Unemployment Issues: Outsourcing

Subject: Economics
Pages: 3
Words: 594
Reading time:
2 min

Outsourcing- transfer of ownership of a process from a buyer to a third party/ supplier is taking the world by storm. It is believed that much of the momentum was in the mid 1990 and most companies relied on outsourcing specifically as a planning tool due to its lower cost, performance, quality, access to application and technical capabilities.

Merits of outsourcing

On the national picture, outsourcing increases economic growth of a country. This is due to its power to increase production levels of staffs. It also improves a firms’ use of limited time thereby increasing product range in the market. Secondly, it lowers overhead costs of the hiring, recruitment, and training which are costly in time and monetary terms. In addition, expenses like for insurance, medical cover and workers compensation, and social security are all leveraged to the service provider. This raises a company’s revenue levels.

Third, outsourcing is cost effective, efficient and has the flexibility of varying service levels depending on customers’ demands. This lower cost might be of essence to the firm in a competitive market which has to be creative and develop new products for its clients. This innovative service variation enhances more customer satisfaction.

Fourth, outsourcing relieves the company from tedious activities like data storage and maintaining of call centre thus allowing for more emphasis on the core business of the company. Therefore, the company will focus mainly on customer satisfaction and product improvement which enhances global competitiveness of firms.

Finally, outsourcing brings best practices, professionalism and process to the company at a lower fee that their initial set up costs. Therefore, company is relieved from maintaining and continual improvement in the services outsourced. This leveraged income could be used in productive investments thus increases income of the company.

Demerits of outsourcing

First, cultural and language disparities hinder the effectiveness of outsourcing. This makes companies to re-evaluate if outsourced services provided are compatible with their needs. These constraints lower savings intention of many firms interested in outsourcing.

Second, there is loss of trade secrets or intellectual property rights. This threatens the survival of firms as outside workers have access to internal weakness/ trade secrets during engagement period. These workers might apply these secrets for their own benefits at the expense of the company. In addition, companies’ accumulated wealth of knowledge may be leaked to competitors by casual workers of outsourced company after the engagement period.

Third, outsourcing result in loss of jobs by local citizens as their positions are taken by outsourced firms. These usually result into a lot of political battles and hostility within an economy on whether to outsource or not. In some instances, companies that do not outsource are given tax rebates.

Fourth, customer satisfaction is usually compromised. In fact, most of corporate clients are never satisfied with outsourced services as many providers might not be knowledgeable in the firms procedures at initial stages and therefore do not offer first hand information needed. For example, dell corporate customers complained of poor treatment by outsourced service providers.

In conclusion, even with constraints identified in the literature, outsourcing still has massive potential and it is the 21st century way of doing business. It is therefore good to note that firms are still for outsourcing and the providers are now using qualified staff and sign confidentiality agreement to protect their clients’ trade secrets.