'Outsourcing' has become popular worldwide, both as a viable economic alternative as well as a political issue in the USA.
Outsourcing is a kind of sub-contract.
A business, sub-contracts part of its processes to an outside agency, called the service provider, at a negotiated price called the contract price.
For instance, a car manufacturer may assemble cars on the factory floor, but many of the small parts for the cars may come from small manufacturing units situated in and around the factory.
The car manufacturer may not find it viable for the unit to manufacture it on the assembly floor.
The best way out would be to outsource such needs.
Outsourcing leads to savings in capital costs, labor costs and investment in technology and regular up-gradation of it.
These savings can be redirected towards concentration on the core areas of a business leading to efficient use of capital.
It was in the 1980s that this concept started catching on.
The areas of a business that may be outsourced are human resources, accounting services, management of facilities, information-enabled technology service, customer service support and call center operations.
The decision for outsourcing has to be made at the Board level of a company after a thorough justification of its need.
Some of the reasons for outsourcing are enumerated below-: *There is a reduction in costs or running the business as many of the routine functions are outsourced, freeing precious human and investment capital.
*There is a distinct reduction in variable costs when manufacturing processes are outsourced.
*There is a marked improvement in quality of work during outsourcing *A company will get access to better knowledge and skills which is provided by the Service provider, *Since the contract between the business and the service provider is legally binding, there is question of going back on the commitments made by the service provider.
*Since the service provider has to provide the best practices, these become automatically available to the business, saving the business, time and money *There will be a greater number of skilled human resources available to the business on outsourcing *The time lag between production and delivery of a product to the market is reduced on account of outsourcing There are doubts being expressed in many quarters on the efficacy of outsourcing.
The primary reason against outsourcing is the loss of jobs in local markets.
There are two sides to this argument.
Admittedly, outsourcing does lead to loss of jobs.
On the flip side, it brings down the cost of products and services and this is beneficial to the local economy at large.
The countries being majorly affected by outsourcing are the USA and UK.
Labor laws in the USA are as stringent as that in Europe.
However, it is given to understand that the antipathy towards outsourcing in USA is more on account of tensions among ethnic groups within USA rather that the actual loss of jobs on account of outsourcing.
All said and done, outsourcing as a better business alternative leading to greater productivity is undisputed.