Outsourcing is the business routine with regards to contracting a party outside an organization to perform benefits and make products that usually were performed in-house by the organization’s own particular workers and staff (“Outsourcing”, n.d.). Typically outsourcing done as a cost-cutting measure, it can influence occupations extending from client support to assembling to the back office. For example, a manufacturer of a mobile phone may purchase internal modular for its products from different organizations. Through the process, it saves money on production costs and eliminates the costs of manufacturing and hiring labor. In the same way, the mobile phone organization accessed to others’ skills and technologies, it makes the products have a better performance and also quality is enhanced.
Outsourcing was first perceived as a business approach in 1989 and turned into an essential piece of business financial matters all through the 1990s (Dorwin, Gonzales, Gupta, Kalyan, & Schimler, n.d.). The act of outsourcing is liable to extensive discussion in numerous nations. Those restricted contend it has caused the loss of domestic employment, especially in the manufacturing area. This situation occurred due to most of the people have stereotyped the local and overseas products and services, they recognize the things produced from overseas will perform better than locally produced. For example, usually, we will compare the products which made in Malaysia and America and consider that the quality of the products produced in America is better than Malaysia due to the advancement of technology of the country. Therefore, it stimulates the marketers more tends to outsource in order to gain a good reputation and customer confidence. At last, it leads to local manufacturing firms knocked out in the competition.
However, in the perspectives of outsourcing supporters, outsourcing makes a motivation for organizations and organizations to allocate assets where they are best, and that outsourcing keeps up the idea of free market economies on a worldwide scale (“Outsourcing”, n.d.). It means that the benefits of outsourcing are attractive to organization and organization can maximize the value of their investment in the particular area. Also, outsourcing allows an organization to freely outsource their value-added activities to other parties around the world with no or fewer restrictions.
2. (a) Literature Review
Outsourcing and Offshoring definition & principle
According to Monczka et al. (2005), outsourcing is a make-or-buy decision of an organization to purchase some items from other organizations in order to complete their final goods or services. Besides, Monczka et al. (2005), Benito, Dovgan, Petersen and Welch (2013) mentioned that outsourcing is an organization approach to do the work by delegate part of the specific internal activities in the value chain to other organizations.
In the other hand, when the outsourcing capability is situated external to the major company’s nation that is known as offshoring. According to Deloitte Consulting (2008); Manning (2008); Massini and Miozzo (2010); Pyndt and Pedersen (2006); Wallin (2014) also mentioned that, offshoring refers to a local organization obtains a service, process, function and other activities which regarding to value-adding from the independent external organizations which from a different geography while ongoing to trade its production into the home market (Contractor et al., 2010; Manning, 2008; Pyndt and Pedersen, 2006). In addition, Feenstra (2017) defined that offshoring is the measurability of the costing task of importing intermediate inputs.
The difference between the outsourcing and offshoring is outsourcing activities practice in the domestic country while offshoring is involving the foreign country. Both prove by Feenstra and Hanson (1996), outsourcing is local organization import other organization produced products, while, offshoring is an organization contract to foreigners for the activities of non-skill-intensive production.
As Bartell (1998) told us, offshoring and outsourcing have a relationship of cooperation. In the past, organizations considered that offshoring and outsourcing are just to advance the performance rapidly and decrease the operating costs. However, in the present, organizations utilize the strategic and the transformational outsourcing to find improved in business focus, low down the risks, establish the sustainable competitive advantage, lengthen technical capabilities and also obtain the free resources for core business purpose.
