Outsourcing in Supply Chain
Global outsourcing provides businesses with opportunities to attain a competitive advantage. XYZ company can access global knowledge and skills through outsourcing. Likewise, material and labor are essential parameters in product manufacturing processes. Taking advantage of relatively cheaper labor could assist XYZ to optimize its growth and development. The majority of businesses on the global platform are growing their brands through improved features and product visibility. Outsourcing systems provide frameworks that enable organizations to extend their customer base and optimize interaction with the product. Global businesses are turning to outsource systems to realize economic growth through competitive labor and cheaper raw materials.
Outsourcing in Supply Chain
XYZ Company as a local printing company faces challenges of limited skills and financial resources, which hinder its expansion. The company is confronted by a situation that requires the professional technical capability to enter a new level of market penetration. However, its human resource (HR) systems have a limitation in job skills and decide to outsource specific operations. The graphic designer roles in their print publications are the main source of competitive advantage for the company, and hence, the firm considers graphic design outsourcing as a decision that would guarantee value and quality to its customers. Inadequate technical knowledge in human resources influences the company to focus on outsourcing skills and proficiency to manage its operational limitation. Although outsourcing systems have certain operational risks, such as the security of data and subcontracting costs, gains witnessed in the process have the potential to enhance the growth and profitability of XYZ Company.
Business innovations and technological advancement have enabled companies to access global outsourcing systems. The issue of technical limitations of knowledge and skills and the expensive nature of the foreign expatriate offering services to local firms is no longer a challenge for businesses. Maley, Kowalkowski, Brege, and Biggemann (2015) illustrate that outsourcing has created an opportunity for firms to access knowledge, skills, and financial resources through subcontracting companies or individuals from other countries. Expatriates do not have to travel at the expense of the company. Outsourcing enables businesses to identify operational limitations, and hence, seek services in other areas to improve product quality, reduce delivery time, and save the cost of operation.
Outsourcing provides an opportunity for companies to manage activities and assignments that would have posed a challenge within their operational frameworks. Organizations benefit from outsourcing arrangements through a reduction in labor and operational costs. According to Ulrich and Dulebohn (2015), companies focusing on their core activities, but outsourcing support programs, are more likely to experience growth and development compared to businesses managing operations within their proficiencies. Therefore, outsourcing contracts have the potential to boost a company’s productivity by handling assignments they previously had challenges with. Accordingly, outsourcing provides an advantage for the organization to synergize its capabilities and focus on its core operational mandates while outsourcing support activities.
Global outsourcing provides opportunities for organizations to access global resources and knowledge bases for their local consumption. Chopra and Meindl (2016) indicate that every business requires global expertise that would leverage local knowledge and skills. Companies desire to engage the best expertise to enhance their operations. For example, Apple Corporation outsources the assembling and technical manufacturing of the iPhone to franchises in Taiwan and China. To this extent, outsourcing will enhance organizational capabilities through improved efficiency and product quality. Kassa and Raju (2015) aver that when an organization’s internal resources are only fixed within its operations activities, the opportunity to be innovative is limited. Therefore, such circumstances can be addressed by a smart outsourcing strategy.
Advantages of Outsourcing
The advantages of outsourcing for XYZ include the ability to identify and utilize the expertise or resources from offshore destinations, which will add value to its operations. The opportunity to outsource technical expertise for XYZ company gives it an advantage over its competitors. In this case, the firm will tackle local or in-house technical limitations. Moreover, outsourcing will open access to innovative technologies used by foreign companies focusing on the printing industry.
The outsourcing arrangements would enable the local company to access global resources, especially in areas where operational challenges are witnessed. According to Bhaumik, Driffield, and Zhou (2016), outsourcing supports organizations that experience internal resource challenges. For instance, XYZ Company is expected to gain higher competitive advantages compared to the local company with stringent funding regulations. A more professional HR approach and flexible HR resources will help XYZ to take on more advanced projects without workforce challenges.
Outsourcing may mitigate operational risks. By subcontracting activities to offshore firms, the risks are spread across broader parameters of businesses and partnerships. Therefore, when XYZ Company outsources, it is likely to save operational costs incurred compared to other companies, which do not embrace outsourcing. Radulovich, Javalgi, and Scherer (2018) posit that subcontracting gives credibility to local firms while enabling them to gain access to new markets. By outsourcing operations in different locations, a product’s brand identity is enhanced, leading to improved sales and consumer awareness. Likewise, outsourcing assists the organization to re-engineer and improve other internal departments.
With freed resources, the company becomes able to focus on marketing and customer base expansion. XYZ can conduct internal training to specialize its managers in customer-oriented activities, thereby enhancing HR management and focusing on the most advantageous tasks local employees can handle. Its workers can be assigned supervising roles over outsourcing teams and be assigned top-priority tasks giving the company a competitive advantage.
