Advantages and Disadvantages of Outsourcing Business Functions: A Comprehensive Analysis

This comprehensive literature review delves into the advantages and disadvantages of outsourcing business functions. It explores the historical development of outsourcing, its impact on various industries, and the challenges associated with it. The review examines key factors such as cost savings, efficiency gains, access to specialized expertise, and potential risks like data security, communication barriers, and quality control issues. It also analyzes the influence of globalization and technological advancements on outsourcing trends. By providing a balanced perspective, this review aims to equip readers with a thorough understanding of the complexities and implications of outsourcing business functions.

ADVANTAGES AND DISADVANTAGES OF
OUTSOURCING BUSINESS FUNCTIONS

CONTENTS
INTRODUCTION................................................................................................................................2
PROJECT OBJECTIVE.........................................................................................................................2
PROJECT SCOPE................................................................................................................................2
LITERATURE REVIEW........................................................................................................................2
RESEARCH QUESTIONS....................................................................................................................6
RESEARCH DESIGN AND METHODOLOGY.......................................................................................6
RESEARCH LIMITATION....................................................................................................................7
TIME SCHEDULE...............................................................................................................................7
GANTT CHART..................................................................................................................................8
CONCLUSION...................................................................................................................................8
REFERENCES.....................................................................................................................................9
1

INTRODUCTION
Business outsourcing is the process of creating a business partnership with the third party to
provide service or product that is related to the business. The products that are outsourced are
the parts of the main products or related to parking of the products. The service that is
outsourced is related to research and development, logistics, supply chain management,
marketing, customer support and many more. This literature review is focused on advantages
and disadvantages of business process outsourcing. In this literature review material related to
business process outsourcing have been studied from different sources and presented. It helps
to gain a deep insight into the subject.
PROJECT OBJECTIVE
The objective of this project is to study the advantages and disadvantages related to business
process outsourcing in a global business environment. Study of businesses of a different sector
has been conducted in this assignment to understand the subject in detail.
PROJECT SCOPE
This project is helping to find the definition of business process outsourcing with its merits and
demerits. It highlights the importance of business process outsourcing with the challenges
related to it.
LITERATURE REVIEW
According to Andone and Pavaloaia (2010), business outsourcing defined as the process of
partnership with an external business agency for the accomplishment of the operational needs
of the business. Andone and Pavaloaia (2010) add that the need of business process
outsourcing is to the business because the business is unable to perform the desired business
objective in a profitable way; it imposes an extra operational cost on the business. According to
Rawling and Kaine (2012), the cost that is imposed on the business is due to cost of managing
2

the supply chain and material related to the outsourcing. It also because the management and
maintenance cost of outsourcing is very high and do not tend to provide any real profits to the
business.
Laycity et al. (2015) stated in his review that the outsourcing gained significant importance due
to the information technology growth and development in the recent time. The production and
manufacturing of complex electronics parts were not feasible for most of the companies
dealing with the information technology products. Along with this, the cost of production and
maintenance was very high and it required high value of accuracy. Outsourcing helped several
information technology companies to overcome this challenges and develop excellent products.
Hätönen and Eriksson (2009) mentioned that outsourcing played an important role in the
development of the automobile and other sectors. Outsourcing helped the company to save a
lot of time and money that would be required to invest in the development of products. It
enabled the companies to grow a rapidly because their focus shifted to product development
from the complex management that they need to execute before.
Massini and Miozzo (2012) added that the outsourcing helped the companies to get the best
products parts from the international market; this helped the source companies to grow their
operation and became successful as a multinational company. Some of the companies that
became very successful only implemented assemble of the products that they received from
the vendors across the world and then focused on selling and manufacturing of the products.
This improved the profits of the companies significantly and reduce the work hour time the
leadership of the company used to spend in management and quality inspection.
Sengupta and Dev (2013) added that the working environment of the companies improved due
to the business process outsourcing, which helped the employee. This improvement in the
organization culture provided the companies with more profits. This improvement in the
organization culture was due to business process outsourcing by the various companies in
countries like India.
Zhang and Huang (2012) said that the growth and development of business outsourcing gave an
opportunity for growth of entrepreneurship in China and other developing countries. It helped
3

