Supply Chain and Outsourcing

¶ … Services and Capabilities: Global Outsourcing Global outsourcing has become a common trend in the last few decades. Organisations, especially multinationals, have increasingly taken advantage of globalisation, technological advancements, and worldwide political and economic integration to outsource business processes and manufacturing operations to off-shore entities. Indeed, outsourcing is no longer a mere temporary or short-term solution to cost minimisation -- it is now part of business and corporate strategy (Oshri, Kotlarsky & Willcocks, 2015).

Today, organisations in diverse sectors and industries rely on global outsourcing to keep up with consumer demand and competition while at the same time maximising operating margins. Nonetheless, global outsourcing presents its own fair share of challenges. This paper explains the pros and cons of global outsourcing and provides examples of firms that have successfully adopted supply chain globalisation. A major advantage of global outsourcing is cost reduction.

Generally, outsourcing is motivated by the need to produce goods and services in the most cost-effective way against the backdrop of resource constraints (Barrar & Gervais, 2006). Countries like India and China provide low-cost labour, making them ideal outsourcing destinations for Western multinationals. In fact, owing to the high cost of labour in developed countries, most American and European firms have increasingly taken advantage of Asian manufacturers to remain cost-effective in the ever more competitive global marketplace. With low-cost manufacturing in Asia, Western multinationals are able to maximise their profit margins.

The cost advantage further stems from the reduced need to invest in infrastructure and manpower as the outsourcing provider takes responsibility for outsourced process (Oshri, Kotlarsky & Willcocks, 2015). Therefore, global outsourcing provides a valuable source of competitive advantage in an environment where cost is a significant determinant of profitability. Global outsourcing also enables a firm to take advantage of the expertise of the outsourcing provider, which the outsourcing organisation may not have (Barrar & Gervais, 2006). Outsourcing providers usually specialise in a certain field.

It could be information technology (IT), research and development (R&D), marketing, or manufacturing. They build their capabilities in their field of specialisation, and can complete tasks in their field faster and with better quality. For instance, outsourcing providers in Asia have unmatched competencies in manufacturing. They can produce large quantities of products at a low cost while at the same time providing high quality.

It is often more prudent for an organisation with little or no expertise in the field in question to seek assistance of an outsourcing provider. In fact, when an organisation outsources some of its processes and operations, it can focus on core activities (Barrar & Gervais, 2006). For example, if a firm outsources manufacturing to an overseas entity, it can focus its efforts and resources on critical processes such as R&D and marketing.

Other benefits of global outsourcing include risk sharing and greater adaptability to change (Oshri, Kotlarsky & Willcocks, 2015). Despite its advantages, global outsourcing presents a number of challenges. First, working with an offshore entity exposes an organisation to more risks (Barrar & Gervais, 2006). Unfavourable events in the country where the outsourcing provider is based would often affect the outsourcing organisation. This is particularly true as most organisations work with providers in developing countries. These countries face the risk of political instability and other adverse occurrences.

Such events may compel providers to temporarily halt operations, subsequently affecting the supply chain. Offshoring work globally also introduces the risk of losing confidential and proprietary information (Oshri, Kotlarsky & Willcocks, 2015). This is a particularly important demerit. Loss of confidential information may significantly hurt the firm's competitive advantage. While outsourcing arrangements are premised on stringent confidentiality agreements, the risk of losing proprietary information abounds. Further, managing offshore providers can be a daunting task.

To achieve the desired outcomes, there ought to be a smooth relationship between the organisation and the outsourcing provider. However, this may not always be the case. There could be instances of poor communication between the two entities, misunderstandings, non-fulfilment of contractual obligations, and unwillingness to renew the contract (Oshri, Kotlarsky & Willcocks, 2015). Poor relationship between the outsourcing organisation and the outsourcing provider may be costly to the outsourcing organisation.

It may lead to poor quality, delivery delays, and other negative outcomes, ultimately affecting the final consumer to the organisation's disadvantage. Other concerns raised by global sharing relate to hidden costs, reduced customer-focus, language barriers, labour issues, bad publicity, possibility of losing managerial control, and employee layoffs (Barrar & Gervais, 2006; Oshri, Kotlarsky & Willcocks, 2015). Two companies that have successfully embraced global outsourcing include Apple Inc. and International Business Machines (IBM).

Apple, which is mainly involved in the design and production of consumer electronics, has since 2000s outsourced its manufacturing operations to manufacturers in China and other Asian countries. In fact, virtually all the.