Advantage Of Offshore Outsourcing

Published Date: 02 Nov 2017

Any company, which owns, controls and manage income generating assets in more than one country called offshore outsourcing (Zekos, 2005). Therefore, offshore outsourcing occurs when these tasks are transferred to other countries (Gnuschke, Wallace, Wilsow & Smith., 2004). When a business seeking advantage and develop a unique competences and manage for a lowest delivered cost or differentiation through superior customer value, this is meaning to occur a competitive advantage. (Day & Wensley, 1998).

Then, when an organization transfers some of its tasks to an outside supplier this is called outsourcing (Gnuschke, Wallace, Wilsow & Smith., 2004).). The offshore outsourcing is when these tasks are transferred to other countries.

An offshore can be separated into two categories which are offshoring and outsource offshoring. Offshoring is means which a setting up the company’s existing business function or division in a foreign country.

For outsource offshoring is when the outsource vendor go offshore for contracting part or whole project to third party vendor situated in another country (Benit,2008).

To be more successful, a company which engaged in offshore need to evaluate financial problem such as budgeting and fiscal outcome, intellectual property rights, compliance, legal issues, privacy and data security before decided to offshore their business to a foreign country (Romanuian & Jane, 2006).

Advantage to Outsource

In today fastest growing world, there are a large numbers of competitors in many businesses. Every organization has to come with an innovation to create a new or unique product in order to compete and stand out among the competitors.

There are ways and opportunity that an organization may take it to face the challenges of rapid growth. The outsourcing is a good way for an organization to create a new opportunity in the current market. For those organizations that adopt the opportunity of outsourcing could receive some benefit for the organization.

The first benefits for an organization go for outsourcing which is the company able to reduce the cost. There are a big different from the past trend as compared to the current trend. According to Anonymous (2005) stated that formerly, outsourcing meaning to do the same task or did it better at the lowest cost or same cost by using economies of scale.

In addition, the outsource supplier will apply the best practice tools and processes by used of spreading resources and assets. Other than that, the current outsourcing is able to help the company to reduce cost such as Administrative costs, including human resources, taxes and facilities, cost of capital including hardware, capital depreciation and software, future expenditures for development, implementation and migration costs to develop a new solution in-house, research and development for evaluating new technologies and value added services and Consultants and other contract services. (Antunes, 2003).Some researchers stated that an important source of cost reductions is the outsourcing firm's access to economies of scale and the unique expertise that a large outsourcing vendor can deliver (Roodhooft & Warlop, 1999). The outsourcing contract receivers served many clients, they often achieve lower unit costs than any single company.

For the specialist outsourcing vendors, they are afford to invest more in new technologies and innovative practices than many outsourcing contract-granting firms (Alexander & Young, 1996). As an example for the specialists in payroll processing, it is typically in handle this task for a number of companies, thus spreading fixed costs and achieving economies of scale. The specialists need to identify the areas for improvement and the knowledge needed to act successfully on that awareness of economies of skill.

According to Antunes (2003) stated that by outsourcing can help company improve the flexibility and the agility as well as to solve the problem which allows company to gain control, in terms of cost and operations of troublesome business or IT function.

According to Nair (2008) stated that the firm is able to faster speed to market through outsourcing. As the firm can speed up the production processes to launch to the market. For instance, drug-eluding cardiology stents came to the market in 1994, and followed by 2007 they had largely taken over the market. In between 2002 and 2007, there is nearly 90% of demand for the traditional metal-only stents dwindled. In this situation, it is important of speed to market and perhaps even more important than cost.

When considering outsourcing the focus should be on keeping core activities in-house and outsourcing non-core activities only. This will help to ensure that focus is retained on the company's most vital functions (Byham and Riddle, 1999). The hope is that by shifting responsibility for some of these functions to an external service provider, employees will have more time to focus on core activities and help the company gain competitive advantages. Generally speaking, there is little reason to outsource if contracting out the function incurs more time and money than keeping the activity in-house.

Advantage of Offshore Outsourcing

According to Reza (2005) stated that offshore outsourcing is the most obvious and short-term benefits in reducing the labour cost. The benefits are to enable the firm in saving the plant cost because they do not need to search for best location to build their factory or manufacturing. The capital investments are lessened and helping drive down the overall cost per transaction.A company operation without owning a manufacturing as well recruiting a number of employee definitely help for company in saving the labour cost and reduce taking risk to build the factory. Besides that, it is also good for the company avoid in paying annual taxes and follow the rules and regulation of government. The company outsourced part of their business to third party, thus, it is able to help the company reduce cost which cause by economic of scale (Jiang, Frazier & Prater, 2006).

In today rapid changing industry in IT which is having a flexible and agile organization and able to respond quickly to changing markets and customer demands, it is an important factor for success (Reza, 2005). Therefore, offshore outsourcing help the company to be flexible and agile by providing a reliable and adaptable stream of workers in order to reduce the time it takes to start and complete the projects.

Then, according to Reza (2005) stated that it can help to access to the host country’s skilled workforce and talents through outsourcing. For an IT company, offshore outsourcing able to increase access to a ready and skilled workforce at lower costs as compared to those in North American and Western Europe. This is a very important factor because in a competitive industry such as IT, the success is depends on offering products and service which are low cost and differentiated (Michael, 1996). Therefore, steady access to a talented and skilled workforce is a critical to generating innovative ideas to improve company’s competitive advantage. Therefore, it can be said that offshore outsourcing able to improving efficiency, and gaining a competitive advantage.

Outsourcing which is apparently in the transfer of employment and production responsibilities. It has become a necessity for a corporation to reductions in corporate costs and increases in efficiency, enabling internal employees to focus more directly on meeting core organizational goals and maintain competitiveness in the marketplace (Stroh & Treehuboff, 2003).

Disadvantage of Offshore

The employees may lose their jobs because of the offshore outsourcing. Offshore may impacts on the competitive advantage. By outsourcing companies were able to reduce cost and increase revenue. For those companies do not outsource may not able to compete and are being forced to outsource or lose the business. Therefore, the employment rate may be impacted by offshore outsourcing (Gnuschke, Wallace, Wilsow & Smith., 2004). In order to gain the competitive advantage, company may choose to outsource. It will have an impact to the employee in the company as they do not have a job to work.

Therefore, loss of economic stability will occur as reducing employment opportunities and removing the earned income to employees, as well as considerations such as regulatory outcomes (e.g. tariffs and trade) and problems that to obey quantification in the areas of ingenuity (Hemphill, 2004).