Importance of outsourcing and offshoring towards company operations
Companies are identifying that the growing complexity of products and services today require multiple broad of knowledge inputs, diverse outside the scope of the company’s internal capability. So these inputs can only be accessed by contract, or by the partnership (Alcacer and Chung, 2002), or from foreign knowledge clusters (Cantwell and Mudambi, 2005). The competition in various sectors has compelled to achieve the low costs (Dossani and Kenney, 2007). Therefore, according to Metters (2008); Stringfellow, Teagarden & Nie (2008), offshoring able to lower the production cost in manufacturing remains true for the services. Offshoring helps an organization to gain a competitive advantage by providing access to low production costs. Not to forget, outsourcing is able to overcome a lack of high-level human resources as Benito, Dovgan, Petersen, and Welch (2013) said. Therefore, when an organization has a lack of knowledge and skills internally, organizations may use outsourcing to outsource an expertise outside the organization
Outsourcing allows companies to utilize global assets effectively and efficiently by using the best training of industry to highlight their value chain, enter and create a new and potential market (Farrell, 2004; Ghodeswar & Vaidyanathan, 2008). According to Contractor et al. (2010); Quinn and Hilmer (1995), outsourcing and offshoring enable the organizations to achieve a better more consistent functions performance than their competitors. Also, it improves the activities in the market, technology or even the competition development at a same time. Let IT outsourcing be an example of design modularity of business services, with the helping of outsiders, outsourcing allow them in enjoy economies of scale, efficient in production and new technologies are learned (Massini & Miozzo, 2010).
The disintegration of the value chain and the result specification of cooperation agreements in the network theory line (Johnson & Mattson, 1988) provides the companies to concentrate on their core capabilities and company flexibility (Kedia & Mukherjee, 2009). Organizations can earn more specialized knowledge and skill with location-specific resourcing and specialization benefits by running the offshoring R&D activities to other countries. Concentrating offshoring R&D activities can generate benefits such as economic scale (Henderson & Cockburn, 1996), accessibility of geographical and organizational (Dankbaar, 2007) and exchange the knowledge more effectively (Cummings, 2003; Nieto & Rodriguez, 2011; Tallman, 2011).
Outsourcing also helps the host organizations to establish a long-term platform capable of evolution to maintain pace with the appearing markets dynamics. It will allow host organizations to purchase the technology from a supplier that would have been intensive financially when many companies more focus on building skills in the narrow areas that they currently capable (Contractor et al., 2010; Ghodeswar & Vaidyanathan, 2008; Lankford and Parsa, 1999). With changing market dynamics, outsourcing allows these companies aware to set up the allocating skills so the unique sources of leverage in the value chain can be established to lead to the greater profitability in high competitive markets.
While offshoring of R&D enables companies to have a chance to gain access to higher skilled engineering and analytical capable when these resources may be hard to look for among their national borders (Lewin, 2009). Offshore sourcing may show the gaining or increasing the inputs necessary for innovation (Couto, 2007; Nieto, & Rodriguez, 2011). Companies can obtain advantages by gaining access to important inputs such as multiple sources of information (Paju, 2007), new skill and knowledge (Maskell, 2007) and high qualified staff (Kedia & Mukherjee, 2009).
The role of outsourcing and offshoring as critical success factor
Outsourcing can reinforce companies to use global assets effectively and efficiently by utilizing the industry best exercises in improving their value chain and enter and create new markets (Farrell, 2004). Knowledge transfer plays an important role in R&D offshoring. Outsourcing R&D activities abroad provide a lot of risks, basic among them being incomplete contracts and specifications, and the danger that organizations will not even be able to judge whether suppliers are fulfilling contracts (Ellram, 2008; Lai, Riezman, & Wang, 2009).
The R&D activities may intensive the problems that outcome from uncertainty, misspecification, and lack of control and at the same time potential trap of information leakage happened with the effect risk of making companies’ exclusive strategic knowledge widely available to the market, and corroding their competitive advantages (Pisano, 1990). Thus, the knowledge transfer from the company to the outsourced vendor may enable the recent with valuable information, which it can then use to become a future competitor (Pisano, Russo, ; Teece, 1988). The captive R;D offshoring may establish companies the benefits of the destination country, but with fewer of the certain issues and risks related to knowledge transfer and loss of competitiveness that come with outsourcing these activities abroad.
