The changes that the business world has undergone in the present times become apparent when a look into the various strategies as well as tactics followed by the various business enterprises is taken into consideration (Chen and Xiao 2015, 243-257). In this particular context it need to be said that the various business enterprises need to formulate the strategies which they are likely to use within the framework of their organization taking into effective consideration the demands as well as the expectations of not only the customers but the contemporary business environment itself (Chen and Xiao 2015, 243-257). In this particular regard the concept of outsourcing had gained much prominence within the framework of the contemporary business world.
Outsourcing can be defined as the process through the effective use of which a particular business enterprise is being able to process out a part of their business activity to the other nations of the world (Mol and Brewster 2014, 20-34). In addition to this, the process of outsourcing can also refer to the development of effective agreement with the business enterprises of the other nations of the world through which a segment or an entire department of a particular business enterprise (Mol and Brewster 2014, 20-34). The increasing complexity of the business world has made it very difficult for the various business enterprises of the world to have an effective control or for that matter manage all the departments of their enterprise in an effective manner (Dutta, Kholekile and Wang 2017, 451-477). It is in this particular context that the concept of outsourcing has gained prominence within the cannon of the contemporary business. Furthermore, the various other benefits like cost benefits, technology and other resources and others that the process of outsourcing provides to the diverse organizations also encourage them in a significant manner to take the help of the concept of outsourcing for the process of their business (Magelssen, Sanchez and Fariborz 2015, 17468).
Brief History of Outsourcing
The concept of outsourcing gained a significant amount of prominence in the latter half of the 20th century (Gunasekaran et al. 2015, 153-166). However, the concept is generally thought to be a very traditional one and there are evidences which show that the concept was used in a widespread manner especially during the time of the First Industrial Revolution (Gunasekaran et al. 2015, 153-166). It is significant to note that during this point the various business enterprises used to shift not only their manufacturing units to the other developing nations but also the selling sections as well. The use of this particular concept enabled various business enterprises of this particular time to gain a significant amount of success (Lahiri 2016, 464-494). However, the concept of outsourcing as it is used in the modern sense of the term became popular with the publication of the article “Do what you do best and outsource the rest” of Peter Drucker in 1989 (Lahiri 2016, 464-494). Furthermore, another article by the same author “Sell the Mailroom” published in the “Wall Street Journal” made the concept a commonly used process within the cannon of the business world (Lahiri 2016, 464-494).
In the early part of the 20th century it was also seen that the various business enterprises took the help of the process of outsourcing not only to improve the prospects of their business but at the same time to distribute the risks as well as issues that they faced over various business markets (Tate and Bals 2017, 106-113). It was thus seen that even if the organizations were facing risks as well as losses in one particular business market they were able to make a significant amount of profit because of the profit that they were making in the other business markets. In addition to these, there are instances in the early part of the 20th century wherein the various business enterprises of the nations of Japan, Russia and others were taking the help of the process of outsourcing (Tate and Bals 2017, 106-113). Moreover, the author Adam Smith in his famous book entitled “'An Inquiry into the Nature and Causes of the Wealth of Nations” also states that because of the numerous benefits that the process of outsourcing provided to the various business enterprises started to use the concept from the early part of the 20th century itself (Zhai and Dingding 2014, 65). However, at the same time it needs to be said that the contemporary business world uses the process of outsourcing in a whole new manner in comparison to the rudimentary manner in which it was used in the 19th and 20th centuries (Zhai and Dingding 2014, 65).
Fundamentals of Outsourcing
The word “outsourcing” is seen to be a combination of two words, namely, out as well as sourcing (Kabiraj and Sinha 2016, 281-290). It is a reflection of this particular fact that in the traditional times especially during the era of the Industrial Revolution the process of outsourcing was mainly concerned with the process of procurement of raw materials which were needed for the manufacture of the goods as well as the services offered by a particular business enterprise to its customers (Kabiraj and Sinha 2016, 281-290). However, it is significant to note that with the change in the requirements as well as the demands of the business world the process of outsourcing attained a whole new dimension (Aamer 2018, 1-18). For example, in the light of the increasing cost of effective management of the diverse departments of a particular organisation and also the increasing intricacy of the business world the diverse business enterprises found it to be more profitable to outsource or process out a few segments of their business which were not that important in comparison to the others and can be management in an effective manner from other distant locations. In addition to this, for the effective management of an organisation the management team of the concerned organisation needs to take into effective consideration various factors and thus many organisations are finding it very difficult the manage all the departments of their organisation from one particular location (Aamer 2018, 1-18). The cost and other factors are also there which encourages the various organisations of the present times to take the help of the concept of outsourcing.
