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Pros and Cons of Outsourcing - Research Paper Example


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Pros and Cons of Outsourcing

Over the past few decades, there has been increase in outsourcing practice all over the world. Outsourcing is a potentially debatable subject because of the range of its pros as well as cons for the company hiring the services of the outsourcers, the outsources, and also the general public which is a stakeholder. Companies choose to outsource to avoid the pain of manufacturing in-house and reduce the cost of business while the risks involved in outsourcing are mainly lack of coordination, and linguistic barriers.Right management is the secret of a successful business which uses outsourcing. Outsourcing particularly proves beneficial for small companies. One of the success stories for such a case has been the outsourcing of Finance and Accounting (F&A) by Rhapsody; the music-subscription service. Originally the company was functioning as a joint venture, but when the parent companies separated, the finance president Michael McGinn immediately needed a finance team, so he opted for outsourcing. McGinn hired the services of an Indian company who did all for the company ranging from making payrolls to account reconciliations. This benefited the Rhapsody in numerous ways; additional resources were produced within six months only, scaling back was achieved without penalties, and the five employees in the Indian company cost the Rhapsody as much as two US-based employees would get. Technology has made it very convenient for small companies to outsource the F&A work at cheap rate. As a result

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of the increased competition in the market, outsourcers have started to render their services at cheaper rates. There has been a six to eight per cent decline in the price of F&A outsourcing between 2009 and 2011. Over a period of six years starting from 2004, the outsourcing contract has declined in value from $30 million to $18 million not only because of “increased competitiveness and falling price points, but also [to] the increased number of engagements being signed with organizations in the $750 million to $3 billion revenue category” (Stuart). According to Ben Towbridge, the CEO of Alsbridge, an offshore finance employee costs a company anywhere from $18,000 to $28,000 annually, whereas a US finance worker charges the company up to $70,000 including benefits (2011). The core idea of starting a business is making profit. Business entrepreneurs look for all possible options to find ways to cut down the cost of business. One of the most important and weighty benefits of outsourcing is that it cuts down the home office cost for the company owners through a reduction of the wages that are to be paid to the employees. This is the fundamental reason why companies choose outsourcing as a strategy. Pros of outsourcing include but are not limited to reduction in the cost of business, improved quality of services, access to skilled workforce, contractual obligation, improved system, better time management, avoidance of the staffing issues, mitigation of risks involved in various processes, and management of capacity. In addition to that, outsourcing is a means of economic strength of the poor and underdeveloped countries as these countries contain skilled workers. The cons of outsourcing include linguistic barriers, adverse effect on the employment rate in the country, and lack of the company’s culture and knowledge in the outsourcing-service-providing company. While the small companies benefit a lot from outsourcing, it is not quite as profitable for the outsourcers. A vast majority of the companies, around 83 per cent, tend to avoid outsourcing in spite of its benefits (Stuart, 2011). Factors that discourage these companies from outsourcing inclu


Over the past few decades, there has been increase in outsourcing practice all over the world. Outsourcing is a potentially debatable subject because of the range of its pros as well as cons for the company hiring the services of the outsourcers, the outsources, and also the general public which is a stakeholder. …
Author : henriette33
Pros and Cons of Outsourcing
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