Research Paper on "Outsourcing When the Business Functions Are Contracted"

Research Paper 9 pages (2998 words) Sources: 9

[EXCERPT] . . . .

Outsourcing

When the business functions are contracted to other parties and businesses, it is usually termed as outsourcing. The term is often confused with another term, offshoring. Although there are companies who outsource their business when there is no need to offshore. When there is a contract based agreement between two organization for sharing services and payments, it is termed as outsourcing (Hira and Hira 78). One of the main advantages of business function outsourcing is that the businesses and the companies can function better and well in their core competencies as there is more availability of better and more expanded skills in the areas of business that have been outsourced.

One of the main facts based on which outsourcing has been used by many organizations is that the businesses can also be outsourced to many suppliers that may be inside or outside the countries. In these cases, the outsourcing is known as offshore outsourcing. Since recent years, many changes have been seen in the trends of outsourcing. A number of benefits have been highlighted in the case of business outsourcing and these include reduction of the costs. Reduction of scope and an increase in the skill levels of the organization is one of the main cost saving accompanying advantages. With the help of outsourcing the companies usually have the power to restructure the costs with additional negotiations as quality levels of the company are decided (Bragg 60). An important fact that needs to be highlighted hers is that there is a wage gap between developing as well as the industrialized nations that are because of an increased access to the lower cost economies, referred to as the labor arbitrage. When the companies outsource their business units to the other companies, it is seen that the businesses and the associated resources are more focused on the development of core unit of the business and one of the main example in these cases is when the businesses outsource their it-based businesses. The fixed costs are compared to the variable costs by the help of leveraging costs. By the help of outsourcing, it is seen that the fixed costs are moved to variable costs in the case of outsourcing. When the new service level agreements take place, a great change in the quality can be seen.

Trends in Outsourcing

1. United States

Growing trends have been seen in outsourcing in many countries. This section will highlight some of the main outsourcing-based trends seen in main countries that include U.S. And EU. Since its rise, outsourcing has been one of the main agendas in the many political issues in the U.S. Outsourcing was cofounded along with offshoring in the year 2004 in the U.S. presidential elections .in the beginning when the main advantages of outsourcing were not accounted, one of the main debates that surrounded the outsourcing included the consequences that the U.S. workforce would have to face if smaller business units were given to other businesses that are located outside the country. Some of the U.S. firms that are involved in outsourcing have been blamed to walk out of the fair share of the taxes that they are liable to pay. The second important fact that was added in the criticisms against outsourcing was that the companies completely transfer the controls and regulations of their workforce for a certain business unit to an external entity that is very much in relation to the costs that are involved in the outsourcing (Burkholder 98). A real negativity was seen in the American population in relation to the consequences in relation to outsourcing. More than 71% of the Americans believed that outsourcing should be banned on the American companies while the rest believed that there should be legislations against the companies that are known to outsource their businesses.

Other than the criticisms, there are a number of causes in the American organization systems that have caused a great rise in the outsourcing in American organizations. One of the main causes includes union reduction also referred to as union busting. There are a number of regulations that are used to reduce the hold of the unions on the organizations as in the presence of these rules, great deal of the bargaining power is lost by the union workers thereby the organizations have more powers to shift the workers overseas (Sparrow 29). The second important cause based on which outsourcing saw a great rise in the U.S. was a higher corporate income tax rate. These rates are much higher as compared to the corporate income tax rates in the OECD nations. One of the most uncommon practices that were seen in U.S. after the rise of outsourcing was taxation of the revenues that were made outside the jurisdictions of U.S..

Nevertheless, one of the main facts that have recently been observed is that the countries that have lower corporate tax rates are the ones involved in outsourcing as well. Thereby here it can be added that taxes are not the only reason for a great rise in the outsourcing rates in U.S..

An important fact that has been realized by the American organizations is that access to the international markets has increased and there is a need that the opportunities being presented by these markets are availed. With the help of accessing these mares, the American organizations have been able to strengthen their bottom line business units, have greatly reduced on the consumer prices while focusing more on the product quality, reducing manufacturing costs and increasing operation effectiveness. A number of reports have highlighted the advantages that have been seen by the American organizations after outsourcing their business operations (Wijers and Verhoef 87). The U.S. Chamber of Commerce in the year of 2006 released two outsourcing reports arguing the fact that very less hard evidences could be found that supported that outsourcing was a bad move towards the American business-based economy. The follow up report named as "Global Engagement: How Americans Can Win and Prosper in the Worldwide Economy" highlighted that some of the main benefits that are being gained by the American economy come from the openness of the businesses towards trades, foreign investments, and global market access. An important fact that has been found in the reports is that when American organizations are involved in the process of outsourcing, more than one in five jobs is supported from U.S.. For more than 30 years, many American organizations have been involved in outsourcing manufacturing operations to the other countries saving costs. The main fact that has been argued by the U.S. Chamber of Commerce is that outsourcing has been the main reason of a great improvement in the American business manufacturing section (Delen 23).

2. European Union

Trends of outsourcing are very different as compared to those seen in EU. In the case of the countries of EU, it has been seen that if there is a business based undertaking, the rules are in accordance to the Council Directive 77/187 of 1977. These are the regulations that are responsible for the protection of the rights of the employees if there is an outsourcing or offshoring of the units of the business.

3. Global Trends

Although there has been a great controversy with the trends that followed the outsourcing in a variety of businesses but the rise and success of outsourcing has been a success. One of the main facts that need to be highlighted here is that the outsourcing has now become one of the most important mainstream phenomena and its use in many companies has increased. For the purpose of global service delivery, the reliability of businesses on the offshore outsourcing has increased. It is important to mention here that one of the main reasons for which businesses are outsourced is that the business performance can be improved. Based on these facts, it has been seen that the companies that outsource their businesses are stronger in a financial sense as compared to the ones that do not. There are a number of companies that have has more than 55% of savings after outsourcing their businesses. A number of companies have been seen to outsource their it-based business operations. According to the data collected by the International Data Corporation, revenues of more than U.S.$3 trillion were generated by the U.S. based companies in 2007 after outsourcing their it-based business units.

Great changes have been seen in the business models and in the face of a great demand of saving costs, outsourcing has been chosen as the main option (Haugen, Musser, and Lovelace 44). With a great reduction in the administration costs and labor costs, improvements are seen in the efficiency and the product quality with higher rates in the customer satisfaction. A number of reports from global organizations have reported that more than 50% of the operation and labor-based costs are saved. Most of the organizations have reported that with the help of outsourcing, there is a great reduction in the investment risks. It… READ MORE

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