According to the Outsourcing Institute (1995) outsourcing had become a fully-fledge business megatrend in USA and Europe's industries. Due to globalization, competition had become intensive, thus companies, particularly those in the global market are focusing or obtaining and maintaining competitive advantage. One of which is through outsourcing (Weston, 1996).
Engelke (1996) defined outsourcing as the process of settling on to get hold of a given or selected products or/and services from the external entities from the firm. Thus, it is the process of making use of the knowledge, skills, capabilities, experiences, technologies and even originalities that were not used before (Kraker, 1995).
The advancement and popularity of Information Technology (IT) and communication technology have helped in order to speed up the organizational change. And because of the changes in both macro- and micro-environment of a business, companies focus on continuous change in order to maintain their edge. As a result, outsourcing showed growth for the past decades. The study of Foster (2006) tackled that the outsourcing data centers from 1995 had increased from $180 billion to $420 in 2000.
The most popular advantage of outsourcing is cost effectiveness and cost savings. This is because financial savings are expected to be made, because the vendors of outsourcing services can offer similar services, which can help them to offer the benefits of economies of scale (Walker and Weber, 1984). These vendors can offer services in high quality and lower prices, because they just focus on specific specialist and all of their financial resources, together with other important resources will be solely used for the benefit of those services. Thus, it follow that outsourcing help to acquire higher quality of services, due to the specialization of the vendors, which consequently connect it to increase in productivity.
Less cost spent in different operational expenses and higher productivity would mean higher profit. Therefore, in the end, outsourcing can help in order to add values to the firm (Alexander and Young, 1996), at the same time, controlling or preventing risks associated to political, social and technological aspect of a specific business unit or process to be outsourced.
References
Alexander, M and Young, D (1996), ‘Outsourcing: Where’s the value?’, Long Range Planning, vol. 29, pp. 728 – 730.
Engelke, W D (1996), ‘The virtual times’, Outsourcing Perspectives, Retrieved from 31st August, from HSV website.
Foster, E (1996), ‘Outsource sense’, Info World, vol. 8, no. 37.
Kater, M (1995), ‘An outsourcing primer’, Training and Development, vol. 49, no. 11, pp. 20 – 26.
Outsourcing Institute (1995), ‘Outsourcing: How industry leaders are reshaping the American corporation’, Fortune.
Walker, G and Weber, D (1984), ‘A transaction cost approach to make or buy decisions’, Administrative Science Quarterly, vol. 29, pp. 373 – 391.
Weston, R (1996), ‘Its hard to buck the outsourcing tide’, PC Week, p. 1.
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