The factors that contribute to outsourcing and offshoring
Offshoring service is nowadays popular use by many organizations. Although the cost-savings from the offshoring service work show very clearly, however, it also brings certain ‘invisible costs’ (Stringfellow, Teagarden ; Nie, 2008). For instance, the cost, time and effort devoted to those recruiting and training programs are must be going on, cannot be avoided. They also mention that the invisible costs such as alienate customer loss and attracting new customer cost are always not often considered in the decision to offshore. As Benito, Dovgan, Petersen, and Welch said in the year 2013 (as cited in Carson, 2007) organization has an increment in new product development outsources to the outside organization, it is due to outsourcing enables an organization to decrease costs of development, shorten market entry time, advance flexibility and also obtain access to outside organizations’ specialized products or services. Also, the increase of manufacturing offshoring has also been significantly enabled by decreases in transportation costs and advances in transportation logistics (Trefler, 2005).
The improvement in the comparative advantage of a specialized service is the main reason for outsourcing grows. The use of flexible staffing arrangements needs to accommodate fluctuations in workload or lack of staff. It can help companies to collect and sell information about the quality of workers to the market, and skills training plays a key role in mediating such information temporarily. Moreover, it also helps companies to provide a package of training for potential employees and initially lower their wages to achieve self-selection. The workers with high visibility can get training to achieve higher wages. In contrast, the low capacity workers are hindered by limited expected returns. The outsourcing will become more attractive when the technologies of the firm and the economy converge (Bartel, Lach & Sicherman, 2015).
The advancement of technology improves the outsourcing as the firms can avoid the sunk costs of adopting new technologies as they use the services based on leading-edge technology. Besides, more IT-intensive technologies are being used by firms nowadays because it has lower costs of generating a positive correlation between the IT level of the user and its outsourcing share of IT-based services (Bartel, Lach & Sicherman, 2015).
Furthermore, there will also incur some additional expenses when due to the infrastructure issue (Stringfellow, Teagarden & Nie, 2008). The organization will suffer some extra expenses when they offshored their operations. According to Cronin, Catchpowle & Hall (2004), it had mentioned that the transition can also incur costs to the organization. For instance, the power blackouts and telecommunications weaknesses may also interrupt operations of the organization, and it will cause to lowering the organization’s productivity.
Relevancy of outsourcing and offshoring in global competiveness
With the strengthening in communication infrastructure and major reduction of cost in global telecommunication, offshoring and outsourcing have achieved new heights (Blinder, 2006; Levy, 2005). According to (Demirbag and Glaiser, 2010), companies can earn the reputation and justifiability with the customers, opinion maker, and government by locating an essential function in an important foreign market. Some companies are forced to replace technical operations and R;D abroad due to lack of knowledge in engineering ability (McKinsey Global Institute, 2009). Besides, companies will more willing to disintegrate some safer and discrete portions of their R;D and distribute those pieces to contract vendors at home and abroad because of the competitive need to shorten the commercialization times. For example, in pharmaceutical R;D, vital organizational secrets are retained internally, while in the clinical trial section is being offshored and outsourced (Azoulay, 2004; Cockburn, 2004).
Outsourcing rises the flexibility to react to altering market situations. According to Massini and Miozzo (2010), outsourcing benefits German corporations by growing their flexibility to respond to changing market conditions. This is because outsourcing may involve diverse in employees. Employees diversification may lead to the organizational ideas will not be rigid by their local employees due to the like-minded. In the same way, creative and innovative ideas from the foreign employees will be gained. The advantages provided by the foreign employees give German companies to experience more flexibility in idea generation and changes in the market.
With outsourcing, the more drawn out, further and more far-reaching an organization’s worldwide contribution the more generous the universal experience base which an organization can work from in building up the outsourcing action (Benito, Dovgan, Petersen, & Welch, 2013). It expresses that, the more the organization outsourcing’s experiences, will provide the organization with a more stable and strengthen the ability to launch the organization into the international business.
The factors influence to outsourcing and offshoring
Youngdahl, Ramaswamy ; Verma (2008) indicated that the central challenges of call centres’ operations involved three components which are direct communication with consumers, managing cultural differences and service quality dimensions. The cross-cultural communications may lead to misunderstandings and create difficulty for workers from high context culture with the customers (Metters, 2008; Stringfellow, Teagarden & Nie, 2008; Youngdahl, Ramaswamy & Dash, 2010). Based on Cronin, Catchpowle and Hall (2004); Metters (2008); Stringfellow, Teagarden & Nie (2008), they mention that the cultural and language barriers between customers, domestic or offshored employees will affect the quality of interaction.
