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Outsourcing Pros and Cons for Firms and Vendors Essay

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Updated: Jan 16th, 2021

Introduction

One of the foremost aspects of today’s post-industrial living is the fact that, as time goes on; the very paradigm of contemporary business-practices becomes ever more technologically-intense, which deems the continuous existence of national borders (which undermine the effectiveness of international commercial/informational transactions), discursively outdated. This, of course, creates objective preconditions for the practice of outsourcing, generally defined as the process of commercial operators delegating their organizational/manufacturing functions to third-party vendors in foreign countries (Weerakkody & Irani 2010), to be increasingly perceived thoroughly legitimate.

After all, by deciding in favor of taking advantage of this practice, the concerned companies can substantially increase the extent of their competitiveness. At the same time, however, there are several shortcomings to the earlier mentioned practice, which cause some economists to adopt a rather cautious attitude to the very concept of outsourcing; as such that is being capable of undermining the affiliated companies’ long-term operating efficacy.

In this paper, I will aim to outline what is being commonly considered outsourcing’ advantages/disadvantages, while promoting the idea that the practice’s benefits substantially outweigh its apparent drawbacks. I will also strive to expose the negative aspects of outsourcing, as being of an essentially temporal/mechanical nature, which is why there can be no discursively sound rationale for Western commercial operators to refrain from affiliating themselves with the practice in question.

Analytical part

Initially, the concept of outsourcing used to be referred to as such that is being concerned with the process of Western manufacturers moving their production lines to the Second and Third World countries, where there is an abundance of cheap laborers. In its turn, this presupposed the practice of outsourcing to be discussed solely within the context of how affiliated companies go about reducing the self-costs of their output-activities (Wee, Peng & Wee 2010).

Nevertheless, as time goes on, the focus of outsourcing practices continues to be increasingly shifted towards increasing the cost-effectiveness of several input-related undertakings, on the part of companies associated with the economy’s IT-sector. Such an eventual development has been dialectically predetermined, because the very conceptual framework of the IT-companies’ functioning naturally presupposes them towards taking advantage of an ongoing economic Globalization, as the process that stands in striking opposition to the notion of a ‘national sovereignty’. In its turn, the Globalization’s pace is being additionally fueled by the fact that, due to the revolutionary breakthroughs that took place in the field of IT during recent decades, commercial operators are now being provided with an opportunity to make essentially instantaneous informational transactions.

This is exactly the reason why it nowadays became a commonplace practice among many Western IT-companies to outsource their input-functions to the vendors situated abroad (the so-called offshore outsourcing, or offshoring) – the modernity’s technologically intense realities establish objective prerequisites for this to be the case. As Tambe and Hitt (2010, p. 62) noted, “Technical occupations reliant on skills that can be delivered with relatively little face-to-face contact are more easily offshored, suggesting a coming shift in the skill base of the domestic its workforce”. Just as it is being the case with the corporate practitioners of conventional outsourcing, which indulge in this practice due to the considerations of increasing the extent of their operative cost-effectiveness, IT-companies that practice offshoring is being driven by essentially the same set of considerations.

That is, by delegating their input-functions to the offshore-vendors, they strive to cut their operating costs – pure and simple. As Tadelis (2007, p. 265) pointed out, “If a company learns that the cost of labor in India or Pakistan is a fraction of the costs currently incurred by the use of local labor, then the information about labor costs in different international markets will affect the decision of whether or not to outsource that activity”. Nevertheless, it would be quite inappropriate to suggest that the IT-companies’ executive decisions to choose in favor of offshore outsourcing are being driven by exclusively the earlier mentioned considerations, commonly regarded as an indication that these companies tend to emphasize pursuing an essentially short-term corporate agenda.

This is because, in the field of IT, a particular company’s willingness to delegate some of its operative functions to a third-party, reflects the company managers’ awareness of what accounts for the qualitative essence of economic dynamics in today’s world. Apparently, due to the realities of Globalization, it nowadays makes very little sense of drawing a line between what accounts for a particular company’s short-term and long-term corporate interests. As Powder, Cantrell, and Daly (2011, p. 4) suggested, “When companies outsource to reduce costs they often realize long-run secondary strategic benefits… News releases and the business press often cite both motives as influencing a firm’s decision to outsource”.

