Outsourcing and Global Sourcing

Outsourcing and Global Sourcing

According to Entrepreneur.com, the term "outsourcing" refers to "the practice of having certain job functions done outside a company instead of having an in-house department or employee handle them," (2011). While in the past, these job functions have been limited to menial or highly technical tasks, the consensus among outsourcing researchers is that commercial corporations are beginning to outsource large portions of corporate functions, which in turn allows them to cut costs and provide a wider, truly global range of resources for their clients and developers, hence the term "global sourcing" (Kumar & Sarangan, 2011). Nonetheless, there are those who caution against outsourcing too many functions, as the key to successful outsourcing is the effective management of outsourcing suppliers (Chung, Yam & Chan, 2004). This topic is of particular interest to me as a business student likely to work in for a corporate entity in the future. Contingent on the nature of my position in a corporation, knowledge of the benefits and risks of global sourcing could be valuable.

My research of the subject of global sourcing consisted of reading and evaluating the following five articles: "Outsourcing to an Unknown Workforce," by Par J. Agerfalk of Uppsala University, and Brian Fitzgerald of the University of Limerick (2008); "Networked enterprise: A new business model for global sourcing," by Walter W.C. Chung, Anthony W.K. Yam, and Michael F.S. Chan (2004); "The impact of corporate outsourcing on company value," by David J. Bryce and Michael Useem of the University of Pennsylvania (1998); "Antecedents and performance consequences of international outsourcing," by Michael J. Mol, Rob J.M. van Tulder, and Paul R. Beije (2005); and "Leveraging Outsourcing during Economic Uncertainty," by R. Arun Kumar and Sunder Sarangan of Infosys Technologies Limited (2011). While Agerfalk and Fitzgerald assert that global sourcing -- i.e. "opensourcing" -- is becoming a popular method of decreasing spending and enhancing competitive abilities among major corporations (Agerfalk & Fitzgeral, 2008), Chung et al. stress that effective management of outsourcing suppliers and outsourced products/services is the key to profitable outsourcing (Chung et al., 2004). Similarly, Bryce and Useem discuss the potential risks of excessive outsourcing, but still assert that properly managed outsourcing "reduces operating cost, enhances competitive strategy, and enlarges shareholder value" (Bryce and Useem, 1998). Meanwhile, Mul et al. investigate the claim that global sourcing of "intermediate products" increases corporate performance. Based on a survey of 200 manufacturing firms located in the Netherlands, Mul et al. conclude that successful outsourcing is dependent upon a firm's ability to "research and evaluate" outsourcing suppliers, as determined by the firm's "size, multi-nationality, and frequency of cross-border communications" (Mul et al., 2005). Finally, Kumar and Sarangan, authors of the article I've chosen to summarize, support the claim of previous researchers that properly managed outsourcing can reduce spending and enhance the overall performance of a corporation (Kumar & Sarangan, 2011).

Kumar and Sarangan begin by describing how inflation, the declining value of the dollar, increasing unemployment rates and widespread credit defaults have created an environment of economic uncertainty, hence the article's title, "Leveraging Outsourcing during Economic Uncertainty" (2011). Regarding outsourcing as an effective method of addressing this uncertainty, they assert the following:

A strategic outsourcing program can not only stretch the dollar in tight budgetary environments, but also create new dollars with which companies can pursue other pressing initiatives. Global sourcing efforts can help companies realign themselves with current market realities. The historical example of the 2001-02 recessions demonstrates the advantage companies can gain from thinking strategically about their approach to outsourcing. (Kumar & Sarangan, 2011)

The Global Delivery Model (GDM), they say, provided corporations with new methods of reducing costs, stretching the dollar, and improving the efficiency of corporate IT departments, while the economic downturn of 2007-08 took the GDM mainstream. In addition, global sourcing as defined by the GDM allowed corporations to become more competitive, and it greatly increased the range of resources companies can offer to their clients. Kumar and Sarangan end by citing and discussing the 4 Cs of effective outsourcing, to include the evaluation and continuous retooling of Costs, Capabilities, Competitiveness and adaptability to Change (Kumar & Sarangan, 2011).

As an example of effective global sourcing applied to the real business world, Kumar and Sarangan cite the continued prosperity of companies such as Walmart, Apple and Amazon during the 2007-08 economic recession. These companies remained successful because they saw "economic uncertainty as an opportunity," and kept a tight handle on corporate spending while reducing operational costs by outsourcing numerous functions, to include functions instrumental in enhancing overall corporate performance (Kumar & Sarangan, 2011). Said Kumar and Sarangan of such companies' application of the 4 Cs:

To see economic uncertainly as an opportunity, it is crucial that business and IT managers have a strong handle on costs. At the same time, these decision-makers must also have the ability to respond strategically to budget cuts without compromising on current capabilities of the organization or putting future competitiveness at risk. It is in this context that companies should look at how global sourcing can play a role in not only managing costs in the short-term, but also in providing the agility to invest for future competitiveness or change. (Kumar & Sarangan, 2011)

Annotated Bibliography

Agerfalk, P.J., and Fitzgerald, B. (2008). Outsourcing to an Unknown Workforce: Exploring Opensourcing as a Global Sourcing Strategy. Management Information Systems Quartley, 32(2). http://aisel.aisnet.org/misq/vol32/iss2/11/

The authors assert that global sourcing -- i.e. "opensourcing" -- is growing increasingly popular in commercial corporations, resulting in the development of a global workforce of expert contributors to the current business world, which in turn allows for enhanced competitiveness.

Bryce, D.J., and Useem, M. (1998). The impact of corporate outsourcing on company value. European Management Journal, 16(6), 635-643. http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V9T-3VGH1F3-1D&_user=10&_coverDate=12%2F31%2F1998&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1729212874&_rerunOrigin=scholar.google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=e7579a09551471987a092e24a4e8bdc7&searchtype=a

The authors discuss the risks of excessive outsourcing to the point that management of outsourcing suppliers, products and services is compromised. Nonetheless, the authors assert that properly managed outsourcing can reduce operational cost, enhance competitive strategies and increase the value of shareholders.

Chung, W.W.C., Yam, A.Y.K., and Chan, M.F.S. (2004). Networked enterprise: A new business model for global sourcing. International Journal of Production Economics, 87(3), 267-280. http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VF8-49H724M-1&_user=10&_coverDate=02%2F18%2F2004&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1729211920&_rerunOrigin=scholar.google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=3f73efc87de83c1045e5161fba39cedd&searchtype=a