The benefits and risks of offshoring and outsourcing

RESEARCH PROJECT

TITLE: “The benefits and the risks of offshoring and outsourcing”.
CHAPTER 1: INTRODUCTION
1.1 Overview of Research
Offshoring is explained to acquiring the services or products from other country. It is
related to getting the work done in various countries mainly to leverage the cost advantages.
This is relocation of process of business from one country to other generally an operational
process like accounting, manufacturing etc. Under this, moving of the different operations of
firm to another for reasons like low labour costs and favourable economic situations in other
country. It is related to practice of placing the some of services of company abroad (Capasso,
Cusmano and Morrison, 2013). On the other hand, outsourcing is related to receiving the certain
products or services from third party firm necessary sourcing something like the manufacturing
and accounting services of certain input to other organisation. It is kind of the business practice
under which firm hire the other company or a person to perform activities, handle business
operations and give the effective services. In this present time, organisations can outsource the
number of services or tasks. They mainly outsource the services related to information
technology consisting application development and programming. The outsourcing is a kind of
agreement under which one organisation hire the other responsible firm for existing or planned
activity that could be done internally and also include the transferring staff members from one
company to other.
1.2 Background of Research
The outsourcing occurs when the business pays outside supplier to offer services and
products rather than doing work-in- house. Under this, sometimes firm experience the growth at
rate that can not support with its internal staff. In order to keep up pace, there is a need to
company to hire pre- trained workforce from third party organisation, deploy as required and
where need in the operations without any kind of interrupting in business flow (Fariñas, López
and Martín-Marcos, 2014). ALDI is common brand of the two German family that owned the
discount supermarket chains with more than 10000 stores in around 20 countries. On the other
hand, Aldi's German operations include Aldi Nord's 35 individual regional organisations with
almost 2500 stores in western, eastern and northern Germany.
1

1.3 Rationale of Research
Present report is based on advantages and risks of outsourcing and offshoring. Through
conducting this investigation, understanding of learner will be enhanced and it will able to be
conduct any kind of reserach in future. This research is helpful for a learner to enhance its skills,
knowledge or core competencies in an effective manner. The other reason of a learner behind
conducting this investigation is self- interest.
1.4 Research Aim
The aim of this research is “To identify the benefits and risks of offshoring and
outsourcing on operations management of an multinational organization . A study on ALDI”.
1.5 Research objective
Objectives:
 To determine the concept of offshoring and outsourcing.
 To analyse the benefits and risks of offshoring and outsourcing for ALDI
 To identify the ways through which risk of offshoring and outsourcing can be overcome
by operations management of ALDI.
1.6 Research Questions
Questions:
 What is the concept of offshoring and outsourcing ?
 What are the advantages and disadvantages of offshoring and outsourcing ?
 What are the ways through which risk of offshoring and outsourcing can be overcome by
an organisation ?
2

CHAPTER 2: LITERATURE REVIEW
Literature review refers to the comprehensive summary of past research topic. It surveys
the articles, journals, books and some of the other relevant sources to specific research area. It
gives the theoretical base for research that aids in determine nature of research. It is explicit,
systematic and also reproducible method for determining, examining and then synthesizing
existing body of the completed wok that produced through investigators, practitioners and
scholars. In this present report, researcher use the secondary method by consisting view points
and opinions of various investigators. For conducting this part, there has been qualitative
research used because it has in giving theoretical framework of specific area.
2.1 Concept of offshoring and outsourcing
As per opinion of Margaret Rouse (2019), outsourcing is contracting of the non core
activities to free up cash, facilities and personnel for activities under which firm holds the
competitive benefits. The firms having the strengths in some of the other areas which may
contract out the data processing, marketing, operations, accounting etc. of business in order to
concentrate on what they do the best and minimize average unit cost. Under this, hiring the
separate firm to develop product that can make sense for some of the operations management
projects due to outsourcing that many be cheaper, offer high quality products and minimize
capital costs. It is related to practice of the contracting out non- core activities of company to
third party. Business process outsourcing is business practice under which one company hires
other firm to perform the task that hiring company needs for own business to operate in
successful manner. It is delegation of one or more than the more business processes to external
provider who then own, manage and then administers chosen processes to agreed standard.
On the basis of opinion of Christopher O'Leary (2019) Offshoring is related to relocation
of business process from one country to the other. Offshoring is in the several ways to
comparable to outsourcing but there are necessary things to be consider in various among two. It
is practice of obtaining the services or products from the other country and then relocating the
production to other. In this, when firm moves some of activities to other country. When costs of
the running organisation are cheaper in other then it may select to move activities in context to
minimize expenses.
3

