Question

In 250 words explain what are the advantages and disadvantages of outsourcing to Low-Cost Countries? How can the risks of outsourcing be mitigated?

Answer 1

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Business activities are fast changing in this dynamic world. Since the last decade, a new concept has evolved in the service sector called Business Process Outsourcing. Outsourcing is a system of getting a business task accomplished through an outside agency. Outsourcing comprises four key elements that are, contract manufacturing, contract research, contract sales and informatics. Outsourcing is more associated with IT - enabled service or BPO (Business process outsourcing). Necessity is the mother of inventions. This is especially true in the case of outsourcing also.Global competitiveness made business firm to rethink or re-look at very very many factors. These include provide higher quality products at fair and reasonable prices, satisfying ever demanding customers, coping up with the emerging technologies,...etc. These three factors were responsible for the emergence of outsourcing as a mode of business. It may be stated here that today, outsourcing is done not of compulsion but of necessity.

The Outsourcing, most used low cost countries are China, India, Mexico....etc

ADVANTAGE OF OUTSOURCING TO LOW COST COUNTRIES

1. ​​​The main advantage of outsourcing is Low cost.
2. It enable the business to concentrate on areas in which it has core competency.
3. Since outsourcing agencies are specialists in their fields. better quality service can be obtained.
4. It can obtain the service at a lower cost than that of running a separate department for this purpose.
5. It can get the advice of outsourcing agencies as they very often act as consultants for that particular function.
6. It reduces labour problem because outsourcing requires lesser number of employees.

DIS ADVANTAGE OF OUTSOURCING

There are several dis advantages faced in outsourcing to low cost countries.

1. Things that may not be found in domestic sourcing like regulatory requirements, Import-export limitation...etc
2. Port and warehousing issues and Modes of transportation available.
3. The main dis advantage is Risk of losing sensitive data and the loss of confidentiality.
4. Outsourcing may be more costly.
5. Outsourcing supplier no longer able to supply our business.
6. As with any business interaction we need to do mitigate the risk as much as possible if we decide to outsource.
7. Lack of internal talent development for outsourced task.

WAYS FOR RISK OF OUTSOURCING BE MITIGATED

Loss of control, Vendor lock in, Hidden cost, Confidentiality of information....etc are the main risks of outsourcing. We can reduce this risk by adopting several techniques. That are,

1. Beware of managed service agreements.
2. Asses and check the qualification and certifications of employee.
3. Analyse the human resource in the organization and recruitment capability of vendor.
4. Make sure the vendor has the right.
5. Correctly evaluate rates and productivity in terms of quality of work.