Business Report: Advantages and Disadvantages of Outsourcing (BPO)

This report provides a comprehensive overview of business process outsourcing (BPO), examining its advantages and disadvantages in a global context. It begins with an introduction to BPO, defining it as the subcontracting of non-core activities to third-party vendors, and highlights its evolution from manufacturing to service-based industries. The report then delves into the advantages of outsourcing, including increased flexibility, cost benefits, access to skilled manpower, and enhanced speed and efficiency, supported by examples of multinational companies like Google and Hilton Hotels. Conversely, it addresses the disadvantages, such as communication issues, time zone differences, security threats, and potential loss of control. The report also explores the role of outsourcing in the global context, emphasizing its impact on economic and social factors, and concludes with a summary of key findings and implications for businesses considering outsourcing their operations.

Business report-
Advantages and
Disadvantages of
Outsourcing

Executive summary
The following report gave a brief introduction of the business process outsourcing (BPO)
and its potential advantages and disadvantages. Some of the major advantages of outsourcing
included flexibility, cost benefits, speed and skilled manpower whereas the disadvantages
consisted of security breaching, time issues and miscommunication. In order to support the
statement, examples of multinational companies have also been mentioned.

Table of Contents
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
The advantages of Outsourcing in global context are as follows..........................................5
Disadvantages of outsourcing.................................................................................................6
Role of outsourcing in global context....................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Business outsourcing is a concept of sub contracting the non core activities of any
company to third party vendors. Initially, the concept was just restricted to manufacturing sector
but now the trend has shifted towards service based and trading industry as well. The most
commonly outsourced activities include sales, corporate social responsibility, customer related
services and technological support. The following report will focus on the advantages and
disadvantages of business process outsourcing in global context with relevant examples.
MAIN BODY
Outsourcing is basically the process of performing the activities from outside the
company. These are not performed by the in house employees of the company. It has become a
major trend over the past decade. Generally there are two types of outsourcing business process
outsourcing (BPO) and knowledge process outsourcing (KPO). KPO deals with more skilled
and research based work. These are more information related services and require more
expertised employees as compared to BPO (Gerbl, McIvor and Humphreys, 2016).
The BPO industry has become one of the fastest growing industries in the world and it
provides employment to millions of people throughout the world. Almost ever company around
the world, big medium or even small scale adopt these practices. The outsourcing industry
contributes heavily towards the global GDP.
BPO sector has been mainly categorized into two parts front office and back office.
While the front office focuses on non-core activities like tech support and customer relationships,
the back office emphasises on major operations like accounting, finance, human resource and
regulatory compliance. For instance, Australian multinational company called Westfarmers
outsourced its customer support and data entry work to developing countries like India and
Philippines. The major reason behind it is the availability of cheap and skilled workforce. This
not only helps the company in minimizing their cost but also contributes towards their growth
and revenue maximization. The BPO has become a different industry altogether and its
contribution towards the economic growth of developing countries is massive. It has also played
a major role in reducing the problem of unemployment which is a social and economic
advantage. Although, a company has to be more cautious while lending the power in the hands of
the vendor organisation otherwise some major problems can arise for them.
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The advantages of Outsourcing in global context are as follows
 Increased flexibility: It is the biggest advantage of outsourcing of non-core activities as it
improves their flexibility. This not only helps them to focus on their competent activities
but also reduces their fixed costs. The company can focus on its core activities more
efficiently which increases their flexibility. As a result, it leads to optimum utilization of
resources. For example, American tech giant and hardware company Google has
outsourced its non core activities like customer service and tech support to Indian
company called TCS (Tata consultancy services) which has allowed them to focus on
their major and productive business activities (Business process outsourcing, 2019).
However, Espino-Rodríguez and Ramírez-Fierro, (2018) argues that outsourcing
of activities by multinational companies to different countries can be a risky task because
sometimes miss communication may hamper the productivity of the entire project.
 Cost benefits: Outsourcing of secondary activities has the potential benefit for the client
company as it gives them several cost advantages. Moreover, it also reduces their fixed
costs which gives them a competitive edge and the company can invest the same amount
of money in research and development or other primary business activities. Hilton Hotels,
an international hotel and resort chain admits that the major motivation behind
outsourcing are the cost benefits. The hotel company outsources cleaning, laundry,
