Essay on "Outsourcing the Idea"

Essay 4 pages (1772 words) Sources: 1

[EXCERPT] . . . .

Outsourcing

The idea of 'outsourcing' had been initially started during the 1980's when there was widespread unemployment, slow economy and high inflation. During the 1990's outsourcing expanded its horizons. Outsourcing has now evolved to be a popular concept among particular services as well as industries. In the present day world organizations by using strategic methods of outsourcing can enhance their profits. Companies by focusing their competencies on what they are best in doing are enhancing their profits on their in-house resources. Statistics show that almost seventy five percent of U.S. And European companies make use of offshore outsourcing for supporting their financial performance. Statistics reveal that by outsourcing, jobs have not moved to overseas companies and companies which are involving in outsourcing have several advantages to their credit.

Outsourcing as a form of procurement activity does not include the true strategic characteristics of the issue. Outsourcing is not only a decision relating to purchasing; all companies buy elements of their functions. Outsourcing is considered to be a decision which is greatly strategic which has the probability to create ripple influences throughout the whole company. Outsourcing might evolve via the substitution of outside purchases for activities which happen in 2 ways: Firstly outsourcing might evolve via substitution of outside purchases for activities which happen within the company. Thus it can be considered as discontinuing internal production and initiating procurement from suppliers which are outside. Thus this type of outsourcing minimizes the company's involvement in various phases relating to manufacturing, substitution focused outsourcing which might be considered as 'vertical disintegration.' This has been considered as one of the most understood forms of outsourcing. Further, outsourcing could also happen via 'abstention.' (Gilley; Rasheed, 763) Outsourcing is not required to be limited to activities which are being moved to external suppliers. Apart from this, outsourcing could also evolve when a company buys services or goods from outside companies even while those services or goods might not in the past been finished in-house.

Thesis Statement:

The advantages of offshore outsourcing are immense and hence U.S. companies should resort to outsourcing.

Discussion

I am in favor of offshore outsourcing. I am of the view that American companies should continue the practice of outsourcing. Infact outsourcing benefits the U.S. economy to a great extent compared to the risks which the opponents of outsourcing highlight.

Several Companies are successfully Outsourcing:

Several companies are moving towards outsourcing in order to become more competitive. To illustrate, Chrysler outsource hundred percent of the manufacture of about half of its subcompact and mini-compact cars. Ford and Chrysler presently manufacture in-house less than one half of most of their vehicles. Apple Computers has been outsourcing almost seventy percentages of its components and production expenses. Further, Boeing has started to depend greatly on its offshoring partners for its aircraft manufacturing. To illustrate, for manufacturing the third biggest commercial aircraft of Boeing, a big part of Boeing 767, has been outsourced to several manufacturers from Japan such as Mitsuibishi, Kawasaki and Fuji. Due to this, only about ten percent of 767's value is being manufactured in-house. Yet another company, Nike Inc. which is the world's leader in the manufacturing of athletic shoes is into outsourcing almost hundred percentage of the shoe manufacturing and does only important technical aspects. (Gilley; Rasheed, 765) Competition is increasing among various firms and to companies resort to outsourcing to get ahead of their competitors. Several companies are successfully resorting to outsourcing their functions. Understanding the benefits of outsourcing, companies are effectively making use of the opportunity to outsource. By seeing several major companies in various industries which are outsourcing we can clearly understand that outsourcing has immense advantages.