the economy of the developing countries to grow and provide a platform for the sharing of
technology in the world. Zhang and Huang (2012) also added that the outsourcing did not only
made small business a part of international companies but also helped them to improve the
quality of products and services. This happened because the small business owners were
guided by the multinational business on improvement and development in their specialization.
This can be seen as the many businesses in China today follow international business practices
that were difficult for them to learn about the exposer of business outsourcing.
Hojnik and Rebernik (2012) said that outsourcing played a very dynamic role in the
development of research in sectors of mobile technology, automobile, space technology and
branded clothing and appreciates. Due to the outsourcing, it was easeful for companies to hire
a company which is very specific and accurate in certain technology or method. This company
which was hired was focused only on research and development of the part they were dealing
in. These lead to the implementation of advanced research and development in the growth of
new products. A major transformation in product development happed after outsourcing was
developed.
Mangan et al. (2016) said that that business outsourcing changed the approach to logistics
management and development. Due to business outsourcing companies were able to save a lot
of time and money with respect to logistics. The companies developed the products in the local
area with the help of outsourcing, form the materials that they get at lower cost from the local
market. This made the manufacturing of the products cheaper and risk related to logistics was
also managed due to outsourcing. It also helps in generating local jobs in different countries and
also provided multinational companies a scope in many emerging markets.
Chua et al. (2015) add that the main issue that is faced due to business outsourcing is related to
data protection of the company. Business outsourcing may result in theft or hacking of
important data of the company, which may result in a major loss to the company in terms of
money. This theft of data can cause the company to lose important information related to
research and development of the product. It may also be related to the leak of information
related to customers of the company.
4

Kotabe and Murray (2018) stated that an issue regarding communication and cultural
dissimilarities may also develop due to outsourcing. This cultural difference may become a
reason for poor business relation. It may also result in poor productivity and performance of
the business. The communication gap between the two parties may result in a loss of both the
business. This may occur due to poor understanding of commands or misunderstanding of
commands on both the sides, due to the difference in communication style. It may also happen
due to the difference in use of business terms in different countries. Kotabe and Murray (2018)
add that to improve this it is required to settle in terms of common business terms and official
language used between two parties. It is also important to keep the point of contact between
the two parties limited to one or two managers only.
Gummerus et al. (2016) add that in certain sectors, difficulties due to quality management can
occur. This is due to the fact that the products that are manufactured or assembled at the unit
of different parties may have poor regulation of quality. The multinational company cannot
constantly monitor the quality of the products. In large scale orders, the testing of the products
became expensive for the company and limits the profit scope. These difficulties in quality
control and testing have limited the development of outsourcing in pharmacy and other
quality-sensitive sectors.
Burnett (2016) said that there are many legal challenges that companies have to overcome to
achieve success in business outsourcing, These legal challenges arise because of difference in
legal aspects in countries and poor study of the legal ecosystem of the country. Lacity and
Willcocks (2017) add that these legal challenges may result in conflicts and damage the
business outsourcing process.
Gerbl et al. (2016) said that there are many political challenges that are also related to business
outsourcing. Wiengarten et al. (2016) said that there are risks associated with business
outsourcing and it needs to be managed effectively. Brindley (2017) added that with the use of
proper methods and techniques the risk in the supply chain in outsourcing can be controlled.
Chou et al. (2015) said that in outsourcing the relations between both the parties play a
significant role, and it is important that both the parties maintain trust between each other.
5

Wuyts et al. (2015) said that the business outsourcing has helped the companies to improve
and also helped the companies to provide better customer support.
RESEARCH QUESTIONS
The Primary and secondary research questions that are related to this project are as follows:
Primary Research Question:
 To find advantages and disadvantages of business process outsourcing
Secondary Research Questions:
 To provide an effective definition of business process outsourcing.
 To highlight the significance of business process outsourcing
 To understand the advantages of business process outsourcing
 To understand the disadvantages of business process outsourcing
 To understand the impacts of outsourcing on business
RESEARCH DESIGN AND METHODOLOGY
Research design and methodology will explain the type of research conducted for this project.
The research that is conducted for this project is qualitative research, the research was
conducted in the following way, and I collected total fifty resources related to business
outsourcing, this included journal, magazines and books that were related to this topic. Went
through the journals by reading the abstract of the topics and found the important journal that
provided maximum information about the topic. I also went through the recent articles to find
the recent trends in this topic. From the filtered twenty journals I did meta-analysis to draw my
conclusions. I than studied the conclusions to write the literature review related to the topic
business outsourcing. In this I include the important topics that help to identify the key aspects
that are linked with it. I also explored the development of business outsourcing and the
challenge it face due to macro environment conditions. During the process of research I went
6

through the literature book that is related to this topic and also included the conclusion that I
found important in the literature review.
RESEARCH LIMITATION
While conducting the research the limitation was related to the collection of accurate data
regarding the subject. The other limitation that can in the research was related to the
quantification of the impact of various factors that were attached to the subject. The other
limitation that the research faced was the absence of results of implantation of mordent
methods related to the subject.
TIME SCHEDULE
The time schedule that was followed to accomplish this project was as follows:
ACTIVITY ACTION TIME
1 Planning related to
research
1 week
2 Research execution 2 week
3 Information and data
collection
2 week
4 Information and data
evaluation
3 week
5 Presenting conclusion
and recommendation
2 week
7

