Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees. Often the tasks that are outsourced could be performed by the company itself, but in many cases there are financial advantages that come from outsourcing. Many large companies now outsource jobs such as call center services, e-mail services, and payroll. These jobs are handled by separate companies that specialize in each service, and are often located overseas.
Nowadays, many organization are outsourcing their non- core activities to an external agents. Distribution is one of these activities as distribution consider as a non-core activity for many firms. Although, there are many advantages for outsourcing, there are also risks and disadvantage in this process. In this essay I would explain the term outsourcing and explain why organizations prefer to outsource some of its functions in today’s environment. Also, in this essay it has been tried to analysis the advantage and disadvantage of the outsourcing process and its risks towards the organization. The word outsourcing could be described as the contractual relationship with a specialized outside service provider for work traditionally done in-house. Outsourcing could also be defined as the use of external agents to perform one or more organizational activities. In the last decade or so there has been a trend, particular among large scale companies, to hand over the whole or part of the distribution function to the external agents. One should emphasis that outsourcing is an issue that is not specific to distribution. Many other organizational functions, such as information system, building maintenance, etc…, have been outsourcing and increasing revenues.
Employees of organizations don’t benefit from outsourcing as they are at a risk with becoming redundant. This occurs as another group outside the organization who have similar skills and competencies that can perform the same tasks replace existing workers. This treatment of employees can trigger a collapse in confidence and morale from all other employees throughout an organization as they view fellow employees leaving due to job replacements. Therefore in the future lasting employees will feel uncomfortable in an organization that is constantly outsourcing with fears of losing their job. In order to prevent this morale downgrade management may choose to cross - train redundant employees so they can fit in another suitable position, where it may for expansion or increase labor productivity.

Another aspect that may be impacted by outsourcing is the hierarchical structure. If a certain department is run from outside such as Human Resources, i.e. recruitment is controlled by an outside body, this makes the ‘HRM’ division to be removed from the organization and hence its formal structure. Advantages of clearing a structure can give senior management the prospect of re-using and expanding into locations that have been previously outsourced. The departmentalization of the structure might have to be altered to correspond with the changes cause from outsourcing.

The reason why an organization can reduce costs when going ahead with outsourcing is because it can call upon the outside body to perform a task on a ‘need bases. This means an organization can call upon a contracted when the need be. Re-visiting the HRM division being outsourced, this division is working away all the time with unnecessary wages being paid. An organization does not need people in charge of obtaining recruitment all the time so by outsourcing recruitment, money can be saved. Another consideration is the redundancy of workers, if employees are dismissed, here wages can be saved. If the organization locates a contractor that is cheaper than redundant workers then the net money situation is favorable for the organization. Often contractors and specialized in their particular task, so the factor of improved quality and reliability are driving forces when considering outsourcing.
Though India, Singapore, China and some other countries in Asia are in top positions for outsourcing provider, Bangladesh is becoming more popular day by day. There are several reasons behind this. Outsourcing increases the employment opportunity in a wide range. This is very encouraging and beneficial for the third world countries, developing countries and countries in transition to solve their unemployment problem. A nice saying is ‘Outsourcing is better than Foreign aid’. Outsourcing providing is a great source of earning foreign currencies, which is a very positive factor in developing the economic condition of a country. Through outsourcing a country can use its manpower, resources and other facilities in a productive way. Outsourcing helps to develop the skills of the worker.
Managers realize that by outsourcing their routine, nonessential operations, they can better focus on the core competencies that truly differentiate them from competitor. For example, Ericsson one, of the leading companies in the telecommunication industry, wanted to reduce its costs in the supply chain by finding a solution to its warehouses in Philippines. Ericsson is always trying to reduce costs in different areas of business, this is including, the supply chain so as to save money and focus on Research and development. Therefore, Ericsson turned to Excel. Ericsson has leased the warehousing operation to Excel on a two years contract. Excel has provided a flexible service to Ericsson which has resulted in cost saving and made Ericsson concentrate on its core businesses. Before Ericsson has to handle the warehouse operation in-house but it was not the core competencies of the business. Another advantage of outsourcing is the reduction of the need to invest in non-core business assets such as warehousing and carriers. This will allow the firm to make the capital funds more available for core functions such as research and development in the telecommunication industry. For example, Northern Telecom manufacture enterprise which is operating in 130 countries have outsourced its distribution service to Ryder Dedicated Logistic. The main reason for Northern Telecom to outsource its distribution function, it did not want to invest in non-core activities. ‘ The core competency of Northern is not fleet management. If the president of our company has a million dollars to invest, will he put it into fixing tracks or a new telecommunication system?’ says David Grant, General Manager, Global Logistic. The development and increasing implementation of outsourcing has not been without its problem. The cost escalation and lack of quality of service are two of the more frequent complaints from firms towards the third party, although contractors argue that these problems often stem from firm’s failure to be precise about what they want by outsourcing their distribution service. Clear objectives need to be set by and to achieve this a high level of communication and understanding between firm and service provider must be established. There's no magic solution, experts agree. But organizations can reduce outsourcing anxiety -- and boost their chances for success -- by carefully assessing their needs, finding outsourcers that match those needs and, above all, engaging those outsourcers in a functional, committed relationship. More and more, outsourcing deals are not being patterned after the traditional vendor/client relationship but are being forged as intensive, long-term and highly interdependent partnerships in which value and risk are shared. Another risk outsourcing is the impact of outsourcing on those currently responsible for management of the function is fundamental. If the service is outsourced, the management of the provision of the service from within the organization is radically changed from management of a function to management of the business relationship with a contractor. The lack of control posed by movement of this function outside of the organization is often seen as the greatest risk of outsourcing.