housekeeping and other such activities on per room basis which reduces their liability and
gives them cost advantages.
But Chou, Techatassanasoontorn and Hung, (2015) on the contrary states that outsourcing
organisations cannot be trusted and they can be a potential reason for the reducing efficiency of
client company.
 Talented manpower: In the opinion of Bhattacharya and Singh, (2019) the human
resource in the outsourcing companies are extremely skilled and talented in their
respective fields which is beneficial for the client company as this allows them to just
focus on their important tasks.
 Speed: Another major advantage of BPO is that it increases the speed and efficiency with
which the tasks are performed. The outsourcing units generally provide quick feedbacks
and responses which is beneficial for both the organisations in the long run.
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 Infrastructure: Outsourcing of non competent activities reduces the need to build
infrastructure and technology relating to it. Sople, (2016) states that this not only saves
the fixed expenses but also the time and efforts of the company.
Disadvantages of outsourcing
 Communication: Dinu, (2015) mentions that communication can be a major problem
between the vendor and client companies because the vendor companies are mostly
located in other parts of the world which further increases the probability of
miscommunication and misunderstandings. As a result, this can create a friction between
the two.
 Time zone: Time factor can also become a possible reason for miscommunication
because of the different geographical locations. Australian graphic designing and editing
company Canva, has faced multiple problems in the past related to outsourcing their tech
support to another country which involved a lot of time and efforts to resolve the problem
at the time of software issues.
 Security: Gold, (2016) criticises the outsourcing concept because it causes security threat
to the client company. Introduction of any third party into the business increases the
security threat and the client company needs to protect its data, software and other
systems. This just increases the overall liability of the company and can turn out to be a
costly affair for them.
 Loss of control: Sometimes, the company may lose control over the project due to
outsourcing because of lack of transparency. Also, most of the times once the project is
outsourced, the client company forgets about it and this can hamper the efficiency of the
project.
It can be evaluated that both advantages and disadvantages must be equally analysed
before taking the decision of outsourcing by any company.
Role of outsourcing in global context
Earlier, outsourcing was used as a cost cutting strategy but with the increasing role of
globalization, companies have now started using outsourcing as a potential tool for accelerating
innovation and creating new business opportunities.
The major role of outsourcing has been that it had impacted the economical and social
factors internationally. Chen and Lin, (1998) states that developed economies like the USA, UK,
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Australia and Germany outsource their activities to developing countries like India, China,
Bangladesh and others. This acts as a win-win situation for both the parties as it gives cost
advantages to the client country and generates employment in the vendor country. For example,
American multinational technology giant company, Apple has outsourced its manufacturing
activities to a Chinese company called Foxconn. This has helped Apple in minimizing their
manufacturing cost and it also helped them to focus on their core business activities like research
and development and innovation.
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CONCLUSION
The following report emphasised on the topic of business outsourcing and its potential
advantages and disadvantages. The report also included examples of some multinational
companies to justify the statement and to explain the benefits they achieve from outsourcing their
non-core activities. The importance of outsourcing in global context cannot be over stated thus
the international scenario has also been mentioned. Thus, it is imperative for a company to look
at the advantages and disadvantages before making the decision of outsourcing their
organisation's activities.
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REFERENCES
Books and Journals
Chou, S.W., Techatassanasoontorn, A.A. and Hung, I.H., 2015. Understanding commitment in
business process outsourcing relationships. Information & Management.52(1). pp.30-
43.
Dinu, A.M., 2015. The risks and benefits of outsourcing. Knowledge Horizons. Economics.7(2).
p.103.
Espino-Rodríguez, T. and Ramírez-Fierro, J., 2018. Outsourcing Performance in Hotels:
Evaluating Partnership Quality. Sustainability.10(8). p.2766.
Gerbl, 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.
Globerman, S. and Vining, A.R., 2017. The outsourcing decision: A strategic framework.
In Global outsourcing strategies (pp. 27-40). Routledge.
Gold, T., 2016. Ethics in IT Outsourcing. Auerbach Publications.
Sople, V.V., 2016. Business process outsourcing a supply chain of expertises. PHI Learning Pvt.
Ltd.
Willcocks, L.P. and Lacity, M.C. eds., 2016. The new IT outsourcing landscape: from innovation
to cloud services. Springer.
Bhattacharya, A. and Singh, P.J., 2019. Antecedents of agency problems in service
outsourcing. International Journal of Production Research, 57(13), pp.4194-4210.
Chen, Q. and Lin, B., 1998. Global outsourcing and its managerial implications. Human Systems
Management.17(2). pp.109-114.
ONLINE
Business process outsourcing. 2019. [ONLINE]. Available.
Through<https://www.toppr.com/guides/business-environment/emerging-trends-in-
business/business-process-outsourcing-bpo/>
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