The validity of the earlier statement can be well illustrated in regards to the fact that, as of today, people’s endowment with intellect may be discussed in terms of a ‘physical asset’, in the literal sense of this word. After all, it now represents a self-evident fact that the more technologically advanced a particular manufacturing process is, the less it is being dependent on the exploitation of natural resources. If this was not the case, we would not be witnessing the process of laptops becoming ever more powerful, on the one hand, and progressively ‘lighter’ (in the weight-wise sense of this word), on the other, because there are less and less actual metals being used in them.

What it means is that, while outsourcing to offshore vendors, IT-companies do not merely try to reduce their operating costs, but they do nothing short of staking claims in the ‘intellectually rich’ territories of the Second World. This explains why it is specifically China, India, Russia, and Eastern European countries, where the majority of IT-vendors (working on behalf of Western IT-companies) are being physically situated – the earlier mentioned countries feature the world’s highest rates of IQ among their citizens (Myron 2004).

Given the fact that, as time goes on, IT-technologies/applications grow increasingly standardized, there can be indeed very few objections against the full discursive appropriateness of the offshore-outsourcing practice, even though that they do exist. Nevertheless, let us identify the foremost benefits of offshore outsourcing first:

Labor cost reduction

One of the main approaches to ensuring just about any commercial enterprise’s operating competitiveness is the establishment of preconditions for its functioning to be as less self-costly, as possible. Therefore, it does make perfectly logical sense for Western IT-companies to consider signing contracts with vendors in the Second World countries because the labor of trained IT-professionals in these countries is comparatively cheap.

As Reza (2005, p. 33) noted, “Offshore outsourcing’s most obvious benefits are in reducing the labor cost, improving efficiency, and gaining a competitive advantage…. IT companies can save up to 40 percent in operational expenses when compared to a US-based operation”. Thus, the offshore-outsourcing practice appears to be thoroughly consistent with the most fundamental principle of the free-market economy’s functioning. This alone suggests the practice’s full discursive appropriateness.

Access to the de facto valuable professionals that reside in foreign countries

Nowadays, it does not represent much of a secret that the educational standards in Western countries continue to deteriorate rather rapidly, due to the institutionalization of racially-discriminative ‘affirmative action’ policies, advocated by the hawks of political correctness in governmental offices. Partially, this also explains why, as of 2012, American university graduates specializing in ‘hard sciences’ (such as engineering, for example) accounted for only 7% (Science and engineering indicators 2012). This is why, as of today, more and more Western IT-companies strive to hire employees among foreign-born naturalized citizens/residents (particularly, among Eastern Europeans and Indians), who despite their often clearly defined unawareness as to what the concept of ‘celebrating diversity’ stands for, are nevertheless able to adequately address their professional duties.

However, given the fact that the ‘celebration of diversity’ policy, currently enacted in Western countries, prevents many of highly trained IT-professionals from abroad (particularly, from Eastern Europe) from being able to immigrate to these countries physically, hiring them ‘online’ often represents the only opportunity for Western companies to improve the effectiveness of their continual functioning.

Ability to run operations 24/7

In today’s highly dynamic market of IT-services, it often represents a matter of crucial importance for companies to make sure that their employees remain professionally active for as long, as possible. Unfortunately, the deployment of an ‘in-house’ operative paradigm, on the part of IT-companies, effectively deprives them of an opportunity to ‘squeeze workers dry’. It is not only that there are physiological limits to the length of employees’ daily professional activities, but there are also several different governmental rules and regulations, which prevent IT-employers from exploiting their workforce to its fullest.

The availability of offshore vendors, on the other hand, helps Western It-companies to effectively overcome this particular operative deficiency, on their part. It is not only that these vendors are willing to work for only a fraction of money that would have been paid to the ‘in-house’ employees, but they are also being unaffected by the governmentally enforced ‘in-house’ rules and regulations.

