Outsourcing is a practice in which business organizations hand over the control of their manufacturing process to a party outside of its business. The process of outsourcing is usually followed by business organizations that have reached a high position in the market or do not have the skills that are required to manufacture a product or offer a service properly (ANDONE & P?V?LOAIA, 2010). The company hired for outsourcing is known as a third party and has to arrange for all the resources i.e. raw material, labor, machinery, etc. that would be required to manufacture a product or service being outsourced. In some cases, multinational companies can outsource their entire divisions in case it can help them in achieving competencies or better performance levels (Lopez, 2017).
In the present era of global business competition, all business organizations are looking forward to go global and achieve market competencies that would help them in outperforming their competitors. Further, business organizations are also striving hard to bring down their operational costs and increase their profitability in order to ensure long term market survival. In such an environment, outsourcing processes and operations to third parties that are highly competitive in performing them can help business organizations in getting things done faster, cheaper and in a better way (Overby, 2017). Therefore, a lot of top multinational organizations have started outsourcing their manufacturing processes and services.
Garmin Ltd. is a multinational company that was founded in 1989 in America by Gary Burrell and Min Karo. The company has its business operations running in multiple countries and had its headquarters in America while its legal domicile has been shifted to Switzerland since 2010. Garmin Ltd. designs, manufactures and sells GPS devices and has a huge line of products that are used for location tracking services in automotive, aviation, marine, outdoor and sports. The company has been investing in the development of wearable technology and has come out with competitive activity trackers are smartwatches, which has brought the company in direct competition with top multinational companies like Apple and Fitbit.
The company also has a customer-care division and has employed around 800 employees in different parts of the world who work in shifts to solve customer queries. The role of the customer-care division is to attend to customer complaints over calls, live chats and e-mails. Recently, the managers of the company have identified that outsourcing the customer-care division to India could help them in bringing down their operational costs because of a large difference in labor rates between America and India. As a result, they have presented a proposal to the Board of Directors of the company to outsource their entire customer-care division to a call-center company in India. Therefore, in this report, we will discuss the potential advantages and disadvantages of outsourcing the call-center division of Garmin Ltd. to an Indian company.
The benefits of outsourcing the entire call-center division to India are discussed below:
Improved services
First of all, a major benefit of outsourcing the call-center division of Garmin Ltd. is that the customer-care department will become more efficient or in other words, the company would be able to handle the grievances of their customers in a better way. India is a developing country where there are hundreds of professional call-center startups that can handle the call-center division of the company. The employees working in call-centers are specially trained in different languages so that they can offer assistance to customers from any part of the world. Further, tying up with a multinational company will be a huge plus point for the Indian call-centers and they would offer the best of their services to get the outsourcing contract. Alibaba, one of the top websites in the world, achieved success by outsourcing its website development process to American experts because of a shortage of professional developers in China (RAMPTON, 2015).
Reduced capital costs
As discussed above, one of the greatest benefits of outsourcing a service or a manufacturing process to a third party is that there is a considerable reduction in the capital costs of a company. Without a doubt, the wage rates in America are much higher than the wage rates in India. This would help the company in bringing down its operational costs to a great extent and become more profitable (BUCKI, 2018). Once the company is able to outsource its entire call-center division, it would require fewer managers to look after the customer care division. The company would be saved from conducting recruitment and selection processes to fulfill the human resource demand of the customer care division, which would also reduce the operational costs to a great extent. Another area where the company would be able to save money is the office space required for the customer-care division. Once the customer-care division is outsourced to an Indian company, there would be no space required for setting up a call-center, which would bring down the operational costs even more. WhatsApp, one of the smartphone applications in the world, outsourced its development process to Russia in order to bring down its operational costs (Daxx, 2017 ).
