Outsourcing: Some things to know

Outsourcing: Some things to know

Outsourcing: Some things to know

At it's simple definition outsourcing is defined as obtaining goods or services from an outside source. If only it were that simple. Today outsourcing, on average, can account for an extremely high percentage of most large industrialized countries productivity. The United States of America is in no doubt the largest customer of the world, in that it outsources more goods and services than any other country. An August 2004 survey revealed that 71% of American citizens believed sending jobs overseas hurt the economy. The debate continues today whether or the country should outsource or not with many not knowing the benefits.

The list of perceived benefits of outsourcing goes on and on but in this articles we will focus on just a few.

The greatest benefit of outsourcing is cost savings. Overseas labor is costs a lot less than labor in the U.S. and parts for products costs less to be manufactured. The list of companies that outsource solely based on these two reasons is astronomical. Minimum wage overseas is at a much lower rate than in the U.S. Here it is $7.25/hour and the highest found in China is $.39/hour.

Tax benefits accounts as the second factor in choosing to outsource. Countries offer tax incentives to companies by lowering the rate of corporate tax. As long as money earned stays invested overseas most often U.S. companies can avoid paying the normal full 35% corporate tax. For example a company earns $100 million abroad in China where the corporate tax rate is 20%. The foreign subsidiary of the company pays that money to the U.S. parent. The parent of the subsidiary then pays $35 million to the U.S. government and takes a credit for the 20% payment to the Chinese government. So the U.S. gets in taxes is $15 million instead of $35 million.

Production rates are also a large factor in deciding to outsource. Often times overseas factories are larger and have more employees vs. their U.S. counterparts. This reduces the time to market for companies, which allows them to get product out faster and produce extra supply as needed. Overseas companies allow the original company to better focus on its core business by alleviating the manufacturing aspect of products or services.

Time zone advantages play a big part in outsourcing as well. When an American company is typically closed the manufacturer is operating on normal business hours so this to some level also increases efficiency. The company you outsource to is working while you are sleeping and is able to have shipments ready for you by the time you wake up. With you being able to receive product faster you can get it to customers faster, which hopefully increases customer satisfaction.

Outsourcing may seem all well but there are also negative affects. "At the operational level, the strategic intent intends to be lost in a hectic day to day, problem to problem business environment." (Insinga and Werle). They are referring to the high level of monitoring outsourcing requires. Senior level management is needed overseas to oversee the production and manufacturing of products to make sure they are up to par. One of the most noted downfalls of outsourcing is in call centers. We all have had an experience calling a service or product provider and was answered by someone in another country who has little knowledge of the English language and sometimes a low level of understanding of context. One thing that is also sometimes overlooked is the companies' media appeal, if people are against outsourcing then they are more than likely to not support the company.

Probably the most important downfall of outsourcing is loss of managerial control. The contracted company now has day to day control over whatever your company gave it charge to. For example, Foxconn, one of the largest electronics manufacturers in the world is constantly in the news for his human resources practices and the negative media can have affect on how en users view companies who use Foxconn. While saving money by outsourcings to another company you also create a bunch of new jobs for your company to monitor your contract.

Outsourcing has a global positive impact. For example each job each job that is outsourced to India can generate work for more than 20 people on average. Outsourcing also gives opportunities for innovation in countries because it opens up innovators to opportunities they may have not had before.

The lucrativeness of outsourcing is more appealing than not however companies must use long term vision to determine the impact before committing to outsourcing.

POST COMMENT

Outsource Your Payroll Outsourcing – Making A Difference Decision Making: Outsourcing Employee Benefits Administration Outsourcing Benefits of Outsourcing Microsoft Outsourcing: Developing Rich Web Applications was Never So Easy ! Effectively Outsourcing Your Calendar Production Outsourcing and Globalization The Benefits of Outsourcing Security Why Outsourcing Is Excellent For The U.S. Economy Why Your Competition Is Outsourcing Their Table Tents Outsourcing for Small Start Up Companies Outsource Your Bookkeeping for a Higher Return