HI6008 Semester 3/2017: Advantages and Disadvantages of Outsourcing

This report provides a comprehensive analysis of the advantages and disadvantages of outsourcing business functions. It begins by defining outsourcing and its increasing prevalence in the global business environment, highlighting its role in cost control and efficiency. The report then delves into the benefits of outsourcing, such as cost savings, increased focus on core competencies, improved quality through specialized vendors, enhanced operational efficiency, and increased flexibility. Conversely, it addresses the disadvantages, including quality risks, potential legal issues, language barriers, negative employee perceptions, knowledge gaps, and security concerns. The report concludes by emphasizing the importance of carefully considering both the pros and cons before deciding to outsource business functions. Desklib provides access to this and many other solved assignments to help students in their academic journey.

Running head: BUSINESS RESEARCH
Advantages and Disadvantages of Outsourcing Business
Functions
Submitted by

BUSINESS RESEARCH 2
Table of Contents
Introduction......................................................................................................................................3
Project Objective.............................................................................................................................3
Project Scope...................................................................................................................................3
Literature Review............................................................................................................................4
Meaning and concept of Outsourcing..........................................................................................4
Advantages of outsourcing...........................................................................................................5
Disadvantages of outsourcing......................................................................................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................12

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Introduction
In the global business scenario, the business faces stiff competition to run their business
activities and obtain profitability. Furthermore, cost control is a significant aspect in which
different ways is focused by corporation such as fair treatment at workplace, co-operation and
strong mission. Outsourcing is one of significant ways that could be used by company to control
the restraints such as cost and time (Schniederjans, et. al., 2015).
The outsourcing is key phenomenon which has increased popularity in current scenario. It acts as
a business when large corporations decided to give their routine job function to the third-party
organization as it is beneficial to control the time and cost within an organization. In this way,
most of the works are associated with the customer care work and such activities could not be
core functions at the workplace. But, in the current scenario, it has been identified that
outsourcing has originated from the big industry in which different business functions and
activities could be outsourced by a third-party organization (Cavusgil, et. al., 2014).
Project Objective
The project has intended to assess the pros and cons of outsourcing the function of business.
There are different objectives, which would be exercised to accomplish the research aim in a
specified time period. It is discussed as given below:
 To define the concept of outsourcing the function of business
 To address the pros of outsourcing the function of business
 To discuss the cons of outsourcing the function of business
Project Scope
Outsourcing is a process by which function of business have been assigned to another individual
and company. It is used to minimize the cost of production and expand their business in other

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nations. Moreover, outsourcing is demonstrated as business practices which could be effective in
the restricted situation. For instance, a company wants to produce and sell specific products and
services. However, it is stated that same company manufacture the products in their domestic
nation could not be required because of certain factor affecting the cost of production. Hence,
they can outsource this business function to third party organization where cost of production is
low. Thus, this act comes under the kind of outsourcing (Sekaran and Bougie, 2016).
Literature Review
Meaning and concept of Outsourcing
Willcocks and Cullen (2013) stated that core outsourcing is defined as a business process in
which corporation outsources some part of business function to third party organization. For
instance, a larger telecom corporation may outsource their customer service function to a third-
party organization that has the proficiency to operate the business function of Telecom
Corporation. This illustration could be used as outsourcing of business practices. Further, in the
current scenario, outsourcing becomes a larger industry which is recognized as business process
outsourcing (BPO). Along with this, different mundane job activities could be outsourced to a
third-party organization like housekeeping facilities of large office buildings and janitorial
facilities. It has led to the origination of service management as a new flow of business practices.
In support of this, Hill et al. (2014) evaluated that outsourcing is defined as a business strategy
which allocates the function, processes, decision, activities from the organization to third party
organization. It is performed via negotiating contract and agreement with vendors who take
accountabilities for quality, customer service, asset management, and production procedure and
people management. This procedure can highly decline the fixed overhead expenses of a
company.

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Advantages of outsourcing
According to Caruth et al. (2013), outsourcing of business practice is beneficial for a corporation
because it provides an opportunity to more emphasize on core capabilities instead wasting their
efforts, money and time on boring tasks or activities. There are large numbers of a corporation
which are engaged in outsourcing the business activities because it aids them to save their cost at
the higher extent. Earlier, banks and other financial corporations like insurance organization
wanted to decline the expenses and operational cost at larger extent.
In contrast to this, Prpić et al. (2015) stated that customer care function needs a large amount of
manpower as it is major expenses in the business process of banking and financial corporation.
Customer care is not a core activity of business as Telecommunication Company can outsource
this activity to Indian corporation because the cost for the same activities would be less than half
from producing the same function in Australia with Australian workforces. This chain of
outsourcing could be used by different industry segment to save their costs and time. In current
time, a large number of third-party organizations are engaged in outsourcing activities as
different business function could be outsourced.
Rushton et al. (2014) evaluated that cost saving is a key advantage of outsourcing the business
function. In this way, outsourcing enables the business to decline the office space expenses,
employee’s compensation expenses and other costs related to offering workspace. It could be
also significant to eliminate the manufacturing setup and free up resources for other intentions.
Outsourcing also facilitates the corporation to emphasize on their know-how and core business
activity. It is stated that when a company goes outside their proficiency then they can outsource
their business process as it will help to focus on core business. For instance, when a grocery store