Improved flexibility

The extent of the IT-companies’ competitiveness is now being often measured in regards to their varying ability to promptly switch from working on one project to another. This, of course, presupposes that the fully incorporated companies may experience problems while being required to adjust their production lines within a matter of comparatively short period. This simply cannot be otherwise – it usually requires ‘in-house’ employees some time to get a mental grasp on the newly provided professional task and of the full scope of its conceptual/practical implications.

However, as practice indicates, the same cannot be said about offshore vendors that specialize in a particular professional field. The very availability of these vendors that provide the limited range of IT-services, within the boundaries of their professional competence, allows client-companies to assign the chosen vendor with a particular task, without expecting that this will require their offshore partner some time to adjust to the provided task cognitively.

Nevertheless, along with the earlier mentioned objective benefits of offshore outsourcing, there are also several what is being commonly perceived as this practice’s performance-impending disadvantages. These disadvantages can be outlined as follows:

Political risk

As was pointed out earlier, most countries where the majority of IT-vendors are physically situated, belong to the so-called Second World. Even though that the socio-economic realities in these countries are not being concerned with the never-ending tribal war of everybody against everybody, as it is usually being the case in the Third World ‘developing’ countries, there is still much political instability in them (with the possible exception of China). This, of course, cannot have any other but potentially counterproductive effect on the vendors’ ability to remain thoroughly committed to their contractual obligations to Western client-companies.

Legal risk

As practice suggests, before signing contracts with offshore vendors, Western IT-companies rarely make any inquiries, as to what accounts for the specifics of a legal climate, in the countries where these vendors are located. The potential risks, associated with this practice, are self-evident.

Copyright infringement

As compared to what is being the case with technologically conscious Westerners, the IT-sector’s affiliates in the Second World countries do not usually preoccupy themselves with trying to remain fully observant of the copyright laws. The example of Russia and Ukraine, where the newly released Hollywood movies can be easily downloaded online in the HD format before they hit movie-theaters in Western countries (Goel & Nelson 2009), confirms the validity of this suggestion. This course implies that, while dealing with the Second World-based vendors, Western IT-companies risk the chance of having their intellectual property stolen.

Cultural risk

As is being the case in just about every sphere of commercial entrepreneurship, which involves two or more parties working on the same project, the likelihood of the project’s successful completion depends on the involved partners’ ability to never cease remaining communicationally collaborative. Given the fact that the practice of offshore outsourcing implies the possibility for the representatives of collaborating parties to share different cultural values, this may significantly affect the integrity of a communication-process in question. Consequently, hired vendors may choose in favor of a conceptually wrong approach towards tackling the provided tasks. Besides, the specifics of a cultural climate in a particular host-country may be inconsistent with the discursive implications of the project in development.

Ethical dubiousness

It is understood, of course, that while dealing with foreign-based corporate and private vendors, Western IT-companies deprive specialists in their own countries of moneymaking opportunities. As it was noted by Tambe and Hitt in the article from which we have already quoted, “IT workers in the U.S. have experienced offshoring-related displacement at a rate of 8%, more than double the percentage in other occupations” (p. 69). Moreover, while selling their end-products (procured in collaboration with offshore vendors) to Western consumers, these companies do not make any mentioning of the involved collaboration. From a moral perspective, this practice can hardly be referred to as being fully appropriate.

Nevertheless, even a glance at the earlier mentioned offshore outsourcing’ benefits, on the one hand, and the practice’s disadvantages, on the other, suggests that there can be few doubts, as to the fact that the latter cannot possibly outweigh the first.

The reason for this is quite apparent – whereas, the benefits of outsourcing appear being predetermined by the very laws of historical progress, the outsourcing’ disadvantages cannot be referred to as anything but being of an essentially technical nature, which implies that they can be successfully managed. One’s awareness of the fact that there are indeed several different shortcomings to the practice of offshore outsourcing is exactly what will empower the concerned individual, within the context of how he or she may go about reducing the offshoring-related risks down to a minimum (Pellicelli & Meo-Colombo 2011).

As Tejaswini and Kishore (2009, p. 312) suggested, “It is important to have a clear understanding of various risks posed in collaboration initiatives, challenges faced by managers, and solutions that may allow overcoming some of these issues to succeed in these (offshore) ventures”. The only disadvantage, which is being integrally embedded into the procedural matrix of the offshoring-paradigm, is the fact that by outsourcing their input-functions abroad, Western IT-companies do indirectly contribute to the rise of unemployment rates in the West.