GANTT CHART
The Gantt chart will show the schedule of the project, graphically. It is divided into two parts
which show the activity that is required to execute and the second part shows the time that is
allotted to the activity. This project was developed in ten weeks and divided into five activities.
This Gantt chart shows the project activates and the scheduled activity that is provided to it.
Activity Action Time
1 2 3 4 5 6 7 8 9 10
1 Planning
2 Research
Execution
3 Information
and data
collection
4 Information
and data
evaluation
5 Presentation
of research
CONCLUSION
This project helps us to identify the scope of business outscoring in the global business
environment. It also highlights the advantages of outsourcing related to internal and external
factors that the organization faces. This project also helps to perceive the disadvantages of
business outsourcing. It also explains the impact of outsourcing on the profit, logistic,
management and business environment of the company that executes it. The knowledge
gained in this report is very useful in detail understanding of the subject. It will also help in
8

career development and enhancement. This report can also be used as a reference material for
the business related to business outsourcing.
REFERENCES
1. Andone, I.I., and Pavaloaia, V.D.W., 2010. Outsourcing the business services. Informatica
Economica, 14(1), p.163.
2. Rawling, M.J., and Kaine, S.J., 2012. Regulating supply chains to provide a safe rate for
road transport workers. Australian Journal of Labour Law.
3. Lacity, M.C., Solomon, S., Yan, A. and Willcocks, L.P., 2015. Business process outsourcing
studies: a critical review and research directions. In Formulating Research Methods for
Information Systems (pp. 169-251). Palgrave Macmillan, London.
4. Johns, J., Buckley, P., Camping, L., Cook, G., Hess, M. and Sinkovics, R.R., 2015.
Geography and history matter: International business and economic geography
perspectives on the spatial and historical development of multinational enterprises. In
The Rise of Multinationals from Emerging Economies (pp. 51-80). Palgrave Macmillan,
London.
5. Hätönen, J. and Eriksson, T., 2009. 30+ years of research and practice of outsourcing–
Exploring the past and anticipating the future. Journal of International Management,
15(2),pp.142-155.
6. Massini, S. and Miozzo, M., 2012. Outsourcing and offshoring of business services:
challenges to theory, management, and geography of innovation. Regional
Studies, 46(9),pp.1219-1242.
7. Zhang, A. and Huang, G.Q., 2012. Impacts of business environment change on global
manufacturing outsourcing in China. Supply Chain Management: An International
Journal, 17(2), pp.138-151.
8. Sengupta, S. and Dev, S., 2013. What makes employees stay? Exploring the dimensions
in the context of urban-centric business process outsourcing industry in India. Strategic
Outsourcing: An International Journal, 6(3), pp.258-276.
9

9. Hojnik, B.B. and Rebernik, M., 2012. OUTSOURCING OF R&D AND INNOVATION
ACTIVITIES IN SMEs: EVIDENCE FROM SLOVENIA. Economic Review: Journal of
Economics & Business/Ekonomska Revija: Casopis za Ekonomiju I Biznis, 10(2).
10. Mangan, J., Lalwani, C. and Lalwani, C.L., 2016. Global logistics and supply chain
management. John Wiley & Sons.
11. Chua, X.Y., Yip, Y.Y., Huang, B.Y., Lo, K. and Foe, A., 2015. Port agency: insourcing vs
outsourcing.
12. Kotabe, M. and Murray, J.Y., 2018. Global Sourcing Strategy: An Evolution in Global
Production and Sourcing Rationalization. In Advances in Global Marketing (pp. 365-384).
Springer, Cham.
13. Gummerus, A., Airaksinen, M., Bengtström, M., and Juppo, A., 2016. Values and
Disadvantages of Outsourcing the Regulatory Affairs Tasks in the Pharmaceutical
Industry in EU Countries. Pharmaceut Reg Affairs, 5(161), p.2.
14. Burnett, R., 2016. Outsourcing IT-the legal aspects: Planning, contracting, managing and
the law. Routledge.
15. Lacity, M. and Willcocks, L., 2017. Conflict resolution in business services outsourcing
relationships. The Journal of Strategic Information Systems, 26(2), pp.80-100.
16. Knoke, D., 2018. Changing organizations: Business networks in the new political
economy.Routledge.
17. Gerbil, M., McIvor, R., and Humphreys, P., 2016. Making the business process
outsourcing decision: why distance matters. International Journal of Operations &
Production Management, 36(9), pp.1037-1064.
18. Weingarten, F., Humphreys, P., Gimenez, C. and McIvor, R., 2016. Risk, risk management
practices, and the success of supply chain integration. International Journal of
Production Economics, 171, pp.361-370.
19. Brindley, C. ed., 2017. Supply chain risk. Taylor & Francis.
20. Chou, S.W., Techatassanasoontorn, A.A. and Hung, I.H., 2015. Understanding
commitment to business process outsourcing relationships. Information &
Management, 52(1), pp.30-43.
10

21. Wuyts, S., Rindfleisch, A. and Citrin, A., 2015. Outsourcing customer support: The role of
provider customer focus. Journal of Operations Management, 35, pp.40-55.
11