2.2 Advantages and disadvantages of offshoring and outsourcing
On the basis of Sunny Maurya (2018) it has been stated that Outsourcing is strategy
whereby the ALDI company contracts services to other party fore an instance external agency in
order to manage set of process of business. There are some benefits and disadvantages of
Outsourcing mention below:
Advantages
Cost advantages- The most visible and obvious benefits are related to cost savings that
can bring outsourcing. In this, ALDI can be give benefits at the minimum cost with high quality.
In context to this, quality of services gives in high there fore assuring the low- cost not mean the
mow quality.
Enhanced efficiency- When ALDI company outsource needs of business then it brings
experience in the business expertise and practices in order to provide the complex outsourcing
projects. So, firm can do job better with proper knowledge as well as understanding of domain, it
will aids in enhance efficiency and productivity in process.
Disadvantages
Risk of exposing confidential data- In this, when ALDI company outsource its
operations then it includes risk if exposing any confidential information of business to third-
party.
Hidden costs- Many times, outsourcing is cost- effective at hidden costs which included
at the time of signing contract across global level which many pose serious threat.
As per opinion of Peter Hammon (2016), Offshoring is procedure of getting the work
done in other country. It is effective for ALDI business if it wants to expand its business without
added any costs. Some benefits and disadvantages of Offshoring to business given below:
Advantages
Business Growth- It allows ALDI to minimize expansive parts of business like labour
costs. In this, freeing it up will permit to reinvest funds in business and also helpful in give
effective opportunities to expand offerings.
Reduced risk- Under this, to have the many teams in various countries aids in minimize
risks. It will aid in give the effective opportunities to marketing and support consumers when
they require it.
Disadvantages
4

Cultural and Social Differences- Customers will be immersed in culture and also the
social practices of host country, it may develop negative impact on productivity of ALDI as well
as communication.
Time zone differences- It is one of the main disadvantage of offshoring. Several
organisations operate with in 5 to 12 hour difference from their clients. In this, work schedule
many require to be adjusted for accommodate the time zone differences at the time of working
with the offshore organisations.
2.3 Ways through which risk of offshoring and outsourcing can be overcome by an organisation
As per opinion of Dean Davison (2019) Outsourcing issues happen when company
engages first in outsourcing the practices. ALDI company faces some risks at the time of
outsourcing and offshoring and it is a responsibility of management to find some of the better
methods to get over from these issues. Some risk and ways to overcome from them related to
offshoring and outsourcing mention below:
Outsourcing related risk and ways to overcome
Organizational culture outsourcing problems- In this, outsourcing will have affect on
organisational culture. Several organisations overlook towards the potential clashes among
provide of services outsource of culture of firm.
Overcome- In order to overcome from this issue, there is a need to ALDI firm to spend
some time to understand company's culture of outsourcing as well as approach to conducting the
business activities. It will aid in determine values or policies which could interfere with working
relationship.
Decision rights and authority- In ALDI organisation, decision making is a main factor.
The internal staff assume that they have authority as well as decision rights but there is some
authority is to be transferred to the service provider because it is a main part of outsourcing
agreement.
Overcome- To get from from this challenge, ALDI requires to come for better and deep
understanding that which has authority and power of decision making for impacted functions of
business.
Offshoring related risk and ways to overcome
5