Outsourcing

Definition: Outsourcing implies negotiating out a business operation or activity to an external body. For this, two companies draft a legal agreement for the swap of payments and services. For an action to be called ‘outsourced’ it should be:

• A recurring action.
• An action that the firm presently furnishes for itself or is commonly scheduled to implement for itself.

Content: Outsourcing

1. Reasons behind Outsourcing
2. Examples
3. Benefits of Outsourcing
4. Some Outsourcing Companies
5. Significance of Outsourcing
6. Conclusion

Reasons behind Outsourcing

• To manage the cost factor.
• To pay more concern to the substance business activities.
• To approach the creative property.
• To expedite innovations.
• To reduce the risk.
• To serve tax benefits.
• To govern capacity.

Examples

BPO (Business Process Outsourcing)

It is a form of outsourcing which is involved with the distribution of certain business measure to other company, i.e., Service provider through a legal contract.

If BPO is done outside the country, it is termed as offshore outsourcing or offshoring and if the country involves in the outsourcing process with a neighbour country than it is called as nearshore outsourcing.

Though Business process outsourcing is firmly connected with information technology, it is also known as ‘Information Technology Enabled Services (ITES)’.

KPO (Knowledge Process Outsourcing)

Knowledge Process Outsourcing is associated with the outsourcing of high-end intelligence work.

This consist of professional research containing computer alleviated simulation, analytics, engineering designs, research on finance and equity, work on a cerebral property, patent registration, legal counselling, market exploration, data mining.

Evaluating information from a collection of data present across different working units of the company and helping it to determine compelling business strategies.

Products

The product is the result of an act or an operation by requisite furnishing inputs. It is an output of action, and in distinct areas, the product can be characterized in distinctive ways.

Alike in operation and production management products are purchased in the form of raw material from the market and sold in the form of finished goods.

Similarly, in the marketing management product is everything which can be provided to the market to fascinate a demand.

Products can be categorized into two types:

1. Tangible: Any substantial product which can be touched or felt, such as a computer, bag, etc. are known as tangible products.
2. Intangible: The products which cannot be touched physically, such as goodwill are known as intangible products.

Product line: It is a combo or set of products that have an adjacent connection because of the similarity in their functions. They have similar consumer groups and are decided by the same distribution centres.

Services

Service is a kind of economic movement which is of intangible nature and cannot be stored, and no ownership gets transferred. It is one of the two fundamental segments of economics, and the other essential sector is goods.

It comprises of postal services, use of expertise such as service provided by the doctor, consultancy services, accounting banking, insurance, education, etc.

Services are discriminated according to the following characteristics:

• Tangibility: They are of intangible nature such as repairing of equipment.
• Perishability: Services do not have an intensity of endurance above the time of purchase; they perish as they are delivered.
• Separability: The manufacturing and utilization are concurrent as a service provider, and service cannot be separated.
• Standardization: The services offered or delivered each time cannot be of the same quality; it differs every time it provided.

Benefits of Outsourcing

• Better Quality: Sometimes, another firm is just superior at delivering a service or building products than your firm.

Thus, it is the best option to outsource that service to another firm for getting the best possible results from that service or product.

• Improved return on investment: A pillar of outsourcing is its ability to shorten the investment in equipment and plants required for the production of the products.

If you can maintain the volume of the profits for the product and not waste too much on supplier margins than the return on investment of the firm will increase.

• Lower cost: Some suppliers have a business in their support; outsourcing to low-cost labour can minimize the labour cost of the firm.

Example: In India, labour cost is much cheaper than the USA; thus, various companies from the USA outsource their low skill works to low-cost companies in India.

Some Outsourcing Companies

1. Accenture
2. Infosys technologies
3. Tata consultancy services
4. Capgemini
5. Wipro Technologies

Significance of Outsourcing

• Quality exposure: There is a possibility of Quality exposure of a service or product to be inadequate, due to manufacturing or industrial consequences.

In outsourcing, it can be due to distinct elements such as information inequality, immense supplier-switching cost, feeble buyer-supplier communication, and scarcity of supplier capabilities.

• Excellence of services: Service legal agreement is a measure of nature of service in the outsourcing obligations. If an obligation is not clearly determined, then there is no measure of quality or service legal agreement established.
• Productivity: Occasionally, offshore outsourcing is depleted to spare cost, but it can have an adverse impression on the capacity of the company.

In such circumstances, it is better to spend on technology rather in outsourcing, as it will eventually improve productivity.

• Work-force: Variations is often higher under an outsourcer, in such a situation, proficiency of the main firm may be vanished, which is out of the restraint of the firm.
• Breakdown of deliveries at a precise time: The target pledged by the outsourcing suppliers usually fails. It occurs because merchants overestimate their capabilities.

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Conclusion

Outsourcing means a contract with an outside organization regarding business functions. The simple making and buying decisions regarding a product, whether it should be produced by a firm or outsourced by another firm who is best in providing such products is the basis of this process.