Discuss about the Managing Across Border for International Business.
This report is focused on the study of outsourcing concept in international business. Outsourcing is used by many companies, as it helps to reduce cost of business by assigning work to another company or agency offering outsourcing services in specific field of business. There are various types of outsourcing projects in the international business like IT, manufacturing, sales, finance and human resource. Outsourcing plays an important role in international business. Outsourcing is helpful for the business, as it helps to pays more attention on core business objective and goals to the company. Further, this report critically evaluates the advantage and disadvantage of the outsourcing decisions in the business. Every business has to follow formal process to implement the outsourcing business decisions. Different steps of this process include strategy, selection, negotiation, implementation, management and completion. The report also focuses on challenges of outsourcing decisions and the ways in which challenges can be mitigated.
Outsourcing is also called as business process outsourcing, which is used by various companies to decrease cost of business by transferring their work to outside people or supplier instead of doing it internally. It is a cost reducing strategy for the business when applied in a systematic manner. Sometimes, it can be affordable to buy products from companies as compared to produce the goods internally. Further, when business requires skills and expertise, which they do not have in their company, they transfer their work to another people or businesses to solve complete their work (Crize, 2014). In general, the term outsourcing means going out to get the source of what you require in the business. These days many businesses provide outsourcing for what companies require for serving the people. For an example: Dell buys some of computer part from another company to reduce its production cost. Outsourcing has many advantages like outsourcing allows organizations to find the experts for their specific works. A company can enjoy various advantages with outsourcing like capital improvement, wealth maximization and profit maximization. Along with this, the outsourcing business strategies are generally cheaper reducing cost and risk in business.
Outsourcing strategy is helpful for taking quality decision-making in organizations for today’s market scenario in the world. Organizations in international business are using the outsourcing contracts for different kinds of business needs on long-term basis for managing the particular department of the organization. The work of different departments in companies at international business platform is outsourced such as IT, Manufacturing, Sales, Human Resource and many more. The outsourcing firms are working on behalf of the same industry. Different types of outsourcing are taken for enhancing cost efficiency of company (Pamela et.al, 2015). The out-sourcing decisions are also taken for peripheral business activities, critical activities and strategic and problem-solving activities or core competence activities. Example of peripheral activity’s outsourcing involve outsourcing of canteen, medical facilities to employees, transport facilities etc. If the company is outsourcing these activities, company will have enough time to contribute more focus on core objective of the company. On the other side, example of critical activities is the IT department of the company. Outsourcing of these activities will be helpful to more focus on other important departments of the company. For IT department, companies may need to outsource another firm for handling back of security data, total management facilities, internal audit and data processing of organization (Elizabeth, 2012). It is the example for critical activity outsourcing. Lastly, strategic and problem-solving activities are also outsourced by different organizations. For handling these problems, outsources firm (i.e. business consultants) appoints the person (with experience in the industry) for handling the problematic situations. Strategic problem may be related to different strategies adopted by the organization for the development of business. For example: For problem solving purpose in the organization, an outsourcing contract can be taken into action to know how it can see the issue related to the dispute between the employee and employer in organization (Douglas and Scott, 2012). For, resolve these problems company can also open a grievance handling cell as an alternative to outsourcing, but it may impose higher costs on business.
Every organization has the need to list out the reasons for taking outsourcing decision before stake-holders of company. Outsourcing decision is concerned about the subject matter and objective of the organization. Owner of the company will discuss its plan with different departments of the company and will do a cost benefit study of the outsourcing decision (Ian, 2012). Then the management will finalize the outsourcing decision based on the requirements of the organization. However, company will also coordinate with the employees of the company if they have any issues from the outsourcing decision. If the company takes wrong decision for outsourcing, then all the money and time will be wasted.
Outsourcing is helpful for the organization, as it enables management if company to pays more attention of the others important operations of the company. Further, the organization decides to take the outsourcing decision for reducing the cost of the business (llan et.al, 2011). For example, the manufacturing of specific equipment of computers causes higher capital and efforts rather it can be outsourced for lesser amount. Therefore, outsourcing firm which the organization has given the contract will be responsible for manufacturing related issues for the specific equipment. It will helpful for the company to give more focus on others core competencies of the business.
There are various business operations, if the organizations plan to implement these all by their own, the cost of business will be very high. Most of organizations at international level like banking firms, retail organizations, technology firms (like HP, Dell etc) outsource their customer care operations due to cost benefits. In case, the organizations set-up their own CSR department, it will cause costly to the company. At international business platform, it is not easy for a business entity to conduct recruitment operations smoothly due to differences of cultural, demographic and national backgrounds (Stephanie, 2012). In this situation, the outsourcing of HR proved to be productive to the companies. The outsourcing strategy is also helpful to MNCs to avail bus/transport services for their staff. The set-up of new transport department can be highly cost enhancer for the companies. Similarly, the outsourcing decisions are effective in the field of canteen facilities, security services etc. Outsourcing is better option, because the same services are carried out in organization by experts in the field of service.