US Companies which are outsourcing have competitive advantages:

Companies involving in outsourcing usually attain cost benefits compared to vertically integrated companies. By way of offshoring, costs of manufacturing reduce and investment with regard to equipment and plant could be minimized. Such minimized investment with regard to manufacturing reduces fixed costs and promotes a low break-even point. The cost betterment in the short-run promotes the decision to outsource. Hence outsourcing might be a method of attraction of bettering a company's performance in financial terms, particularly in the short run. Further in-house manufacturing enhances the commitment of the company to a particular kind of technology and might limit flexibility during the long run. But companies which involve in offshoring could move over to other suppliers when technologies which are more cost-effective become accessible. Outsourcing also permits for immediate response to the environmental changes in different ways which do not enhance expenses related with bureaucracy. Hence companies which outsource might attain long-run benefits in relation to companies which focus on in-house production. By outsourcing companies can focus on their core competencies. By offshoring non-core functions companies can enhance their managerial focus as well as allocation of resource to those activities which it does in the best manner and to depend on management teams in other companies to oversee the functions for which the company which is offshoring is considered to be at a disadvantage. (Gilley; Rasheed, 769-770) To sum up, it can be said that companies involving in outsourcing have cost benefits. Outsourcing promotes minimized investment in manufacturing which reduces fixed costs. Further companies by outsourcing can focus on their core competencies. All these advantages lead to the competitiveness of the firms which outsource their goods or services.

Offshoring creates non-financial benefits for American Companies:

Now let us consider some non-financial advantages of offshore outsourcing for U.S. companies. An important non-financial advantage is that it promotes the spirit of competition amongst outside vendors. This enables accessibility of high quality future services and goods. Improvements in quality might also be understood by those outsourcing since they could at most times select vendors whose services or goods are being viewed to be amongst the best. By making use of outside vendors for services or goods, those who intend to outsource could make use of new technology without having to invest huge capital in the said technology. Hence those intending to outsource can switch vendors as the market situation requires. (Gilley; Rasheed, 772) To sum up it could be said that apart from financial advantages, outsourcing also gives way for non-financial advantages. The non-financial benefits promote competition among external suppliers which make them to produce high quality services and goods. Further outsourcing enables companies to make use of new innovations in technology without having to shed out billions for investment in new technology.

Opposing Arguments

Even though there are many advantages of outsourcing there are certain people who are against outsourcing stating that it would result in an overall loss of 'market performance.' An important disadvantage argued by opponents of outsourcing relates to reducing innovation by the company involved in outsourcing. Another disadvantage is that when suppliers attain product knowledge which they produce might make use of such knowledge to initiate their own manufacturing and marketing the product. Another disadvantage is that as long as wages/incomes abroad remain low and there exist a strong dollar outsourcing would remain profitable. Further, outsourcing needs an overhead allocation shift towards such services or goods which are produced internally. Such overhead reallocation disregards the visible financial performance of the balance services or goods and increased vulnerability towards further outsourcing. Yet another threat of outsourcing relates to tariffs along with enhancement relating to the issue of bringing back into the company functions which might presently made additions of value as a result of shifts in markets. (Gilley; Rasheed, 775) To sum up it could be said that long-run competitiveness in Research and Development by the companies involved in outsourcing could be affected by the issue of outsourcing. Companies outsourcing would lose their contact with regard to new types of technological innovations which would provide facilities for process as well as product innovations. Several companies made their first entry into American markets by initially making entry as suppliers with American manufacturers and later marketing products on their own. The success of outsourcing which are being related to low wages/incomes abroad and a strong dollar is considered an advantage which is fleeting. Further, those remaining services or goods which have been satisfactorily performing before outsourcing might be wrongly targets for subsequent outsourcing.

Counter-arguing the Opposing View

Against the arguments raised against outsourcing it need to be realized that the advantages of outsourcing can be more completely attained by companies which pursue differentiation techniques which is innovative and cost leadership. Moreover companies which function in stable atmospheres might also attain performance enhancement via outsourcing. Firm strategy was considered to moderate the links among core and peripheral outsourcing intensity as well as innovation and financial performance. Particularly outsourcing has been positively linked to performance with regard to companies which pursue a technique of cost leadership as well as being negatively linked to performance with regard to companies which were not. In addition, outsourcing has been positively linked to the performance with regard to 'innovative differentiators' as well as negatively linked with companies which had not been following… READ MORE

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