One of the most fundamentals requirements of the process of outsourcing is the fact that the organisation which is outsourcing a part of their business to other nations should have an effective agreement with the national government of the host nation and also the organisation to which they are outsourcing their department of their organisation (Mazumder and Jain 2017, 50-68). At the same time it is also very important for the concerned business enterprise to have an effective idea about the segment of their business that they need to outsource since many a time it is seen that the organisations fail to make the right decision and this affects their prospects in a significant manner (Mazumder and Jain 2017, 50-68). Many experts are of the viewpoint that the effectiveness of the process of outsourcing depends to a large extent on the decision making ability of the concerned organisation, the manner in which they are being able to utilise the opportunities provided by the host nations and others (Gunasekaran et al. 2015, 153-166). Thus, it can be said that the benefits of the concept of outsourcing depends on the effectiveness with which the various business enterprises are being able to use it.
Benefits of Outsourcing
The major factor which encourages the various business enterprises to take the help of the process of outsourcing is the cost factor (Yildiz and Demirel 2014, 514-521). It is significant to note that the cost of keeping the various employees within the framework of a particular organisation has increased in a significant manner following the stipulations of the various nations of the world regarding the minimum wage policy (Yildiz and Demirel 2014, 514-521). It is a reflection of this particular fact that the various business enterprises of the First World Nations are finding it more cost effective to process out a segment of their business to the other developing nations of the world where they need to pay a comparatively a lower wage to the employees (Yildiz and Demirel 2014, 514-521). In this particular regard mention needs to be made about the company DHL Express which in the recent times has processed out the major departments of their business from the nation of Germany to China, Hong Kong and others (BBC.com 2018). The effective use of this particular has helped various organisations to save a substantial amount of their capital in the recent times and thereby have helped them to gain a significant amount of success in the recent times.
Access to better technology and resources
The access to recent technologies is one of the key requirements of the modern day business organisations and helps them not only in the process of production but at the same time helps them in other processes as well like promotion, marketing and others (Tate and Bals 2017, 106-113). The process of outsourcing provides precisely this opportunity to the business organisations through which they are being able to use the technological resources of the nation in which they are outsourcing (Tate and Bals 2017, 106-113). In addition to this, the business enterprises by outsourcing their business to the other nations of the world are at the same time able to use the labour resources of the concerned nation, the business market of the concerned nation and others (Kabiraj and Sinha 2016, 281-290). It is a reflection of these benefits that organisations like Tata Steel in the recent times have outsourced to advanced nations like the United Kingdom and others (Kabiraj and Sinha 2016, 281-290).
Better focus on core competencies
The concept of core competencies was first propounded by Prahalad and Hamel and is used to refer to the effective synchronization of the different resources as well as the competencies of an organization so that they are being able to get the best possible results (Aamer 2018, 1-18). The process of outsourcing by providing the option to the organizations to process out the relatively lesser important segments of their business to the other nations not only help them in the effective management of their organization but at the same time help them to effectively utilize the resources that they have at their disposal (Aamer 2018, 1-18). This is important from the perspective of the business organizations since it not only enhances their effectiveness but at the same time improves their efficiency as well. Therefore, it can be said that the process of outsourcing enables the diverse organizations to focus on the core competencies of their business in a much better as well as effective manner.
The process of contract management enables the various organisations to process out contracts to the organisations which in turn enhances the operational efficiency of the concerned organisation and at the same time reduces the amount of financial risks that it faces (Ouyang and Su 2016, 207-229). This is generally considered to be one of the major benefits of the process of outsourcing and the various business enterprises are increasingly taking the help of this particular concept to enhance the operational efficiency as well as effectiveness of the organisation and also to reduce or mitigate the financial risks that they face in a significant manner (Ouyang and Su 2016, 207-229). A pertinent use of this particular concept becomes apparent from the policy followed by the company KFC for the resolution of the delivery issues that they have been facing for some time and which is adversely affecting the prospects of the concerned organisation. It is a reflection of this particular fact that the concerned organisation contracted out the delivery of the food products offered by it to the German company DHL Express. Through the effective use of the delivery chain of the company DHL Express the company KFC intends to improve its delivery and thereby to not only improve its operational efficiency but at the same time to mitigate the financial risks which has been facing because of the ineffective delivery system used by it (BBC News 2018).
To conclude, the concept of outsourcing has emerged as one of the most important ones within the framework of the contemporary business world and also the benefits provided by the process are numerous. First of all there is the cost factor, then there are the technological, labour factors and others and it is the result of the benefits provided by the process which encourages the diverse organisations to take the help of this particular process. Furthermore, effective use of this particular process not only reduces the financial risks and other kind of risks faced by an organisation but at the same time enhances the efficiency of the management team of the concerned organisation as well. Therefore, it can be said that the emergence of the concept of outsourcing is currently acting as a boon for the various business enterprises and if used in an effective manner can contribute a significant value to the concerned business enterprise.
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