In addition, based on Pornpitakpan (2000); Stringfellow, Teagarden & Nie (2008) mention that directness in speech may be perceived as rudeness in Asia country, but maybe prized in the country such as the United States. According to Metters (2008); Stringfellow, Teagarden & Nie (2008), they indicated that the physical geographic distance influenced the outsourcing between members of service teams. The bigger the distance, the bigger the effect on interaction distance. Besides that, other than the distance issue, the crossing of national will also create a greater issue for the outsourcing team. The exchange rate risk also exists on the ongoing the outsourcing process (Metters, 2008). As Benito, Dovgan, Peterson and Welch (2013); Hatönen & Eriksson (2009), the decision of an organization offshore outsourcing location decisions may be less susceptible to mental distance logic because outsourcing locations affect the factor endowments of countries and their cost implications.
Besides, the customers who are rarely used in foreign accents would judge the service quality before enjoying the services (Stringfellow, Teagarden & Nie, 2008). Based on Youngdahl, Ramaswamy & Dash (2010), they had stated that both process and contact centres may present communication difficulties for customers. According to (Metters, 2008), they stated that customers may hate all offshoring because of the racial element.
2. (b) Cases
Microsoft is a universal leader in software, services and solutions, which offices exist in more than 100 countries and its revenue overtaking $62 billion in 2010. It provided the “OneFinance” initiative to access the current state of Microsoft’s global finance operations, benchmarked the organization, and determined the challenges in this operation management.
“OneFinance” is supported by the outsourcing partnership in operation represents the progress of establishing practices in outsourcing from diverse dimensions, there is the implementation of an overall outsourcing governance structure, management changing and undertaking to progress to the outsourcing transformation. Microsoft also inserted two innovative tools which are the Controller Workspace and the Government Workspace for the outsourcing arrangement in the management.
These tools have ensured the acceptance to a win-win relationship that has caused the Microsoft-Accenture partnership to the successes that received the top of industry outsourcing awards from the Outsourcing Center, Shared Services ; Outsourcing Network, and the International Association of Outsourcing Professionals. Under their partnership, which perfectly reflects the Vested Outsourcing Five Rules (George, 2011).
Google is a saving outsourcer of software services work that had introduced Indian IT to increase cost-efficient customers to their roster. Google had displayed its outsourcing strategy and started process more business to companies such as US-based Cognizant, which consists of the most of its employees in India while other multinational corporation such as IBM ; Accenture. Google has distributed some software maintenance and development terms to third-party technology vendors such as Genpact and Infosys.
However, Google’s strategy on outsourcing has changed by increasing to set up to outsource non-core parts of its business such as IT infrastructure management, software development and maintenance to IT services organizations. It shifts the strategy that would obtain good news for a top administrator at local software exporters such as TCS and Infosys, who will admire to make representation more outsourcing business from a company that broadly perceived as a broad-scale customer. Indian IT companies also currently operate some IT terms for Google such as Infosys (Sen, 2016).
International Business Machines Corporation (IBM)
There are also have some outsourcing failure stories can indicate that outsourcing is not always brought the positive impact to the company, it also will bring the company into some mega problem. The best-known outsourcing disaster story, International Business Machines Corporation (IBM) failed to help Queensland build a Health Payroll System (Garland, 2015).
In December 2007, IBM had won a contract to help Queensland Health Department to build a new payroll application for the using Systems Applications and Products (SAP) software. Based on Garland (2015), IBM intended to finish the project by mid-2008 for the AUS$6 million. Shortly after the project start, IBM realized that they faced innumerable and unexpected technical challenges and declared to Queensland that the project would cost $27 million. At the end of the project, the project’s cost had shot up to AUS$1.2 billion (about $1.09 billion), 200% above the projected cost. Queensland banned IBM and sued IBM to recover back its losses.