This, however, cannot possibly justify some Westerners’ strongly defined anti-outsourcing stance. These people still naively believe that, by residing in Western countries, they are being automatically qualified to enjoy high-quality living standards – regardless of whether they are capable of contributing to society’s well-being, or not. However, the realities of post-industrial living, which have long exposed the cheer fallaciousness of Judeo-Christian moralistic conventions, point out to something opposite.

It is a truth that, as of today, the concept of a ‘physical capital’ is being rapidly deprived of its former discursive significance, which causes more and more entrepreneurs to seek the accumulation of ‘human capital’, as a key to ensuring the continual successfulness of their commercial enterprises.

Yet, for just about anyone to be thought of in terms of a ‘human asset’, he or she does not have to merely resemble a human being externally, but also to be capable of operating with highly abstract subject matters (IQ) – as opposed to being solely capable of celebrating its ‘cultural uniqueness’ in an anti-social manner (Long 2007). To put it plainly, it is specifically people’s possession of ‘brains’, which will qualify them for highly prestigious jobs in the future, and not the fact that their predecessors have suffered from different injustices in the past.

The earlier discussed phenomenon of offshore outsourcing suggests that the ‘future’ has already come, as we speak. From now on, the talented foreign-born professionals’ inability to apply for jobs with Western IT-companies in person may no longer prevent them from getting these jobs de facto. Hence, the mutual beneficence of the practice in question – Western IT-companies will benefit from being able to reduce their operating costs and foreign-based vendors will benefit from being provided with previously undreamt-of moneymaking opportunities. The only losers, in this setup, are Western highly ambitious but professionally inadequate specialists. To this, we can only say – too bad.

Conclusion

I believe that the earlier provided line of argumentation, in defense of a suggestion that the benefits of offshore outsourcing considerably outweigh the practice’s drawbacks, is being fully consistent with the paper’s initial thesis.

References:

Goel, R & Nelson, M 2009, ‘Determinants of software piracy: economics, institutions, and technology’, Journal of Technology Transfer, vol 34 no. 6, pp. 637-658.

Long, M 2007, ‘Affirmative action and its alternatives in public universities: what do we know?’, Public Administration Review, vol. 67 no. 2, pp. 315-330.

Myron, D 2004, ‘Outsourcing HOT spots’, Customer Relationship Management, vol. 8 no. 2, pp. 26-30.

Pellicelli, M & Meo-Colombo, C 2011, ‘Outsourcing strategies: how to formalize and negotiate the outsourcing contract’, The Journal of the Faculty of Economics, vol. 1 no. 1, pp. 276-287.

Pouder, R, Cantrell, S & Daly, J 2011, ‘The impact of outsourcing on firm value: new insights’, S.A.M. Advanced Management Journal, vol. 76 no. 2, pp. 4-13.

Reza, D 2005, ‘Surveying the risks and benefits of IT outsourcing’, IT Professional Magazine, vol. 7 no. 6, pp. 32 – 37.

Science and engineering indicators. 2012. Web.

Tadelis, S 2007, ‘The innovative organization: creating value through outsourcing’, California Management Review, vol. 50 no. 1, pp. 261-277.

Tambe, P & Hitt, L 2010, ‘How offshoring affects IT workers’, Communications of the ACM, vol. 53 no. 10, pp. 62-70.

Tejaswini, H & Kishore, R 2009, ‘Offshore outsourcing: risks, challenges, and potential solutions’, Information Systems Management, vol. 26, pp. 312–326.

Wee, H, Peng, S & Wee, P 2010, ‘Modelling of outsourcing decisions in global supply chains: an empirical study on supplier management performance with different outsourcing strategies’, International Journal of Production Research, vol. 48 no. 7, pp. 2081–2094.

Weerakkody, V & Irani, Z 2010, ‘A value and risk analysis of offshore outsourcing business models: an exploratory study’, International Journal of Production Research, vol. 48 no. 2, pp. 613–634.

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