The Concept of Outsourcing
The twenty first century management boards have been faced by one major issue that has transformed the phase of doing business across the globe: the concept of outsourcing. According to Karimi, (2008), outsourcing refers to the act of assigning some business roles of a company to a third party which completes these roles at a fee. Several issues have been raised about the benefits and sustainability of this approach to business, and the benefits of this approach to the economy. The process of process outsourcing has gone high tech with firms opting to outsource some key roles such as information management, accounting services, customer service among other roles.
Visteon Corporation and IBM
Visteon Corporation, a company operating under the automobile industry has outsourced most computer operations to IBM in a two billion dollars deal as it seeks to diversify. Such trends have led to various questions on whether this from of business approach is beneficial to the economy and the businesses themselves. Although various issues of serious concern such as the exportation of jobs out of developed nations such as America to developing nations such as India, outsourcing of some services leaves companies with ample time to craft a competitive strategy that shall steer such companies towards establishing globally recognized brands.
Although the critics of this form of business approach states that outsourcing is unsustainable in the long run, their argument seems to contradict the tenets of a global economy as this argument is based on the idea that when companies send their work to other companies, they are forced to cut down their human resources as they give some roles to third parties. However, they fail to see that this third party companies are forced to take new employees to tackle the new work that is brought to the company.
This therefore indicates that jobs that are lost through outsourcing are created in other places. What has been cited as a route cause for the instability of this system in the long run is the argument that vital jobs are either exported to other countries or that various business secrets that were used for the purpose of crafting a competitive strategy are placed on the hands of thirds parties thus threatening the survival of companies. However, the efficiency of thus system as well as the cost cutting aspect has made many skeptics to believe that the outsourcing trends are beneficial to the economy.
Outsourcing Can be Cheaper for the Company
According to Hechlinger, (2003), the main motivator for Visteon to outsource its part of computer operations have been based on several factors namely cost, efficiency and finally time for strategy crafting. Takac, (2009), notes that although outsourcing may prove expensive at first, it ends up being a better method for business approach as it can be cheaper for the company. Citing the example of off shoring, Takac, (2009), assert that companies that opt to offshore some parts of their operations to cheaper labor markets are given a chance to market their products at a lower rate making them have a comparative advantage over others especially on price.
The example of Wal-Mart, the giant discount store that outsources most of its manufacturing services to lower labor markets such as China, Takac, (2009), explains that outsourcing should be seen a s away of crafting a strategy rather than a way of exporting American jobs. Outsourced services therefore costs companies a lower cost than when the companies undertakes this costs within their premises.
Outsourcing Advantages and Disadvantages
Apart from the cost benefits that outsourcing brings to a company; it also improves efficiency of the company as the firms appointed to handle the outsourced tasks are usually experienced in the appointed area. The case of Visteon and IBM for instance can benefit the former with better services at a lower cost. IBM Company is a renowned firm in computer technology where it offers hardware, software and consultancy services. IBM also offers infrastructural hosting and other information technology related services making it a company with vast experience in computing.
With many years of experience in computing industry, IBM boasts therefore has the capacity to offer the best services in the computing filed that shall ensure that Visteon benefits from efficiency. IBM shall ensure that the task given by its client shall be accomplished with ease hence promoting the success of Visteon. By outsourcing its computing services to IBM, Visteon Corporation shall have tremendous benefits as far as efficiency of service is concerned.
Another factor that contributes to the efficiency of outsourcing like the identified relationship is the issue of experience. As already noted, IBM is a market leader in the computing industry. The firm therefore has the capacity to administer the computing roles for Visteon effectively. IBM holds perfect technical knowhow on various ways to handle computer services within shorter period of time as opposed to what Visteon could have done when this services remains within the company.
This approach therefore ensures that Visteon Corporation has all its energies focused on its business strategy. The efficient service offered by IBM shall further ensure that Visteon utilizes the final products that it gets from IBM in the process of crafting its own strategy. This therefore is an indication that there are numerous benefits for outsourcing. Outsourcing therefore ensures that firms get quality services at relatively affordable costs hence enabling them to proceed with the core business of the company.
In 2009, Gewalda and Dibbernb, pointed out that the main concern of the business should be to craft a competitive strategy that will guarantee the success of the company. However, according to Gewalda and Dibbernb, most companies are unable to concentrate effectively for this purpose due to many internal problem that makes the firms to have internal hardships. This is worsened by the existence of many departments within the system of the organization that hinders the ability of such firms to deliver. Outsourcing some of the services handles most of these tasks to competent third parties hence reducing the worries of the company that follows this trend.
Visteon Corporation therefore can manage to concentrate with their core business when they hand over the task of computer operations to a professional body. The spare time created as well as the financial benefits accrued from this arrangement also can be utilized towards running the core business of the company. The company can concentrate on production of quality products and develop competitive strategies that shall ensure that the entire market relevance of the Visteon corporation products is increase. Outsourcing therefore gives firms ample time to ensure that they concentrate on the core business rather than taking mostly of its time solving internal problems.
Hechlinger, (2003), also cites the concept of efficiency as to why firms should embrace the concept of outsourcing. Firms that take the outsourced roles are usually experts in the chosen field which makes them be in a capacity to produce relevant results. The efficient end results further assist companies that opt to outsource with an opportunity to benefit financially from accurate predictions. Accurate data and services as well as superior products produced by the thirds party companies ensures that the outsourcing company gains in product superiority, a fact that further pushes the business agendas of the firm that opts to outsource some of its functions.
