There is no agreed definition of outsourcing. The term usually refers to businesses contracting out their business functions. The functions contracted out may be within the same geographical region or be in other nations. When services are contracted to other firms in different nations, the term is referred to as offshoring.
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This refers to handing out business responsibilities of one’s company to another company. Initially, the business activities handed over to a third party firm were mainly payroll. Today the concept of BPO includes more business activities otherwise considered secondary to the business, such as management of employee benefits (Sourcingmag.com, n.d.). Business outsourcing falls under outsourcing. Large manufacturing companies who possess large supply chains first embraced the concept.
Information Technology (IT)
Information technology includes use of processing, storage and dissemination of data using computers and telecommunication equipment. The data involved may be vocal, textual or numerical information. Information technology will include computer software, information systems and computer hardware.
In offshoring, a firm moves an entire unit of operation to a different nation. The off-shored unit may be manufacturing or a supporting process. The difference between offshoring and outsourcing lies in the fact that offshoring concerns the movement of the business operations to another nation. In offshoring, the firm still maintains the ownership and management of the business process. Offshoring may encompass the substitution of a given service with another service from a foreign nation. In this case, the substitute becomes the offshored service. Offshoring serves as a solution to reduce business costs or to escape tax liabilities within the home country. The main offshoring destinations of the world are China and India. Offshoring includes Production offshoring and IT services offshoring.
IT Services Offshoring
IT services offshoring is a specific category of offshoring. Digitization of business processes made it possible to geographically separate the given services from other business processes. A firm moves its IT service operations to another nation that has the skilled labor necessary to accomplish the task. IT services offshoring is as a result of the availability of affordable and reliable communication (Couto et al., 2007).
Business to Business
Business to business refers to the exchange of products and services between businesses. In this setting, a firm is the client of another firm and may become its supplier. In outsourcing, the outsourcer and the firm that gets the contract to conduct the business activities on its behalf form a business-to-business relationship. Almost all cases of outsourcing are business-to-business contracts (SearchCIO.com, n.d.).
Front office refers to a firm’s business activities that involve a direct interaction with its clients. This includes the marketing and sales departments of the firm. Automated systems such as customer care systems can carry out front office services and eliminate the need for staff to interact with the client physically. When the front office operation includes automated systems, firms can outsource or offshore the automated systems part of the service as an IT service.
A back office refers to the department or unit within a firm that handles the activities concerning the running of the firm. Activities put into the back office do not need the interaction of the customer, and facilitate a smooth relationship between the sales and other customer facing departments with the customer. An IT department is an example of a back office because its main task is to maintain computer systems within the firm so that the operations of other departments are efficient and reliable (Mergers & Inquisitions, n.d.).
A contract refers to the legal agreement between two companies that binds them to follow the specifics of the agreement. Contracting is the process of establishing a contract between two or more firms or parties. In outsourcing, the contracting firm initiates the contract agreement. The two or more parties then negotiate on the terms and conditions of the contract before signing a law binding agreement. Normally, contracts will have specifications on early termination or resolution of disputes (McKendrick, 2005).
The core business of an organization refers to its intended essential activity. When referring to core business, we consider the success of the firm. Thus, the core business of a firm will include a reference to how individual business units within the firm do their work to realize the objectives of the firm. In addition, coordination of the activities of each individual unit to achieve the common objective of the firm will form the core business.
It refers to the obligations that a firm undertakes when it carries out a specific business activity. When the business activity is outsourced, the firm frees itself from the obligations. Different countries have different tax policies, quality standards, and labor requirements. Outsourcing allows a firm to avoid these obligations but increases the quality risks of the business activities. In offshoring, a firm retains the control of the business practices, while avoiding some liabilities, and is able to monitor quality.
Couto, V., Mani, M., Sehgal, V., Lewin, A. Y., Manning, S. & Rusell, J. W. (2007). Offshoring 2.0: Contracting knowledge and innovation to expand global capabilities. Web.
McKendrick, E. (2005). Contract law -text, cases and materials. Oxford, UK: Oxford University Press.
Mergers & Inquisitions. (n.d.). Holla back, office: 7 reasons you shouldn’t work in the back office.
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SearchCIO.com. (n.d.). B2B (Business2Business or business-to-business).
Sourcingmag.com. (n.d.). BPO – What is Business Process Outsourcing? Web.