Outsourcings Advantages to Business' Financials
Outsourcings Advantages to Business' Financials
Due to the status of the economy and the increasing competition in many businesses, a lot of companies are looking to outsource many of their jobs. Outsourcing is when a business moves a section of their company across seas. They do this because in some of the overseas countries labor costs are considerably cheaper than if they were to be performed by workers in our own country. This paper will discuss the advantages businesses are experiencing by moving jobs to other parts of the world, such as their profitability and their competitive advantage over other companies in their field.
Many companies are forced to downsize and restrict their businesses, resulting in them choosing to outsource and offshore parts of their company. Many of the jobs in danger of being outsourced are those dealing with technology, such as technology support and software programmers (Voorhis). This is because since technology is always changing, newer and better technology is created, making the previous ones useless. A threat for these local jobs is also the option to outsource. An article named "Why Some IT Stay: The Rise of Job Training in Information Technology," explains that many of these jobs are being shipped overseas because it is cheaper for the companies to pay foreign workers for the same amount of work.
Another article titled "Offshoring. Outsourcing. Out of Work," discusses which countries are most likely being chosen for certain types of work. India and China are many times the destinations for electronics outsourcing, while Mexico is usually sent our TVs and printers for assembly. Lately, however, Mexico has also been receiving many of our manufacturing and engineering jobs. Ben Zarlingo, a communication test product manager at Agilent Technologies, says, "What I hear consistently is that organizations need complicated products designed very quickly, under very tight budgets" (Schneiderman). This is why so many jobs are going to foreign workers who will work faster for a lot less.
While lower labor costs are definitely an advantage for businesses, it is not the primary reason they are moving their operations to foreign countries. Most new manufacturing companies are building their facilities on foreign soil because of the lower tax rates and incentives. With these factors, companies need to remember that to stay competitive with other companies that either choose to outsource as well or not, they need to "pass on the savings to their customers" (Dunn). Initially, the company might not see overwhelming financial gains, but in the long-run, they will gain more customers and more business and, ultimately, become more profitable. Also, the firms market value will increase due to their increased profitability (Dunn).
Another advantage to outsourcing is the companies increased flexibility to changing markets. This is done by adopting some of the ideas and methods of the host country and incorporating them into your business. It is a great way for companies to stay innovative and give the customer exactly what they want. Other advantages may include a more specialized workforce, superior machines and equipment and higher quality products and services (Cant).
When considering outsourcing, a business has to also think about where they are going to move their operations. An article named "The Evolution of Risk in Information Systems Offshoring: The Impact of Home Country Risk, the Firm Learning, and Competitive Dynamics," looks at the reasons companies choose to locate offshore where they do. Companies look for host countries that are very similar to their own country. A benefit from the similarities is the reduction of transaction costs that occur from training and gathering information. The article also mentions that many companies imitate the moves of their more successful rivals moving their operations to similar, or the same, location (Hahn).
Looking at this broad overview, you can see that there are many advantages in choosing to outsource portions of your business. They include profitable financial gains, increased market value, flexibility in changing markets and a greater competitive advantage over other companies in that given line of work. Unfortunately, it cannot be promised that all business that is shipped across seas will end up beneficial and cost-effective, but more and more companies are taking the risk.
Works Cited:
Cant, Michael and Lucy Jeynes. "What Does Outsourcing Bring You That Innovation Cannot?
How Outsourcing is Seen- and Currently Marketed- as a Universal Panacea." Total Quality Management 9.2/3 (1998): 193-201. Academic Search Complete. EBSCOhost. 12 April 2011.
Dunn, Kimberly, Mark Kohlbeck, and Matthew Magilke. "Future Profitability, Operating Cash
Flows, and Market Valuations Associated with Offshoring Arrangements of Technology
Jobs." Journal of Information Systems 23.2 (2009): 25-47. Academic Search Complete.
EBSCOhost. 15 February 2011.
Hahn, Euguene D, Jonathan P. Doh, and Kraiwinee Bunyaratavej. "The Evolution of Risk in
Information Systems Offshoring: The Impact of Home Country Risk, the Firm Learning,
and Competitive Dynamics." MIS Quarterly 33.3 (2009): 597-616. Academic Search
Complete. EBSCOhost. 15 Feb. 2011.
Schneiderman, Ron. "Offshoring. Outsourcing. Out of Work." Electronic Design 53.23 (2005):
65-74. Academic Search Complete. EBSCOhost. 15 Feb. 2011
Voorhis, Dan. "As Technology Grows, Jobs Disappear." The Wichita Eagle 20 May 2010,
Business sec. Web. 15 Nov. 2010
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