Right from its conception in the 1980s, Outsourcing has been a debatable issue and it can be viewed as a double-edged sword. It may be defined as a subcontracting process that hires a third-party company to perform some specific operations of the business. It has been done with the intention of better utilization of time and energy expenses, focusing or conserving energy aimed at the core abilities of a particular business.
Outsourcing gains its popularity from the immense advantages it has to offer. Any business requires numerous functions to be executed simultaneously to run successfully. However, it might not be possible for a firm to acquire the skill-set required to be good at all of them. Thus outsourcing comes up as a solution to this problem as firms choose to outsource a few operations and focus on their core competencies. This proves beneficial to the business in many ways. The process, which is outsourced, is often assigned to companies, which specialize in that particular field. (Kar, 2006).
Thus, that company is likely to have access to advanced technologies in that sphere, as it would be part of their core business. Thus it cuts the costs of the firm as it doesn’t have to acquire those expensive technologies and train its employees on the use of those technologies which further increases the costs. Another very popular reason for offshore outsourcing is cheap labor. Workers in developing countries are remunerated with a much lesser amount than in developed countries owing to the low cost of living index. This allows the business to implement further cost-cutting measures. It also helps increase the productivity of a company. Employers find it difficult to get their talented resources to work in less desirable shifts such as night shifts and late evening shifts in order to fulfill the aim of providing a 24-hour service. But with the business spread over the globe, the talent pool can work in the most desired shifts and the firm also achieves its aim. (King, 2006).
Although outsourcing offers such a wide variety of advantages it also has some negative facets attached to it. The primary concern of outsourcing is that the employees feel threatened. Present employees face stiff competition from their offshore counterparts as they are cheaper and thus more beneficial for the firm. Thus the morale of the employees goes down and fears of losing their jobs increase which results in a decreased yield of the business. The loss of control over the business also plays a major role. Once a process has been outsourced it is the sole responsibility of the third-party company. Thus it becomes their prerogative to take major decisions relating to that process. Thus, there is nothing the management can do even if they do not approve of a particular choice. (Lamb, 2004).
It should also be noticed that the firms implementing offshore outsourcing are not required to pay federal or state taxes for the employees working on the outsourced processes. Neither are they required to pay compensations or benefits to them. The outsourcing companies are liable to take care of those issues. This becomes a vital advantage for the businesses which look for cost-reduction strategies. Although these cost-diminution strategies work in favor of growing businesses, the tax establishments do not receive the taxes they are entitled to acquire. This hurts a number of divisions of the national welfare, which experience loss of assets, and thus it takes its toll on the American economy.
References
Kar, P; (2006); History of Industrial Economics and Related Applications; Kolkata: Dasgupta & Chatterjee.
King, H; (2006); Management Principals Today; Auckland: HBT & Brooks Ltd.
Lamb, D; (2004); Cult to Culture: The Development of Civilization; Wellington: National Book Trust.