According to Bort (2013), things happened here, the system needs to take more time and effort to build. Also, this project had dragged on and delayed for a long time even several years, and the payroll platform had never functioned thoroughly and properly. Furthermore, they had assigned over 1,000 workers to work on it, the worse thing is some are failed to receive their salary, some has overpaid the wrong amount. Therefore, the costs are kept increase and increase.
Apart from that, according to Bort (2013), Queensland has declared a 258-page report, which is from the Queensland Health Payroll System Commission of Inquiry. Form the report, it had stated that IBM employees used immoral tactics to gain beneficial consideration to other contenders. Furthermore, some of IBM staff performed unethically during the bidding process. Besides, the government employees did a poor quality job of managing the project, which kept it in uncertainty for years.
3. Issues or Challenges Identification and Explanation
Outsourcing Company May Lack of Required Skills and Experience
Although outsourcing and offshoring is a good method to highlight the companies’ value chain, enter and create a new and potential market (Farrell, 2004) which may help the organizations to achieve a better and more consistent functions performance than their competitors, the outsourcing partnership may actually lack of required skills, technical and experiences that the companies needed. This may lead to worse functions performance that will affect the companies.
According to the TPI’s Governance Benchmark database, there are 60% of staff assigned to the governance organization have no prior outsourcing experience (McCray, 2016). This condition will cause a big problem for the companies as an inexperienced staff may lead to quality or delay problems. As a result, it will increase the cost for the company to save the problems or affect the image and reputation of the companies.
For example, International Business Machines Corporation (IBM) only realized they faced innumerable and unexpected technical challenges in the contract with Queensland Health Department. They need to take more time and effort to complete the project of Queensland Health Department which had increased 200% of the projected cost and dragged the work for several years. They also did not manage the workers’ salary properly which cause the project in a mess and the costs keep increasing.
In conclusion, we can see that a skilled and experienced outsourcing partnership is indeed as to ensure the companies performing better and succeed to enter and create a new and potential market. If the companies accidentally corporate with an outsourcing partnership which is lack of skill, technical or experience, it may lead to critical consequences.
Security or Confidentiality Issue
Outsourcing and offshoring also may lead to security or confidentiality issue as the partnership has the chance to access the proprietary and confidential information or data of the business for the project purpose.
When the companies corporate with the outsourcing and offshoring partnership, some of the confidential information and data have to be revealed to the partnership in order to have a better understanding of what the company’s requests such as formulas of products or secret materials of products. If the outsourcing partnership leaks the information to the public, it will bring a critical loss to the company.
For example, “OneFinance” initiative is supported by the outsourcing partnership of Microsoft and one of its function is to determine the challenges in the operation management which can get more confidentiality information and data about the company such as the problems facing by the company or quality problems of Microsoft. If “OneFinance” leaks some of these information or data to the public, this will become a disaster for Microsoft. The public may refuse to continue to invest in Microsoft that may lead to a shortage of capital and affect the image of Microsoft. The competitors also can take this chance to attack Microsoft and occupy the market.
Moreover, the company will suffer a financial loss when the significant information had been accessed unauthorized and stolen. The hacker may steal the bank information of the company in order to get the money or he will steal the important information and sell them to its competitors to earn superior incentives.
Hidden costs arise
Even though the outsourcing and offshoring commonly achieve low cost, but it may also create hidden costs. The cost, time and effort devoted to those recruiting and training programs are must be going on, cannot be avoided (Stringfellow, Teagarden ; Nie, 2008). A company can save its cost by offering the jobs with lower salaries to the offshored employees but it might spend more on providing the trainings and time to supervise them. This may lead to the cost differential occurred.
Moreover, the most of the manufacturers like to build their manufacturing factories in a low-cost and efficient country such as China (Bajpai, n.d.). There are cheap labor costs and low material costs lead to the reduction of the overall production costs. The products may be cheaper to produce abroad but the cost of shipping them may not be as cheap. The length of distances and volumes of products carried will increase the shipping cost. So, by using the offshore, the manufacturer must ensure that the cost saved can cover the cost incurred to avoid losses.
