Unemployment Issues: Outsourcing

Subject: Organizational Management
Pages: 3
Words: 598
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 the application and technical capabilities.

Merits of outsourcing

On the national picture, outsourcing increases the economic growth of a country. This is due to its power to increase production levels of staff. 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 insurance, medical cover and workers’ compensation, and social security are all leveraged by 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 the 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 centers, 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 the global competitiveness of firms.

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

Demerits of outsourcing

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

Second, there is a 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 the 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 the outsourced companies after the engagement period.

Third, outsourcing results in the loss of jobs by local citizens as their positions are taken by outsourced firms. These usually result in 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 corporate clients are never satisfied with outsourced services as many providers might not be knowledgeable in the firm’s procedures at the 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. Therefore, it is reasonable to note that firms are still outsourcing, and the providers are now using qualified staff and signing confidentiality agreements to protect their clients’ trade secrets.