In the case of Visteon Corporation, outsourcing of some of the computer services to IBM provided an avenue for ample research and development such that the products of the company do not lose relevance in the market. Research and development also is a guarantee Visteon corporation future incomes as the automobile industry is in constant search for efficiency. The rise of green movements and campaigns for more environmental friendly vehicles have presented the motor vehicle industry and the automobile spares industry with the need to generate new methods of designing vehicles that are fuel efficient, and more preferably, vehicles that have the capacity to use alternative sources of energy.
This therefore has forced all the stakeholders in this industry to enter into a dedicated research venture in look for a green vehicle that shall be friendly to the environment. Although major breakthroughs have already been made, it is evident that there are still areas in this endeavor that are yet to be fully tackled. Visteon corporation therefore can take the advantage that they have more time after outsourcing of their services to ensure that it leads in the research and innovation towards the production of a green vehicle that shall be environmentally friendly.
Benefits of Outsourcing
Another benefit of outsourcing has been identified by Hechlinger, (2003), as the macro economic growth of the outsourcing countries. Karimi, (2008), assert that the economies of major outsourcing companies such as the United States, United Kingdom, Norway as well as Australia have experienced tremendous growth due to this form of business relationship. The growth has been noted to originate from the ability of main firms from this country ability to expand and penetrate many international markets in a globalizing economy. Companies have the ability to produce cheaply making it possible for such companies to sell even to emerging markets. This therefore has enabled this companies to advance globally hence growing the economies of their mother county.
Visteon Corporation therefore stands an impressive chance of development when most of its services are outsourced. The benefits that are accrued to the company in this arrangement that ranges from efficiency to cost saving stands to improve the competency of the corporation's products in various markets. The company can therefore create a comparative advantage for it based on lower costs that are most likely enabled by the saved cost of outsourcing, as well as from product superiority which is created from the more time that is spent in the process of developing these products. When these issues are achieved, the company's benefit shall remain high in terms of return for investment.
Currently, most of American manufacturing functions have been outsourced to China while most services such as data entry, telephone services, and ticketing services are outsourced to India. The business outsourcing and call centers are common places in the modern day India while in china; most of the manufacturing processes are handled in china. Most services such as flight booking confirmation ticketing among others are conducted by BPOs that are located mostly in India as well as in other parts of the world.
This shows that outsourcing is already defining the current market place with most of clerical duties that can be transferred to other economies or within the same country but tio other more economical companies. This trend has proved that it has tremendous benefits in the industry as the firms get to manage their core business without the interference of the routine duties. Outsourcing therefore is defining the current day approaches to business.
As noted by Gorg, Hanley and Strobl, (2008), the uptake of information era stands to further accelerate the rate of outsourcing and off shoring due to the ability of various firms to communicate and share information with ease. The development of more enabling software that supports networking shall also increase the uptake of the outsourcing trends. As the world becomes connected by high speed connectivity internet, the global village phenomenon shall further lead to accelerated outsourcing tendencies. With most of the functions being outsourced, workplaces shall have relatively fewer employees that are mainly involved in tasks such as strategy formulation while the core implementation roles shall be undertaken by employee of the contracted companies.
Another possibility is that as the developed nations dominate the outsourcing industry, many companies shall emerge hence creating many workplaces with fewer employees than it has been traditionally. Clerical duties such as data entry may also be made obsolete in developed economies as most of such functions shall be performed in the companies that pick the outsourced jobs. Domestic outsourcing especially due to the need for professionalism shall increase with an aim of cutting the cost at the long run. The impacts of outsourcing at the workplaces of the future especially among the developed countries are therefore uncertain. However, one thing is clear that outsourcing shall continue to be embrace by most developed economies.
The uncertainty of the future of outsourcing at the workplace has given impetus to the critics of outsourcing. Karimi, (2008), assert that the outsourcing trends may have structural effects to the social systems of the developed countries as the jobs that are outsourced to other countries are needed in the developed world. Citing the raising rates of unemployment, or frictional unemployment, Hechlinger, (2003), asserts that the sustainability of outsourcing trends is in jeopardy as companies that embrace it are driven by the greed to make money rather than stabilize the home economy. In further criticism, Gorg, Hanley and Strobl (2008) argue that outsourcing tendencies exports the knowledge of the outsourcing country to where the services are off-shored to.
As far as local outsourcing is concerned, Gorg, Hanley and Strobl (2008) argue that the trends are still unacceptable as they may lead to sabotage when the information of a company falls on the hands of the wrong firms. Companies that hold the information functions for another company may collude with rivals to reap the benefits of the company by gaining access to vital information that is used for crafting of strategy. Company strategies and future plans also can be copied and reproduced hence introducing an unhealthy form of competition in the developed economies. This therefore shows that, according to critics, outsourcing is unsustainable and detrimental to the economies of the developed countries.
In conclusion, despite the opposing sentiments that have been put forth by those opposed to outsourcing, it is evident that the current economy is being controlled through outsourcing and off shoring. Although some of the fears that are raised by the critics are sensible, what need to be put are mechanisms that shall ensure that the entire process is sustainable. The fact that outsourcing has proved to be economically viable to the organizations should be embraced as growth of the organization transforms to economic growth for countries.
Besides, when companies give away some of their repetitive, routine and clerical jobs to cheaper markets, whether local or international, they are left with ample time to concentrate on their core businesses. It is this concentration on the core business that the benefits accrued from outsourcing outweighs the possible costs associated with it. Outsourcing should therefore be encouraged on the basis that it allows companies to have ample time to concentrate on their core goals and enable them to craft a competitive strategy to direct their operations.