In today’s global environment, technology and a depressed economy have made it wise to outsource as a viable way to cut costs and improve production. Outsourcing is a business strategy where companies can contract other companies, sometimes foreign, to provide a business service or component products (Abrams 194). U. S. multinational corporations have started to take advantage of a reduction in trade barriers and communication technology to delegate production to lower-wage countries like India and Sri Lanka. Outsourcing is becoming a popular means for companies to increase efficiency, however some companies do not realize that outsourcing can also have drawbacks. Outsourcing can cause problems if not managed correctly, but wise outsourcing can create many long-term benefits.
Cost reduction is the number one reason to outsource. “Outsourcing converts fixed costs into variable costs, releases capital for investment elsewhere in your business, and allows you to avoid large expenditures” (Benefits of Outsourcing for Small Businesses). Outsourcing can also make a company look appealing to investors as more capital is flowing back into revenue-producing functions. There is a huge difference, thousands of dollars, when comparing U. S. wages to wages earned in third world countries. Philippines outsourcing
We can outsource tasks and pay minimal salaries. “Outsourcing is the delegation of some tasks or objectives to some organizational segments that belong to other entities, which offer a better price ratio or have expertise in specialized areas” (Arsenie-Samoil 789). The per-service cost to the home industry includes a profit to the foreign company, but the overhead costs to the home company are lower and foreign salary rates are less. Also, if a company has a function or service that is very expensive to perform, the company might consider outsourcing that function to a company overseas. The internet and other communication technologies have made it both easy and inexpensive to do business internationally.
Furthermore, outsourcing can increase efficiency. In today’s global environment, a business plan is crucial for outlining a company’s goals and providing a roadmap for efficiency. That plan should consider the production process and its stages which can be shortened by enhancing efficiency. As the market evolves, major firms are searching for fresh ideas and seeking ways to streamline processes. Companies that perform every aspect of their service in-house have higher research and development, and marketing expenses, whereas an outsider’s or foreign cost structure is less expensive. This reduction will give that company a competitive edge.