Outsourcing can be defined as contracting out the non-core activities to the outside agencies specialized in those areas. The main aim of outsourcing is to obtain the benefits from their experience, expertise, efficiency and even investment.
Concept Outsourcing Concept Another important trend that is increasingly reshaping business is outsourcing. At present some core activities of the business are also outsourced.
Features of Outsourcing:
The main features of the outsourcing area as under:
1. Outsourcing Involves Contracting Out:
Outsourcing implies getting the work done from outside which is earlier performed within the business premise.
For example, earlier many companies appointed their own sanitation staff for housekeeping and sanitation functions.
But now these functions have been outsourced i.e, outside agencies have been appointed to perform these functions on a contractual basis.
2. Generally, Non-Core Business Activities are Outsourced:
Initially, the organizations outsource only the non-core activities, as they venture to experiment with canned with Outsourcing.
3. Cost Reduction:
Outsourcing enables the business firms to undertake large scale production, and thus achieve economies of scale.
The factors like division of labor specialization and the difference in prices of factors of production across the countries also reduce cost.
5. Growth through Alliance:
Outsourcing leads to a reduction in the investment requirements because the outside agencies have already invested in those activities.
6. Fillip to Economic Development:
Outsourcing generates entrepreneurship employment and exports in a country. For example, in India, the IT sector is providing global outsourcing in software development and IT-enabled services due to which there has been a rapid growth of entrepreneurship, employment, and exports.
Concerns over Outsourcing:
Due to the following reasons, there is still an element of uncertainty regarding the future of outsourcing.
Having become pan of the 21st century’s corporate world, it is bound to stay on. However, it will keep growing at the present pace is debatable.
1. Confidentiality: Outsourcing involving sharing a lot of information. Therefore, an outsourcing agency is required to preserve the confidentiality of the data received from business firms.
2. Ethical Concerns: It is unethical to outsource the work to countries having wage discrimination on the basis of the sex of the workers or to the agencies which employ child labor.
3. Resentment in the Home Countries: Outsourcing activities result in more employment or jobs.
Hence, when organizations contract out the other activities, it is resentment in the home country, particularly when there is a problem of unemployment in the home country.
4. Sweat Shopping:
The firm that goes in for outsourcing looks for utilization of existing skills of the vendor rather than the development of his skill.