Then, there is a lack of control and information leakage happened in the overseas (Pisano, 1990). Hence, the quality control in a manufacturing firm is difficult in the overseas to ensure the products meet with company standards. When the products produced in overseas, it would be hard to keep an eye on the overall production even there are guidelines provided. If the products failed to reach the quality level, then the manufacturing firm has to bear the loss and the reputation may be affected. This can increase the material costs as it needs to reproduce the products again and it might be suffered from losing its customers.
According to Cronin, Catchpowle and Hall (2004); Metters (2008); Stringfellow, Teagarden ; Nie (2008), the cultural and language barriers between customers, domestic or offshored employees will affect the quality of interaction. If they fail to communicate well, it may create misunderstanding with each other or even having a conflict. The productivity and quantity of productions will decrease as they could not deliver the information accurately and effectively. For example, the production manager in China received the order from France, if he could not understand the contents of the order, then he may fail to fulfill all the criteria from his customer. Management teams will have slow management process and ineffective decision making. So there are a lot of costs such as low production incurred by the firms.
Microsoft has tried to sustain and keep improving in outsourcing to maintain and achieve their operations’ effectiveness and efficiency by the vested outsourcing rules (Vitasek, 2010). First, Microsoft focus on the results no in transactions by shifting to a result based on business model and develop it aimed at contracting for results while depending on the service supplier to determine the best way to achieve those results by optimizing the resources, enhancing service to employees and reactivity to the partners, empowering sourcing strategy worldwide and at the same time setting up an energetic controls environment.
Next, Microsoft has focused on what needed to be done, while evacuating how to its partner. Microsoft shifted away from a particular Statement of Work and instead created a classification for understanding roles and standard processes. Accenture’s was understandable to drive impressive improvements and process efficiencies.
Microsoft also set up a governance structure that gives insight, not an oversight to improve in outsourcing arrangement. Gaining the business model and agreement right with a successful outsourcing relationship is as good as the governance that follows the signing ritual especially in a vested partnership by balancing regional execution needs and corporate needs to expel the transformation. Microsoft and Accenture also cultivated decision making, timely issue resolution at the lowest possible levels, and expel agreement on executing changes in their transformation activities by investing in a “two in a Box” peer-to-peer governance structure. The peer-to-peer relationships led to valuable in keeping the companies stayed in adjustment (Vitasek, 2012).
Google start to focus on designing websites mobile-friendly to distinguish an optimal user experience. So, Google introduces a new model of creating mobile applications that known as Progressive Web Apps (PWA) as a software outsourcing which mixing two worlds, web and mobile that promises to give the benefit of both (Bilicki, 2017).
According to the Alex Russell, the lead software engineer for the projects, these applications are really web apps which simulate with mobile apps that provide fast loan times and revoke numerous steps that are required to access a certain service, feature, or information within a website. PWAs have many qualities that similar to the native apps but it has more benefit over native apps. Basically, PWAs combine the benefits of native apps that provide more responsive, mobile-optimized websites (Hey, 2017).
With PWAs, it can help to analyze the user behaviour and preferences even though they are offline status by providing a personalized experience that similar happened in mobile apps. Once a PWA is published online, you can easily link and deploy it to a host that supports HTTPS. Even the user is online or offline status, the apps will continue to work by sending the confirmation or offers to the applicant the cached data (Jolly, 2017).
For example, PWAs achieve outstanding that had utilized by Alibaba, AliExpress, Lancome and Flipkart increase the conversation rate much higher than other sources and grow up the number of active users (Lee, 2017).
International Business Machines Corporation (IBM)
International Business Machines Corporation (IBM) must do more research before outsource to other company. According to Zarah (2018), she mentions that research helps the company to protect a vantage point over its competitors. IBM can find out the way to differentiate themselves from others competitor that offer similar product and services to increase the IBM’s market value. Furthermore, IBM can do research to having more knowledge and information of the client in achieving the good commercial image (Zarah, 2018). Based on Kazim (n.d.), by doing research, the company are able to understand their customer better. IBM through the research can able to know and understand the requirement that the client wants. Then, they are able to perform what their client needs and achieve the client’s requirement. Besides that, through doing research, IBM can gain their competitive advantage by doing improvement to upgrade themselves. They can improve their weaknesses, such as the management team to perform quality work. Hence they are able to compete with their competitor and sustain in the market.