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wants to add a florist in their operation then they should outsource the activities to focus on core
business of grocery.
In favored to this, Tukker and Tischner (2017) illustrated that outsourcing is beneficial to
improve the quality. Quality could be attained by vendors with more expertise and specialized
processes. For example, the company makes a contract for cleaning services. It is also stated that
outside facilities are a prominent asset for delivering appropriate training, recruiting, and offering
inspection as it could not exist in case the function was performed in-house. The benefit of
having a vendor contract is that company bounds to offer a certain level of services with quality.
For instance, when IT function of business is outsources and the technician calls in sick then it is
responsibilities of vendors to assess someone to replace them and attain the support needs. As a
result, outsourcing is beneficial to provide customer satisfaction to a higher extent.
In the view of Runar Edvardsson and Durst (2014), outsourcing of business function is beneficial
to improve the operational efficiency. Further, it provides the opportunity to the company to get
services from vendor specialized system. Specialization facilitates higher efficiency and allows
for prompt turnaround time and greater extent of quality. In addition, additional capacity could
be generated from outsourcing because contract could be canceled when demand diminishes
rapidly as compared to closing down whole plants owned by a corporation. Therefore, it is stated
that outsourcing is beneficial to increase the flexibility within an organization.
Along with this, Cavusgil et al. (2013) stated that when corporations invest in a large number of
assets like factories, building, and machinery then it is required to control the investment
activities within an organization. It ensures to invest in human resources who are engaged in the
dedicated job and focused on maintenance of assets. Hence, more life can be kept for the assets

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by performing the activities like preventive maintenance activities. It also makes sure that
company has made a good investment for a longer period of time.
In opposed to this, Pearce (2014) evaluated that larger company finds easier to make a contrast
with vendors who have trained people and have proficiency in special functions as compared to
hire a person at the workplace and then trained them for particular job activities. In such case, a
vendor can be selected by a company who has great experience in the standard operating
procedure. In addition to this, outsourcing of business function is beneficial to enhance the
business performance because outsourcer companies provide the opportunity to effectively run
the business. It is significant for the company to offer a wide range of function and opportunity
and aids to save the available human resources, who might not want to perform in less
stimulating consumer backgrounds. It is also evaluated that outsourcing of business function is
effective to improve the operational experience of service providers as this processes concentrate
on staffing as compared to internal business process.
Markus and Jacobson (2015) discussed that when customer care division of bank is outsourced to
third party organization then it would be responsible for all kinds of responsibilities regarding
customer care division. As a result, it will ultimately increase the cost of the company. But, when
a company outsourced at minimum cot then the same business activity would be done by a larger
group of people at a lower cost. Therefore, a bank should focus on its core activities of banking
and should make efforts to gain their customer base. In the current scenario, outsourced vendor
handles the customer care of the bank as it indicates that more business opportunity can be
grabbed by a corporation. It is evaluated that an engaged group whose responsibility is to offer
customer service, can give effective customer service. Since, these outsourced activities are
performed by proficient human resources. In addition, the vendor can enhance the customer

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service quality by offering feedback to the financial corporation and facilitate the alternatives to
enhance customer care services.
Disadvantages of outsourcing
According to Liu and Wang (2014), outsourcing creates quality risk for an organization.
Outsourcing can create the potential legal risks. For example, when a car is recalled for defective
parts then the part was outsourced. The car manufacturer holds the burden of correcting the
potentially damaged image of the car maker. As well as, vendors need to create a good image for
the faulty product because there is a burden on the company to correct the negative customer
perception. Outsourcing can create the poor service quality unless an agreement addresses a
measurable procedure with respect to quality service reporting. There are certain contracts which
intentionally leave the service levels as it unable to save the costs.
In contrast to this, Jeston and Nelis (2014) evaluated that outsourcing creates the language
barriers for manager of a corporation. For example, when customer call center is outsourced to
another country then the company needs to communicate in different languages. Hence, there
could be chances of dissatisfaction level among customers due to language barriers at higher
extent. Employees make negative perception regarding outsourcing and they have fear of lost
jobs. As a result, they declined their efforts to perform the task in an effective manner. Thus,
there is need to manage the employee’s opinion with grace to increase their efficiency.
Patil and Wongsurawat (2015) opined that organizational knowledge can also create
complexities for the organization to outsourcing the business function. An outsourced workforce
may not have the same knowledge and passion for a company as a permanent employee. It is
analyzed that outsourced employee is hired on the contract and they are not highly
knowledgeable as it creates the negative customer experience. Outsourcing also generates labor