The giant sucking sound heard by computer professionals across the United States is the transfer of computer related jobs, from service and support to programming and analysis, to offshore businesses. Business executives in the United States are making decisions to relocate many, if not all of the I.T. jobs in their respective companies to offshore businesses on the pretense of saving money. In the short term, these executives may encounter a boost in their accounting bottom line, satisfying the immediate demands of the stock holders. In the long term, the movement of jobs to businesses outside of the United States will be bad for business, and for America. With the employment opportunities for computer professionals looking bleak, less people are entering the profession of computer science. Furthermore, the drain of knowledgeable, experienced computer professionals will result in a weakening of the position the United States holds in the field of technology.
The controversial issue in the United States of the outsourcing of computer related jobs to offshore businesses is of particular importance to this writer as well as to the millions of experienced computer professionals across America. As an educated and skilled computer professional, this writer has experienced firsthand the consequences of a business’ decision to outsource their I.T. needs to offshore companies. The opportunities available to experienced computer professionals such as me to obtain gainful, well paying, long term employment has been permanently affected. The loss of computer related jobs will further burden American tax payers by resulting in a lowering of the salary that is paid to skilled computer professionals. Furthermore, the computer professionals across America who are unemployed are often forced to accept lower paying positions in careers not related to computers due to a greedy decision by their employer to outsource their I.T. needs.
Although this writer’s job has not been a direct victim of outsourcing, my employer has begun the process to transfer some of the grunt level programming and analysis work to a consulting business based outside of the United States. The computer professionals who are assigned to my employer’s development tasks have continually submitted work of a quality less than what is expected of those of us who work in the U.S. office. In an effort to clarify the standard and quality of work that is expected, several meetings have been held to discuss the concerns that my employers I.T. management staff had regarding the quality of work submitted by the consulting service professionals. After several attempts are made to obtain work of a satisfactory quality, the task is often reassigned to one or more of the in-house programming professionals. It is this writer’s belief that a substantial amount of time, effort, and money could have been saved by simply assigning the task to an in-house programmer to begin with.
This writer’s bias against the practice of outsourcing I.T. needs was formed through direct interaction with and observations of workers representing the outsourced businesses. The long term cost savings a business may forecast when a decision is made to outsource its I.T. needs may be prematurely inflated. This writer’s experience with outsourced services has indicated the skill level of the outsourced workers is less than that of their American colleagues. This will result in a substantial amount of time and effort spent to rework, analyze, or document any development that may be completed by the outsourced workers. In addition to work quality, there are numerous other barriers which affect the overall effectiveness of engaging outsourced services. These barriers include a substantial time difference, a verbal and written communication obstacle, technological barriers, as well as security, manageability, and the work ethics held by the outsourced workers.
As an open minded critical thinker, this writer is open to researching the reasons business executives may have for outsourcing their I.T. needs. The questions posed to the business executives may include a topic such as the reassignment or retraining of America’s I.T. workers to render their work more valuable. Additional topics may include the use of America’s I.T. workers as teachers to our outsourced colleagues to help improve their skill level and standard of quality that is expected in the United States.
The long term cost savings a business may forecast when a decision is made to outsource its I.T. needs may be prematurely inflated. This writer has identified that the skill levels of the I.T. professionals from offshore businesses is less than that of their American colleagues. America’s I.T. jobs are being shipped overseas at a faster rate than when the manufacturing jobs in the United States moved out of the country. This accelerated transfer of jobs has resulted in a large balloon of unemployment in the I.T. profession before the country’s system of checks and balances can make any necessary corrections. In the long run, America will suffer the consequences of the decision to outsource the I.T. needs of a business. There is a big sucking sound being heard across the country, it is that of the jobs being sucked out of the country.
Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.