Disadvantages of Outsourcing
Although outsourcing carries more opportunities for local companies to access competitive production systems, it has several limitations in terms of systemic effects. With outsourcing, the company loses part of its control and monitoring. For instance, involving the services of an external graphic designer limits the company’s capability in employing and training residents and utilizing internal resources within the company. Therefore, the company is disadvantaged in building local capacities, leading to over-reliance on foreign expatriates.
Outsourcing creates data security challenges. For instance, XYZ’s confidential data might be exposed both in global and local outsourcing arrangements. When companies outsource vital operations such as recruitment and payroll services among other HR functions, they face the risk of exposing confidential information to a third party. One of the examples of the risk is the sharing of the cover page designs of XYZ Company to a foreign entity, which may decide to reveal it to competing firms. Financial data may serve as a basis for other companies’ financial strategies that would attract XYZ’s existing clients. Therefore, other companies might gain a competitive edge in the industry by using the leaked information to their advantage.
Furthermore, the majority of the systems used in subcontracting have hidden costs. The charges, such as contract signing across international boundaries can occasionally be higher to the organization venturing into business to meet financial obligations. Halaszovich and Lundan (2016) explain that the preliminary process of outsourcing might be time-consuming through market research to ascertain the credibility of an offshore partner. In the process of outsourcing a graphic designer, XYZ Company may face challenges related to international regulation on issues of work permits, leading to time wastages based on the bureaucratic nature of the process. Hence, in the event XYZ fails to identify an appropriate partner, outsourcing may bring operational challenges, including stretched delivery periods and substandard products.
Management control is a crucial indicator of product quality and efficiency in the company delivery systems. Outsourcing often leads to the loss of management control in the process and production systems. Employing a senior individual, such as a graphic designer for XYZ company, would affect the decision-making process of the firm. Notably, the absence of administrative control may limit an immediate intervention measure in case technical flaws are witnessed within production processes. Different labor laws and regulations that apply in the countries of operation guide global companies (Vendrell-Herrero, Gomes, Mellahi, & Child, 2017). Therefore, outsourcing may occasionally lead to a public backlash, especially when labor disputes occur between the offshore company and its employees.
Companies have been accused of perpetuating unethical conduct through their local or international partners in subcontracting arrangements. Such incidents have affected the marketing of products, which human rights activists link to labor abuses. A case in point is when more than 20 employees committed suicide due to poor working conditions in one of Apple company offshore partners; the iPhone received negative publicity and reduced sales in the market (Nwogugu, 2015). Therefore, outsourcing systems have the potential to destroy the brand image of XYZ company, affect consumer perceptions, and lead to market failure.
In addition, outsourcing may cause business stagnation. According to Maley et al. (2015), growth within a business structure is realized through the ability to build an effective capacity to manage processes that were previously faced with technical limitations. XYZ would not have struggled to outsource graphic designers if it had built better technical expertise. Therefore, the process of outsourcing creates a situation of over-reliance on offshore capabilities at the expense of developing local talent.
As it is evident from the analysis, globalization and technological advancement have enabled organizations to focus on foreign destinations to access talent and skills not found locally. The operating limitations within XYZ that required the intervention of expatriate job skills would be resolved through global outsourcing. The main reason XYZ has focused on outsourcing a graphic designer is to remain competitive through various aspects, including quality, price competitiveness, and cost savings. Given that XYZ has limited financial resources and human capacity, global outsourcing would offer a solution to those challenges.
Bhaumik, S. K., Driffield, N., & Zhou, Y. (2016). Country specific advantage, firm specific advantage and multinationality – Sources of competitive advantage in emerging markets: Evidence from the electronics industry in China. International Business Review, 25(1), 165-176.
Chopra, S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation (6th ed.). Pearson.
Halaszovich, T. F., & Lundan, S. M. (2016). The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets. International Business Review, 25(5), 1136-1148.
Kassa, A. G., & Raju, R. S. (2015). Investigating the relationship between corporate entrepreneurship and employee engagement. Journal of Entrepreneurship in Emerging Economies, 7(2), 148-167.
Maley, J. F., Kowalkowski, C., Brege, S., & Biggemann, S. (2015). Outsourcing maintenance in complex process industries: Managing firm capabilities in lock-in effect. Asia Pacific Journal of Marketing and Logistics, 27(5), 801-825.
Nwogugu, M. C. (2015). The case of Apple, Inc., and Fintech: Managerial psychology, corporate governance and business processes.
Radulovich, L., Javalgi, R. R. G., & Scherer, R. F. (2018). Intangible resources influencing the international performance of professional service SMEs in an emerging market: Evidence from India. International Marketing Review, 35(1), 113-135.
Ulrich, D., & Dulebohn, J. H. (2015). Are we there yet? What’s next for HR? Human Resource Management Review, 25(2), 188-204.
Vendrell-Herrero, F., Gomes, E., Mellahi, K., & Child, J. (2017). Building international business bridges in geographically isolated areas: The role of foreign market focus and outward looking competences in Latin American SMEs. Journal of World Business, 52(4), 489-502.