This paper will examine the current trends in outsourcing and its alternatives an organization. The focus of the paper will be on the shift in outsourcing destinations and the motivation behind the changes. Onshore and offshore respondents will be interviewed to establish a trend on both outsourcing destinations. The conclusions will be based on these results and a projection of future trends.
Outsourcing and its Alternatives
Outsourcing is a business term used to describe the exercise of contracting certain business functions to an outside company. The company in question is usually capable of provide the outsourced service internally. Initially, businesses would outsource support services such as cleaning services. This was because of the perceived risk to the security of business operations. In recent times, businesses have employed outsourcing services to core functions such as billing, customer care call centres, data entry and payroll services (Carmel, and Tija, 2005).
The alternatives to outsourcing that are common in the current economy are off shoring, in-sourcing, and co-sourcing (Hirschheim, 2009). Off shoring describes the process of relocating a business function to a foreign country. The reserve of outsourcing is in-sourcing. This is often done when a business provides a service to another company. When a business co-sources, it undertakes to divide the responsibility of providing a service between its staff and that of the contracted company. Co-sourcing minimizes the potential risks that could occur where sensitive company information is concerned. Procurement processes within business companies have long ceased to be simple purchasing decisions. Globalization has opened up the business environment to intense competition both locally and internationally. This has led to the emergence of ambitious business executives willing to try new cost reduction ideas in the hope of reducing operating costs and therefore increasing company profitability (Hirschheim, 2009).
Outsourcing emerged as an opportunity for businesses to control operational capabilities and maximize resource utilization. The biggest motivation is the possible cost reductions especially in labour and legal costs (Carmel, and Tija, 2005). The process brings a level of flexibility organizational functions. Foreign countries generally have lower wage levels for its labour force. Legal requirements regarding the work environment are usually less stringent. The cost of setting up shop is therefore much lower than in the home countries where regulations are strictly enforced. A typical employer in the USA pays significantly more in wages and other related wages compared to an employer in China. Companies are now willing to outsource more functions because of the cumulative benefits accrued to this business process. Consequently, they free up more time and resources to concentrate on their core business.
Outsourcing exports much needed job opportunities to foreign countries. Many economies including the USA are facing an increasing unemployment due to job cuts necessitated by tough economic times. Outsourcing reduces company confidentiality and increases the chance of trade secrets being leaked to competitors.
Before conducting a study, it is important to identify the research question, which will determine the answers to be sought. Once the reason for the study is established, it is easier to identify the steps to be taken to find the answers. These steps constitute research methodology. Each researcher has to choose from a myriad of methods, models and procedures. Each research requires careful selection of research methodology to ensure successful collection, compilation and completion of a study. A good researcher should be knowledgeable in all types of research and methodologies available in order to make the best research decisions.
The study population for this research will be companies that purchase outsourcing companies. The companies chosen consume either onshore or offshore outsourcing services. Three companies will be identified based on their business records. The ideal company will have reliable data on all its outsourcing activities for the past 5 years. The sample companies will be chosen based on convenience because of the time and financial constraints. The subject under study is the current trends in outsourcing. The business world is constantly changing. Outsourcing is no different. Changes occur daily and new strategic decisions are made to counter the changes and improve satisfaction in the services (Vitasek, & Manrodt, 2012). This report will reveal the current changes in buyer satisfaction for onshore and offshore outsourcing services. The study will also reveal the reasons behind these changes.
The study will use the survey method to collect data from procurement officers in the chosen companies. The survey method is appropriate because it can be used for both structured and unstructured questions. The information collected is then used to describe the topic under study. The direct approach will be used because the study findings will be based on accurate data collected from sample companies. The main disadvantage of the survey method is that respondents may be reluctant or too busy to answer questions appropriately. They may also feel the need to impress by giving overblown answers in order to look smart. Respondents may not be willing to admit that they are ignorant of certain facts asked. This often leads to false information being passed off as truth.
Questionnaires will be used to collect data from the survey respondents. An open-ended questionnaire will allow each of the managers to express their unique business circumstances. Fewer questionnaires are required because information collected is opinions and not numbers that require complex analysis.
The study collected data on the level of business satisfaction with outsourced services. The operating assumption is that satisfied customers will continue or increase their business the outsourcing company. Unhappy customers on the other hand will reduce or terminate services. In the last 3 years, the outsourcing market has experienced growth. A closer examination of the numbers reveals that this growth is slower than what has been witnessed in the past years.
Between 2009 and 2011, companies have reduced their onshore outsourcing by 14%. In 2010, the numbers declined by 4% and a year later, business reduced by 10 %. The same trend is also present in offshore outsourcing. Compared to 2009, business declined by 22% in 2011. In 2011, only 64% of the respondents are willing to increase their offshore outsourcing services.
This slump in growth can be attributed to reduced customer satisfaction. Disappointment from poor service provision is of the main reasons for dissatisfaction. Other reasons are changing expectations and tougher economic conditions.
Another major concern is value for company money. The main motivation for outsourcing is cost reduction. Many companies therefore opt for outsourcing with unrealistic and unsubstantiated expectations. As companies begin to compare their expectations to the actual results of outsourcing, they may decide to terminate services to avoid disappointment. The relationship that results from outsourcing can be difficult to manage. The entire process may require new management systems which managers may not be able or willing to adopt. In the end, these managers feel that the additional challenges of management are not equal to the benefits accrued.
The two main alternatives to outsourcing have developed different trends with time. Form the first table, the percentages for onshore growth percentages are lower for each year compared to offshore percentages. This is attributed critical re-evaluation by clients after the initial excitement over outsourcing is over. The contracting company becomes increasingly aware of issues it may have ignored during the initial stages. If the issues they raise are nit addresses, this leads to dissatisfaction.
Offshore outsourcing companies are becoming more competitive to onshore service providers (Vitasek, & Manrodt, 2012). This is especially because countries such as China and India are working harder to provide conducive business environment for outsourcing business processes. Off-shoring is currently more popular than on-shoring. The off-shore outsourcing destinations have had to deal with high employee turnover, varying client expectations and lack of database on reliable foreign outsourcing companies. When these issues were addresses, off-shoring became more competitive that on-shoring (Vitasek, & Manrodt, 2012).
It is expected that off-shore services will continue to dominate offshore services. This is majorly because the main outsourcing destinations are implementing various strategies to become the best outsourcing destinations. China leads the pack and has the advantage of its huge economy, which allows it to extend large benefits to its clients. India, Brazil and Russia are also becoming attractive outsourcing destinations.
As more company choose to outsource, it becomes important for managers to conduct a thorough study to make the best decisions for the company. Expectation management should be done in order to clarify the needs of the client and reduce disappointment. It is also clear that clients will always prioritize cost reduction over other considerations while choosing a service provider. The same clients will give weight to other equally important considerations while making the decision to continue or terminate services. To be on the safe side, outsourcing companies should aim to exceed customer expectations in order to remain attractive to clients.
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Vitasek, K. & Manrodt, K. (2012). Vested outsourcing: a flexible framework for
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