Supply Chain and Outsourcing Essay

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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).

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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).

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"Supply Chain And Outsourcing" (2016, December 18) Retrieved May 7, 2024, from
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