Outsourcing project provides various advantages to both parties (i.e. company and outsourced vendors). The outsourcing has established a new form of business for major entrepreneurs. The major benefit of outsourcing to company is the cost and time saving in business. Few companies provide their work to other countries. They get their work done at a lower cost with better quality as compared to their own country (Schniederjans et al, 2015). Quality of work is high which ensures that low cost does not provide low quality in the work. Outsourcing eliminates the requirement of infrastructure and any equipment in the business. Outsourcing work provider also takes the responsibilities to develop infrastructure required for accomplishment of assigned work. Companies do not need to invest capital in training and recruiting of employees for their business. Outsourcing provider has the responsibility to hire/recruit and train candidates to complete their assigned work. One of the greatest benefits of outsourcing is risk sharing in business. Through outsourcing a company can shift certain risk or obligations to outsourced vendor. Further, outsourced vendor also get responsibility with outsourcing work (Rothaermel, 2015). Outsourced vendor takes responsibilities to get work done at the right time with right accuracy. If the outsourced company does not complete work in that situation they also have to face loss in the business.
A major disadvantage of outsourcing is that the companies have to disclose their secrets of the business with outsourced vendor. In addition to this, they have to pass other information like client information, login information, and business process (Dinu, 2015). Therefore, outsourced vendor is able to implement on provided work. Outsourcing company has always risk related to loss of reputation and secrets of his business.
Along with this, companies are dependent on the outsourced vendors. If outsourced vendor’s service will go down or if their outsourcing project price will increase, the company will get loss or company will be closed due to lack of project. Apart from this, there is another disadvantage of outsource strategy, that the outsourced vendor shall have control on company’s management. The company management has to lose control from outsourced department or operation (Prakken, 2012). But, the outsourced vendor will need to follow rules and regulations of company, to maintain infrastructure and to recruit people according to their requirement policies. When a company makes a contract with an outsourced vendor, various information and detail can be hidden. Few charges are hidden, which is not included in a contract like legal fees of a lawyer or making a contract with other countries’ company. An outsourced vendor provides specific work to other companies. Under this situation, the company just focuses on their work rather than customers’ satisfaction. In many cases, the outsourcing company does not get employees for outsourcing work due to lack understanding of organization culture. Sometime, the company hires employees, who do not have knowledge about work and culture of the company. Apart from this, it affects the performance of the business, because the company does not have fit employees according to the requirement of business or work. In that condition business entity will not get success or cannot sustain in the international as well as in local markets.
The outsourcing decision has a specific process and path. A successful outsourcing decision is beneficial and costs saving for the business. It focuses on process improvement, core business, reduces time, expansion of business and cost containment (Boguslauskas and Kvedaravi?ien?, 2015). The formal process of outsourcing includes various steps, the detail of which is discussed as below:
It is the first phase, where senior level management takes decision to measure and reviewed to outsourcing project. It is the part of long-term strategy to get maximum profit and to concentrate on core competencies. This kind of decision can be for a particular project, program and operation. At this, step a strategy of outsourcing for organization is framed.
Under this step, the company explores different vendors providing outsourcing service in required business segment and selects the most appropriate vendor for outsourcing work. The company requests information about the project or proposal process and finally selects the best fit project vendor. There are a various process in the selecting phase like defining the work, sourcing the vendor and selecting the vendor.
Negotiation is a method in which two or more person settle differences. Negotiation is an approach, which is used for business deal and decision-making. Further, two phases are involved in negotiation process, viz. first negotiating the contract and second is signing the contract. Under this step of negotiation, the management of company negotiates with vendor providing outsourcing facilities with regards to different aspects of the contract.
This step involves the function of implementation on the outsourced agreement. Also, it includes generating the administrative activities which are a need for their management. The three major functions involved in the implementation steps are planning the transition, preparing the budget, and launching the program.
This step focuses on all activities, which are required to manage the outsourcing project and achieve the decided results. There are various activities which come in management activities such as managing the customer, managing the partnership or relationship with outsourced vendor, monitoring project, and negotiating changes in the project.
It is the final phase of outsourcing, which includes close out function for the project. The two major functions of this step are completion of the contract and closing out the project.