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issue as it can affect the organization productivity. It is stated that organized labor in Australia
has tough challenges because people who have less standard of living are outsourced from other
nations. As a result, it may affect the daily productivity because workforces respond negatively
due to outsourcing the business function.
In support of this, Pearce (2014) evaluated that legal compliance and security issues are
identified in formal credentials. It is stated that outsource process should be organized and makes
sure that there is attentiveness to legal observance and system security. For example, outsourcing
the IT function and outsourced the workforces use their access to keep the privacy of customer
information for their own increment. It is also determined that outsourcing results in decline
staffing levels. Furthermore, layoffs are inevitable unless it could be designed through attrition.
Moreover, when employees have not managed effectively then it could have an adverse impact
on the remaining workforces.
In the view of Markus and Jacobson (2015), there could be chances of occurring legal and ethical
issue in outsourcing. There are certain recognized incidents related to Footwear Company in
which outsourcing vendor threw ethical and legal standards causes a human right violation in
outsourcing manufacturing services. Another example of outsourcing blot was the Bangladesh
Tahreen fashions factory where fire issue has occurred. This issue demonstrates the deliberate
avoidance of legal and ethical norms. Furthermore, a large number of innocent employees have
lost their lives as it creates ambiguity in outsourcing of business. This factory has engaged to
produce the tees and shirts for recognized brands but later it was analyzed that the factory
building did not have sufficient legal authority to deal with premises. In addition, they had also
lost an agreement with one of the reputed brand owner and make a sub-agreement with another
outsourced vendor as this brand was under inspection.

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In contrast to this Cavusgil et al. (2013) stated that the loopholes can create while any job
function and activities have outsourced to third party organization. Furthermore, corporations
who make agreement must have moral, ethical, and legal responsibility to avoid the issues. It is
also evaluated that quality of products and services could be influenced in case of outsourcing
the good and services. There could be possibilities that vendor does not assess the implication of
business procedure and quality standards as it could lead to loss the company’s reputation which
has outsourced the products and services.
In support of this, Liu and Wang (2014) stated that another barrier of outsourcing is language
particularly when there is an offshore outsourcing. The business process outsourcing is highly
affected due to language barriers as it could be hazardous for business. Moreover, when services
are outsourced then there is a risk of losing the confidential data from the third party organization
as it can access such kind of data. Along with this, people who have criminal mindset can
destruct the data of banking sector. There are also several examples related to mishandling the
data and leak data from BPO sector which have led the workforces to lose their earned money.
Conclusion
From the above discussion, it can be concluded that there are two sides of outsourcing the
business function such as it could be advantageous or creates barriers for business. It is also
evaluated that outsourcing is used by the organization at the global level in the current scenario.
Technology enables the business to outsource the business function from any part of the globe. It
is also analyzed that outsourcing could be beneficial for business but, it can also create the
barrier for a company. The same technology can be used by people with the wrong intention like
data leak. Moreover, outsourcing process should be scrutinized before undertaking the ventures
as it could create ambiguity in the business process. There are different cases where companies

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have violated the ethical and legal standard in outsourcing of business function. However, these
companies have suffered damage to its brand image due to the offense of outsourcing vendors.

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References
Caruth, D. L., Haden, S. S. P., and Caruth, G. D. (2013) ‘Critical factors in human resource
outsourcing’, Journal of Management Research, 13(3), P. 1.
Cavusgil, S. T., Knight, G. A., and Riesenberger, J. R. (2013) A framework for international
business. Australia: Pearson.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., and Rose, E. L.
(2014). International business. Australia: Pearson.
Hill, C. W., Jones, G. R., and Schilling, M. A. (2014) Strategic management: theory: an
integrated approach. USA: Cengage Learning.
Jeston, J., and Nelis, J. (2014) Business process management. UK: Routledge.
Liu, S., and Wang, L. (2014) ‘Understanding the impact of risks on performance in internal and
outsourced information technology projects: The role of strategic importance’, International
Journal of Project Management, 32(8), pp. 1494-1510.
Markus, M. L., and Jacobson, D. D. (2015) The governance of business processes. In Handbook
on Business Process Management 2 (pp. 311-332). Heidelberg: Springer.
Patil, S., and Wongsurawat, W. (2015) ‘Information technology (IT) outsourcing by business
process outsourcing/information technology enabled services (BPO/ITES) firms in India: A
strategic gamble’, Journal of Enterprise Information Management, 28(1), pp. 60-76.
Pearce, J. A. (2014) ‘Why domestic outsourcing is leading America's reemergence in global
manufacturing’, Business Horizons, 57(1), pp. 27-36.
Prpić, J., Shukla, P. P., Kietzmann, J. H., and McCarthy, I. P. (2015) ‘How to work a crowd:
Developing crowd capital through crowdsourcing’, Business Horizons, 58(1), pp. 77-85.