Outsourcing And Offshoring Essay

Offshore outsourcing combines the benefits of outsourcing, such as easier resource ramp up and ramp down, and more specialized skills; with the benefits of offshoring, such as lower costs and higher productivity.

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Risks associated with outsourcing can largely be attributed to the vendor's lack of familiarity with the client's business.

Another risk is a lack of alignment of long-term business objectives of the client and the vendor.

When outsourcing is combined with offshoring, not only is work contracted out to a third party, but it is also agreed that the work will be performed in a different country.

The reasons are usually to take advantage of the benefits of outsourcing and offshoring both.

This led to more hiring of external providers to manage business functions and projects where specialized skills were required. Captive offshore refers to multinational corporations (MNCs) establishing subsidiaries in several countries and getting different types of work done in different countries.

Towards the end of the twentieth century, with improvements in shipping technology and telecommunications infrastructure, it became increasingly efficient to get work done in other geographical locations, especially in developing countries where wages are lower. Factors that MNCs consider when offshoring include costs of factors of production (wages, raw material, transportation costs, utilities such as electricity), taxes (many countries offer subsidies to entice MNCs to set up shop) and skills available among the work force.The worldwide economic recession has forced companies to explore all options to increase efficiencies and cut costs.Companies are getting increasingly comfortable outsourcing (as well as offshoring) larger parts of their businesses as they realize they are not core.This is especially true in the case of manufacturing - with China being a leader - and information technology services, with India leading that space.Business process outsourcing is another area of offshoring that has grown tremendously.Process maturity models like CMMi and Six-sigma measure not only the quality of processes that outsourcing vendors employ, but also how well companies monitor their processes, measure key metrics and how they continually improve these processes.On the whole, both outsourcing and offshoring are on the rise.For example, while it can be challenging to work with an external organization for projects that require knowledge of your business operations, these challenges could increase manifold when members of the external organization are located in a different country.Risks include poor communication, incorrect setting of expectations and disconnected control structures.Risks of outsourcing include misaligned interests of clients and vendors, increased reliance on third parties, lack of in-house knowledge of critical (though not necessarily core) business operations etc.Outsourcing refers to the contracting out of an entire business function, a project, or certain activities to an external provider.


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