Beyond benefits offered by outsourcing, there are also many challenges with the outsourcing strategy. The challenges are faced irrespective of how well the planning is made, budgeted and staffed. Culture difference at international level is challenge that is faced in the organization like work culture differences between both parties and differences between national culture, which are uncontrollable nowadays. Further, clashes in the work culture can create conflicts in the organization (Done, 2012). Results of culture difference may impact output standards, decision-making qualty, and operational techniques in the organization.
On the other hand, the organization also has to face nation culture difference like understanding and language barriers. There is no another solution instead of creating a strong relationship between the employees and outsourcing vendors. Participation of client leader is important because they analyze the output. Lack of leader’s participation will result in slow progress or failed project. Further, client leaders must have dialogues between the service provider and the organization. An organization expects and believes that outsourced vendor will take care of everything. Therefore, the organization keeps high expectation from the outsourced vendor (Brown and Wilson, 2012). If the outsourced vendor does not fulfill their expectation, then it can create conflict. Due to this, client can become frustrated and disappointed. On the other hand, besides the cost of outsourcing work, the client must focus on the risk, which comes with the project. Both outsourced vendor and client determines the goals and objective of the project according to prepared strategy, which helps to face challenges of the organization.
It is very important element in implementing an outsourcing strategy, that the companies should utilize an effective outsourcing model. The use of model should be fit in organization according to their needs and opportunity to achieve objectives and goals. Further, outsourcing model can be divers, numerous and complex as the organization and outsourced vendor that utilize them (Mclvor, 2010). An outsourcing model has various variables such as contractual flexibility, distribution of responsibility, duration and scope. But main variable of outsourcing model is the distribution of responsibility between the outsourcing vendor and the company.
Senior management of the organization should not focus on strategy on quickly to get success. Further, this decision should be decided according to successive outsourcing project. Companies should make sure and should take enough time to generate a solid foundation for their business (Blackthorn, 2015). Business firms may not think to get success/achievement by first outsourcing project. Both parties (i.e. company and outsourcing vendor) work together in outsourcing project therefore company should make a good relationship with outsourced vendor to achieve the objective and goals of the business.
It is also important to set-up realistic expectation, because the expectations are included in the cost of outsourcing. Senior management has to face implication to cut costs while hiring of skilled labor. The company has to add hidden cost in their actual work like the selection of a vendor, transitioning work, dealing with cultural differences, infrastructure and communication costs. Some hidden cost can be above 20-30 percent in outsourcing contract. In addition to this, company can minimize these costs with a right approach and management system. It is the best way to centralize the cost instead of distributing costs. It stimulates project to get the benefit of cost saving by reduced expenses.
It is not enough to make a list of risk that are expected to be present in the business, rather companies require to give priorities to manage risks which is based on anticipated impacts. In addition to this, if risks appear in the business, the company should act fast to execute the mitigation strategy to eliminate that particular risk.
After making objective and goals, the company requires revisiting objective and goals to make clear that they are realistic or not. It is important for the company to set its objectives (both business objectives and objectives behind major outsourcing decisions) realistic. They should focus on vendor selection cost, infrastructure, hidden cost, and lesson learned to measure profit. A realistic set of expectation enables companies to have more realistic picture of the growth and stability of the business. Return on investment calculation brings at one place, which helps to predict how these all variable will contribute in the business. Unrealistic expectation can spoil outsourcing work and cost which is invested in the business. Apart from this, a set of realistic expectation helps to support strategy. In simple form, return on investment shows how much an organization should invest in the business.
A successful outsourcing strategy starts with measurable objective and goals. Objective describes the reason of making a program, providing a framework of working, illuminating business value to make a decision (Boguslauskas and Kvedaravi?ien?, 2015). It also discusses that which outsourcing model should be used, what project should be outsourced. The objective states the context to analyze the degree of success or un-success chances of the strategy. Apart from this, it is also important for the organization that outsourcing is not a solution to every business problem. A strategy without any business objectives and goals may lead to ambiguous results and management planning. This way, the outsourcing decision needs to be taken with smart and intelligent discussion in organization.
Conclusion
From the above analysis, outsourcing occurs in the market, when a company provides work to another people or company rather than doing it internally to reduce cost of the organization. It is also cheaper in order of reducing cost and risk, and salaries. Apart from this, it also plays an important role in international business. Company follows a process to implement outsourcing project to get decided result. Outsourcing project has various advantage like risk sharing, cost advantage, saving cost of infrastructure and technology. On the other hand it also has various disadvantages like Loss of Confidentiality, Dependence on the outsourced vendor, Loss of managerial control, Hidden cost and Lack of customer focus. Companies are also facing many challenges in outsourcing project decision like Culture difference and Participation of client leader. To mitigate the challenge of outsourcing decision companies need to focus on various points like define clear objective, understand the management risk, count the cost in advance , use an effective outsourcing model and Start slowly, build gradually.
References
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