Besides that, IBM can reorganize their management team to improve the cost management. They should hire the right person in their management team. This can help to solve the problem of underpaid and overpaid the salary to workers. Furthermore, they know their employee personality before hiring them. Based on Zimmer (2018), the role and industry of important personality will vary the complements an organization. IBM must make sure the employees they employed personality and background are fully declared. The performance quality and employee’s attitude would definitely affect the business reputation. Furthermore, IBM can provide training program for their employee to acquire and enhance skills which is needed. Employee attend to the training program, will able to acquire new skills, then, increasing their contribution to the organization (“Benefits of training your staff”, n.d.). Also, they are suggested to recruit the employee who is full responsibility and trustworthiness, to help the organization improve their performance and increase the organization reputation.
In the literature review, it includes outsourcing and offshoring definition and principle, importance of outsourcing and offshoring towards company operations, relevancy of outsourcing and offshoring in global competitiveness, the role of outsourcing and offshoring as the critical success factor, the factors influence outsourcing and offshoring, and the factors that contribute to outsourcing and offshoring. In outsourcing and offshoring definition and principle part, there consists of the explanation about the term “outsourcing” and “offshoring” from different journalist for example Benito, Dovgan, Petersen and Welch. Also, the difference between outsourcing and offshoring also included. More, outsourcing used to decrease production costs, to have better performance of merchandises, and prove flexibility to the organizations are the importance of outsourcing and offshoring towards company operations. Then, the section of relevancy of outsourcing and offshoring in global competitiveness expresses about how the outsourcing helps the organization gain reputation, increase the flexibility of the organization to respond to market changes and enable the organization to be introduced into international operations. The part about the role of outsourcing and offshoring as the critical success factor is regarding to outsourcing can reinforce companies to use global assets effectively and efficiently and the importance of knowledge transfer from the company to the outsourced vendor. Moreover, cross-cultural communications, physical geographic distance and judgement from customers are the factors influence outsourcing and offshoring. Lastly, the factors that contribute to outsourcing and offshoring are cost-savings from the offshoring, improvement in the comparative advantage of specialized service, advancement of technology and extra expenses due to infrastructure issue.
There are many organizations are generally using the outsourcing in their operation. Today, “OneFinance” had planned to outsource in 96 countries the financial transactions to Accenture by adding value for both parties. Also, with using outsourcing in the operation, Google are able to help the companies to save operating costs by outsourcing their IT infrastructure and services. However, there are some organization having some problem with using outsourcing. The well-known outsourcing disaster story, International Business Machines Corporation (IBM) failed to help Queensland build a Health Payroll System. One year later, they had banned and sued by Queensland due to their project’s cost are keep increased. This bad history, had reduced the reputation of the IBM.
Outsourcing faces challenges when implemented. One of the challenges is lack of required skills and experience. In the cases, we can see that a skilled and experienced outsourcing partnership is indeed as to ensure the companies performing better and succeed to enter and create a new and potential market. If the companies accidentally corporate with an outsourcing partnership which is lack of skill, technical or experience, it may lead to critical consequences. In addition, the second challenge is security or confidentiality issue. In order to ensure the companies’ data is protected, it is significant to evaluate an outsourcing company carefully by signing a nondisclosure agreement (Bucki, 2018). If not, this will be a big crisis for the companies. Last but not least, arise of hidden costs. The company has to evaluate and do researches before building the manufacturing factory in overseas as there are hidden costs occurred and it may lead to huge losses if the revenue could not cover the expenses.
In a nutshell, Microsoft and Accenture continue to present innovative new tools to obtain more benefits from the engagement when a governance structure had provided plans for advancing the improvement. Furthermore, Progressive Web Apps is the future development web which will transfer from native app to PWAs. Thus, many developers would be active to make most of the opportunities that given by PWAs. In order to solve IBM problem, they must do more research before they outsource to others, to avoid the needlessly issue happen. Also, they are suggested to provide training program and recruit the employee who is responsibility and trustworthiness, to help the organization improve their performance and increase the organization reputation.
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