What are the advantages and disadvantages of outsourcing?

What are the advantages and disadvantages of outsourcing?

Advantages of Outsourcing- These are as under:

1. Better use of Resources

A business enterprize focuses on more crucial matters by outsourcing the non-core, routine tasks. It can make better use of its human, physical and financial resources. For example, by outsourcing the sales promotion function to an advertising agency, the business firm can concentrate on maintaining quality and on increasing the production capacity.

2. Pursues Excellence

Outsourcing enables the business firms to pursue excellence. They excel themselves to the activities that they can do the best by virtue of limited focus. And, they excel by extending their capabilities through contracting out the remaining activities to those who excel in performing them.

3. Reduction in Cost

The outsourcing agencies perform the task for different business firms. They have shared service centers for several clients. So the client business firms get benefit of economies of scale.

4. Growth Through Alliance

The investment requirements of a business firms is reduced when it avail the services of others. The investment is utilised for expanding the core activities of the firm. The business firms need not invest money in creating and maintaining systems for routine and non-core functions.

5. Economic Development

Outsourcing results in division of labour and greater specialisation which maximize productivity and profits. Outsourcing stimulates entrepreneurship, employment and exports. In India in the IT sector alone there has been tremendous growth of entrepreneurship, employment and exports.

Disadvantages of Outsourcing – There are as under:

1. Lack of Confendentiality

Outsourcing depends on sharing a lot information and knowledge. If the outsourcing firm does not preserve the confidentiality, and, passes it on to competitors, it can harm the interest of the business firm.

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2. Reduction in Jobs

Outsourcing involves reduction in jobs. In the course of contracting out, jobs is ultimately contracting out manufacturing, marketing, Research and Development or IT based services. This causes resentment back in the home country.

3. Sweat Shopping

Outsourcing partners try to get maximum benefit from the low cost manpower. This minimize their cost. They look for the ‘doing’ skills rather than developing ‘thinking’ skills. The work that is outsourced does not add to the competence of the outsourcing partners.

4. Ethical Concerns

Outsourcing partners use child labour or may discriminate wages of worker to reduce their costs. This is unethical.

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