Outsourcing is increasingly becoming popular among firms in the Gulf Cooperation Council. Companies in major cities such as Dubai, Abu Dhabi, and Riyadh have realized that one of the best ways of achieving success in the current competitive market is to outsource some of the activities from experts (Elsheshtawy 22). According to Yomogida and Zhao, one of the most commonly outsourced services in this region is accountancy solutions (167). In the past, a firm would prepare its books of accounts and present them to all the relevant parties. This meant that they had to hire a team of accounting experts to do this job, especially during the end of the accounting period.
However, many firms have realized that the best way of preparing books of accounts is to hire external experts to do the audit. This comes with a number of benefits. When books of account are audited by an independent authority, then it will give a true image of the financial position of the firm, including any pilferages and misuse of funds. The board of directors can determine how to act on such a revelation to avoid loss of the firm’s funds. When books are audited by third parties, they are considered reliable by the financial institutions and government authorities. That is why firms offering accounting solutions such as Price Water House Coopers, KPMG, and Ernst & Young among others are currently operating in major cities in this region.
According to Blake and Broschak, one of the reasons why outsourcing has become very popular in the Gulf Cooperation Council is the increasing competition in the market (333). Firms are under a lot of pressure to deliver high-quality products at relatively low prices in order to manage the competition. This will demand a high degree of efficiency. For these reasons, many firms in this region are keen on concentrating on what they have the best capacity to do. Firms are outsourcing some of their functions that were previously done in-house to other companies that have the capacity to do them better.
Wouter and Hall note that another major reason why many firms are outsourcing many activities is the need to have a lean workforce that can deliver high-quality products (329). Inasmuch as industrial actions have not been common in this region, especially in the city of Dubai, Balasubramanian notes that employees have increasingly become very demanding (11). On the other hand, firms are keen on improving their profitability in the market. They cannot achieve the desired target if their employees become increasingly demanding. That is why many firms in Dubai, Abu Dhabi, and other major cities in the region are outsourcing the entire human resource department. This way, the firm will be assured that the demands of the employees will not directly affect its profitability because another firm will have the responsibility of handling such demands.
Some firms in the Gulf Cooperation Council have embraced outsourcing as a way of avoiding the increased cost of operations in the local market. A good example is the partnership between Qatar-based Silatech and Dubai-based Babbesh. These two companies realized that the cost of operating in Dubai and Qatar had been on the rise majorly because of high cost of labor and rental fees. To continue offering their products at the low price that the market desires, the management had to come up with effective ways of reducing the cost of producing a unit product. The solution came in outsourcing some of its production tasks to firms in Palestine where the cost of production is relatively low.
Impact of Outsourcing on Company Projects
According to Yomogida and Zhao, when properly designed, outsourcing can have positive impact on a company’s projects (163). This is so because the project manager will have the opportunity to identify project activities that are likely to cost more or those that the firm lacks specialized skills to undertake. Such tasks will be outsourced to firms that have the needed skills and capacity to undertake them at relatively low price. This will improve efficiency in addressing individual tasks in the project. This will increase chances of achieving success in the project. As Blake and Broschak say, outsourcing makes it easy for the project manager to identify individuals who will take part in addressing specific activities within the project (329).
The outcome in such clearly structured setting is always improved product quality and low cost of production. Blake and Broschak warn that the impact of outsourcing may be negative if proper care is not taken when outsourcing (338). This strategy is not a golden bullet that can solve all the operational problems that a firm may have. It is important to determine what should be outsourced and the firm that will be outsourced. Some activities may be too sensitive to be outsourced. The firm that is assigned specific tasks must also have the needed skills in its workforce to undertake the assigned duties. These are some of the factors that if a firm fails to consider, then the strategy of outsourcing may have negative consequences.
Determining Whether Outsourcing Is Preferable
Outsourcing is one of the best strategic options that a firm may have as it seeks to reduce operations expenses and increase its profitability. However, Yomogida and Zhao say that there are a number of factors to be considered before outsourcing some activities (171). The management must determine whether or not outsourcing may be appropriate in various circumstances. Some sensitive tasks cannot be assigned to firms that can easily use them against the success of the outsourcing firm. This means that sensitivity of the task and its relevance to the specialization of the firm is the first factor that determines whether or not a task should be outsourced. The second factor is the associated cost of outsourcing the services.
One of the major aims of outsourcing is to lower the overall cost of operations within the firm. Outsourcing should be seen to achieve this objective. It means that if the overall cost of the project will be higher if some tasks are outsourced, then the management may need to reevaluate the need for outsourcing. The prevailing needs of the firm may make it relevant for the firm to outsource some services. This is very common among firms that operate in the industry that have high and low seasons (Meland and Straume 320). For instance, the hospitality industry in Dubai always receives a lot of visitors during major holidays, especially in December. When this happens, it is common to find the workforce of these hotels overwhelmed by the demands of the customers. At such moments, these hotels may be forced to outsource some services to ensure that the demands of the clients are met satisfactorily.
Reasons of Outsourcing Projects Failure
According to a research by Blake and Broschak, cases of outsourcing project failures have been common in a number of companies within Gulf Cooperation Council (330). A good example of terrific outsourcing failures has been witnessed in the financial sector. Two of the leading financial institutions in the region, Bank Muscat of Oman and National Bank of Ras Al-Khaimah outsourced IT services to boost their service delivery due to their increasing number of online clients in 2012. Less than one year later, the two financial institutions suffered serious cyber attacks that led to massive loss of money and sensitive data of clients (Balasubramanian 11). This was a case where these institutions failed to understand the sensitivity of the information that was released to the third parties. It took time and a lot of financial resources to address this issue.
The Strategy Required To Avoid Outsourcing Project Failure
Outsourcing is an emerging trend in operations management and it is less likely that it will become less popular in our modern society. Firms all over the world are already using this strategy to achieve success in the market. As such, it will be important for companies within Gulf Cooperation Council to understand how this concept can be embraced to achieve the desired result. According to Munch and Skaksen, the first and most important thing is to determine what should or should not be outsourced (65). Sensitive tasks should be done in-house. The next factor is the issue of cost. The management should ensure that the ultimate outcome of the strategy is reduced cost of operations. Another important factor is increased efficiency. The strategy should help the firm in producing high quality products in the market.
Works Cited
Balasubramanian, Aditya. “Rebuilding Dubai: Post-bubble Economic Strategy”. Harvard International Review 31.4 (2014): 10-11. Print.
Blake, Alison, and Joseph Broschak. “Outsourcing and the Changing Nature of Work”. Annual Review of Sociology 3.5 (2013): 321-340. Print.
Elsheshtawy, Yasser. “The Prophecy of code 46 in Dubai, or Our Urban Future”. Traditional Dwellings and Settlements Review 22.2 (2011): 19-31. Print.
Meland, Frode, and Rune Straume. “Outsourcing in Contests”. Public Choice 131.4 (2007): 315-331. Print.
Munch, Roland, and Rose Skaksen. “Specialization, Outsourcing and Wages”. Review of World Economics Archiv 145.1 (2009): 57-73. Print.
Wouter, Jacobs, and Peter Hall. “What Conditions Supply Chain Strategies of Ports? the Case of Dubai”. Geo-Journal 68.4 (2013): 327-342. Print.
Yomogida, Morihiro, and Laixun Zhao. “Two-way Outsourcing, International Migration, and Wage Inequality”. Southern Economic Journal 77.1 (2010): 161-180. Print.