For a company like Garmin Ltd., there are a lot of other core activities, such as research and development, finances, designing, manufacturing, marketing, etc. where it can increase its focus and can improve its overall market position. Outsourcing the customer care division to Indian will help the company in freeing a lot of its resources and diverting their efforts to perform various other core activities (Tayauova, 2012). Laying a greater focus on these core activities will help the company in coming up with innovative products that would have better build quality and would be able to outperform rival products.
Increased reach
Running a business on a global scale is tough and requires a lot of careful planning, analysis and execution to ensure long term market survival. To achieve success in a global market, it is important that business organizations are able to keep their operations and processes lean and bring down their operational costs as much as they can. Another strategy to become successful is to identify the countries with untapped potential and use it for achieving competencies. India is one such country where there is a lot of potential and a lot of resources are available in India at cheaper prices (AllBusiness.com, 2008). Outsourcing business operations to India will increase the reach of the company and would allow the company to look for more options that would help the company in becoming more competitive and efficient.
Risk sharing
If Garmin Ltd. keeps its customer care service department in house, the entire risks associated with the services being offered will have to be taken care of by the company itself. Outsourcing the customer care division to a third party that possesses exceptional skills and talents required for offering assistance to the customers will bring down the risk element for the company as the third party would be better at planning Garmin’s risk mitigation factors.
Achieving a competitive edge
The ultimate advantage of outsourcing the customer care division will be to achieve a competitive edge in the market. Through strategic outsourcing, Garmin Ltd. will be able to bring down its operational costs, offer better services to its customers, increase productivity and manage in-house activities intelligently (Outsource to India, n.d.). So, it would ultimately be able to gain a competitive edge and outperform its competitors.
Outsourcing is a strategy that needs to carefully implement because sometimes, it can have a negative impact on the business of a company. The disadvantages of outsourcing the customer care division are discussed below:
Loss of control
A disadvantage of outsourcing a business process or a service is that a company loses some control over that process or service. As the customer care division of the company will be outsourced to an Indian call center company, Garmin Ltd. would lose its control as it would become difficult to keep a check or to monitor the activities of the customer care service division. Therefore, it is advised that the companies planning to outsource a process or a service should tread carefully and only sign an outsourcing contract if they have complete faith in the third party.
Hidden costs
One of the prime reasons for outsourcing a process or a service is to bring down operational costs but there can be hidden costs associated with overseas outsourcing. The overall process of signing an outsourcing contract with an overseas company can incur a lot of expenditure. Further, to ensure proper delivery of services, the company would have to arrange for training and development of the third-party employees so that they can handle the complaints of the customers in the best possible manner. Training and development can prove to be costly for the company because either it would have to invite the third party to America or would have to send expatriates to the third party’s country for training and developing the employees. One of the biggest outsourcing failures, resulting due to hidden costs, is the IBM Mega Disaster. Queensland awarded a contract to IBM for the development of an application in mid-2008 for $6 million. After the commencement of the project, IBM announced that due to technical glitches the cost of the project would be $27 million but the cost of the project reached $1.2 billion by the time it was completed (Garland, 2015).
Employee layoffs
One of the most commonly experienced implications of an outsourcing strategy is employee layoffs. When a business process is outsourced, it becomes imperative for business organisations to reduce staffing levels to avoid wastage of efforts. Unless a company has planned in advance to deal with an excess workforce, layoffs become inevitable due to legal policies. Therefore, it becomes difficult for business organisations to deal with an excess number of employees and if they are unethically dismissed, a company can face legal trouble and can lose its reputation as an employer in the market (Patricia, 2017).
Every business organization in this world has its own work culture and processes to look after. A company outsourcing its customer service division would have to ensure that the third party possesses the desired knowledge to handle customer complaints, which could otherwise lead to dissatisfaction amongst the customers and loss of market share consequently.
Language barriers
For a company like Garmin Ltd., it is imperative that the employees working in the customer care division have a proper hold over different languages, especially of those countries where the country sells its products. If the employees belonging to the third party are not able to understand the problems of the customers, it would become impossible for them to entertain their complaints, which would lead to customer dissatisfaction.
