Positive and negative impact of outsourcing

Posted in General
at 2016.06.25
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Outsourcing is a both a dirty and a divine word depending on the place to which a person belongs. Since the dawn of Globalization, the market has become extremely competitive what with organizations shifting the manufacturing bases from the developed world to developing ones as they provide quality as well as cost advantages. In layman terms, it is called outsourcing which has now developed into a multi-billion dollar industry. Although on the surface, the phenomenon appears to be beneficial, it has its own disadvantages.

outsourcing positives and negatives

Positive impact of outsourcing:

Reduction of the expenditure:
•    Companies use outsourcing because they do not have to spend money on creating the required infrastructure to accomplish the task.
•    In addition, they can save on taxes to make their products competitive in the market.
Focus on core activities:
•    If a certain project is not the core competency of a company, it is better to outsource the work to a third party because specialists can not only accomplish the task with greater proficiency, they are also affordable.
•    The organization can channelize its resources to focus on the core domain so that it is able to provide better performance.
Job opportunities for the developing world:
•    Income disparity between the countries is a curse however for the outsourcing industry it has become a boon.
•    For instance, US and EU are outsourcing the manufacturing of products and services to low-cost locations in China and India.
•    It has created lots of opportunities in those countries and is generating billions of dollars in the form of revenues.
Innovation culture:
•    Since talent is scouted on a global level, it helps the companies to foster improvement in the innovation of the services and products.
•    In addition, they can improve their brand recognition in developing nations by providing employment to the local youth.
•    Outsourcing plays a very important role in the optimization of resources.
•    Companies can delegate the tasks to the vendors and focus on important objectives that are of greater value.
•    It also helps to reduce the cash outflow along with significant savings.
•    Outsourcing the manufacturing of the goods will reduce the cost because of the scale of production.
•    It will help the companies to improve their balance sheet and enhance profitability.

Negative impact of outsourcing:

Loss of control:
•    Outsourcing to a different company or a country may result in the loss of control of the business procedures.
•    Intellectual copyright issue has been at the forefront of the confrontation among the clients and the vendors.
•    Developed countries are collaborating with the developing ones to ensure that data theft of the business process is avoided.

It is a difficult task to monitor the quality of the services if they are outsourced to a third party. In order to tackle the problem, the client should outsource the project to a reputed vendor. If regular monitoring is not conducted, the product would not be able to meet the requirements and the specifications of the customers.

Outsourcing is beneficial for the economy as a whole as it creates not only direct but indirect jobs for the people.


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