limitations.
Answer:
The need for outsourcing are as follows :
(a) Focussing of Attention : Business firms are perceiving the usefulness of focusing on just a few areas where they have definite capability or core competency and contracting out the remaining activities to their outsourcing partners. This enables them to focus their attention on some selective activities.
(b) Quest for Excellence : Outsourcing enables the firm to chase the excellence in two ways. Primarily, they excel themselves in the activities in which they are good enough so that they excel by expanding their capabilities. In the quest for excellence, it is important not only to know what you would like to focus on, but also what you would like others to do for you.
(c) Cost Reduction : Global competitiveness required not only the quality, but also reduction in cost. Division of labour and specialization minimize cost and improves quality. This happens due to the economics of large scale accounting outsourcing partners.
(d) Growth through Alliance : To the extent, we can avail of the services of others, our investment necessities are reduced, others have invested in those activities for us which helps in expanding rapidly. Apart from financial returns, outsourcing eases inter organisational knowledge sharing and collaborative learning.
(e) Fillip to economic development : Outsourcing revives the entrepreneurship, employment and exports in the host countries thus, it helps in economic development of the country.
(f) Limitations of Outsourcing Confidentiality : Outsourcing depend on sharing a lot of vital information and knowledge. If the outsourcing partner doesn't receive the confidentiality and passes it on to competitors which can harm to interest of the party that outsources its processes. If outsourcing involves complete process, there is a risk of outsourcing partner starting up a competitive business.
(ii) Sweat shopping : As the firms that outsource seek to minimize their costs they try to get maximum benefit from less cost, man power of host countries. The firm that go in for outsourcing look it is doing stills rather than doing the development of thinking skills.
(iii) Resentment in the home countries : In the course of contracting out, manufacturing, marketing, research and development of IT based services what is ultimately contracted out is employment or the jobs. If the home country is facing the problem of unemployment, may cause resentment back in the home country.
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