Facing moral dilemmas is another issue that multinational organizations face while trying to outsource a process or a service from a third party belonging to a different nation. In the present era, stakeholders are highly becoming aware of the corporate social responsibilities that an organization should fulfil. A company that shuts down a division and starts outsourcing processes or services from another country takes away employment opportunities from the home country nationals, which can bring about negative publicity for a company in the market (Riggins, 2017).
Loss of data and information
When a company decides to outsource a process or a service from a third party, there is always a risk of sensitive data or information from being leaked in the market or to the competitors. To function properly, a third party would obviously require some information from the company, such as customer information, product information, etc. and a company cannot afford to compromise such information (Chris, 2015).
Conclusion
Global business organisations are facing tough market competition and should be selecting their strategies after a lot of careful consideration, especially when planning to outsource a process or a service. For a company like Garmin Ltd., it is important to carefully analyze the pros and cons of outsourcing its customer care division to a developing country like India and then take its final decision.
References
AllBusiness.com. (2008, January 1). The Benefits of Outsourcing for Small Businesses. Retrieved December 5, 2018, from archive.nytimes.com: https://archive.nytimes.com/www.nytimes.com/allbusiness/AB5221523_primary.html?mcubz=0
Andone, I. I., & P?v?loaia, V.-D. W. (2010). Outsourcing the Business Services. Informatica Economic?, 14(1), 163-171.
BUCKI, J. (2018, April 28). Top Outsourcing Advantages. Retrieved December 5, 2018, from www.thebalancesmb.com: https://www.thebalancesmb.com/top-outsourcing-advantages-2533765
Chris, J. (2015, February 6). 9 Pros and Cons of Outsourcing Jobs . Retrieved December 5, 2018, from www.josephchris.com: https://www.josephchris.com/9-pros-and-cons-of-outsourcing-jobs
Daxx. (2017 , November 23). 5 Outsourcing Success Stories (and 2 Failures) That Any Startup Could Learn From . Retrieved December 5, 2018, from www.daxx.com: https://www.daxx.com/article/outsourcing-success-stories
Garland, A. (2015, December 19). Five of the biggest outsourcing failures . Retrieved December 5, 2018, from www.itproportal.com: https://www.itproportal.com/2015/12/19/five-of-the-biggest-outsourcing-failures/
Lopez, J. (2017, August 24). What is outsourcing? What does it mean for companies? Retrieved December 5, 2018, from medium.com: https://medium.com/coderslink/what-is-outsourcing-what-does-it-mean-for-companies-eff73fe60372
Outsource to India. (n.d.). Top Ten Benefits of Outsourcing. Retrieved December 5, 2018, from www.outsource2india.com: https://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp
Overby, S. (2017, November 6). What is outsourcing? Definitions, best practices, challenges and advice. Retrieved December 5, 2018, from CIO.com: https://www.cio.com/article/2439495/outsourcing/outsourcing-outsourcing-definition-and-solutions.html
Patricia. (2017, November 8). Advantages and Disadvantages of Outsourcing . Retrieved December 5, 2018, from smartchurchmanagement.com: https://smartchurchmanagement.com/advantages-and-disadvantages-of-outsourcing/
RAMPTON, J. (2015). These 8 Successful Companies Were Built Using Outsourced Developers . Retrieved December 5, 2018, from www.startupgrind.com: https://www.startupgrind.com/blog/these-8-successful-companies-were-built-using-outsourced-developers/
Riggins, N. (2017, February 21). 20 Advantages and Disadvantages of Outsourcing from Your Small Business . Retrieved December 5, 2018, from smallbiztrends.com: https://smallbiztrends.com/2017/02/advantages-and-disadvantages-of-outsourcing.html
Tayauova, G. (2012). Advantages and disadvantages of outsourcing: analysis of outsourcing practices of Kazakhstan banks. Procedia-Social and Behavioral Sciences, 41.
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