The Pros and Cons of Outsourcing to Offshore Companies - Assignment Example

Offshore outsourcing of businesses is rapidly becoming a popular technique regardless of all the controversy it creates. In 2006 the size of the worldwide outsourcing market has been evaluated at US$ 930 billion and grew up to US$ 1.3 trillion until the end of 2009. One of the principle explanations behind this pattern towards offshore outsourcing is that it tends to give significant benefits for the organizations and their clients by decreasing expenses and enhancing profitability. In any case, in light of the latest researches and studies, businesses are turning out to be more careful about assessing offshore outsourcing mainly because of its "invisible" outcomes (Stringfellow et al., 2008). Such outcomes usually include threats to the company's brand image, reputation, innovations, financial stability, talent acquisition, and customer satisfaction. Moreover, offshore outsourcing may likewise prompt a decrease in consumer loyalty and service standards, reduced brand loyalty, and an increase in customer complaints (Cornell, 2004). This paper is designed to point out, research, analyze, and assess the possible results offshore outsourcing of a call center might have for the company. The paper will discuss both the advantages and disadvantages of offshore outsourcing as well as present an example of one company that has successfully outsourced work offshore and one example of a company that tried outsourcing offshore but terminated the effort.

First of all, it is vital to define what offshore outsourcing actually means. According to Gnuschke outsourcing happens when a company transfers some of its tasks to an outside supplier and offshore outsourcing is a result of transferring these tasks to a foreign country (Gnuschke et al, 2004 ). Offshore outsourcing can also refer to assigning a particular task, project, or an area of responsibility to a third-party unit, which does not form a direct part of the company or organization. Outsourcing is also defined as the procedure of establishing and dealing with an external service supplier for the providing of service that has been previously given in-house. Offshore outsourcing of a call center can be characterized as getting a third-party service supplier situated outside of the company's initial office to work and deal with its call center. The third-party supplier regularly deals with employing and preparing call-center specialists, keeping up the infrastructure and software of a call center, and overseeing everyday call-centre operations. An organization can outsource a part of its call center operations such as sales, customer support service, market research, and advertising, or outsource the whole call center.

Below are discussed the possible and most common advantages of offshore outsourcing.

1. Cost savings. Offshore outsourcing almost always conveys huge cost savings for businesses over in-house assets or assigning tasks to freelancers. The lower asset cost will permit the company to push the funds to its bottom line or reinvest in other resources, services, and tools that could increase the company's performance and quality of products. As such, labor costs in India are lower than in the United States. The company will pay lower wages, as well as it will not need to pay worker's compensation, Social Security and Medicare taxes, unemployment taxes, medical coverage and other employment costs related to domestic laborers. The bigger the organization, the more workers it can outsource and the more noteworthy the funds will be. Still, the company will still need funds to train employees and supervise them. These expenses may become more noteworthy after some time, lowering the difference between Indian and the U.S. wages. One of the studies conducted by the scholars from the University of South Florida calculated that the wages for skilled specialists in India were rising 15 percent a year as for 2004. However, such an increase is unlikely to make the salaries of India's call-center workers higher or equivalent to that of the U.S. workers.

2. 24-hour Customer Support model. Offshore outsourcing can assure a 24-hour per day customer service capacity of the call center. Such a model will help the company better manage its project, decrease the time needed to accomplish standard tasks, assure that the services are accessible to the customers worldwide, as well as improve customer satisfaction.

3. Increase business effectiveness. The company will become more confident in its ability to meet customer's needs as the call center will ensure 100% time coverage by devoted staff members who are trained to ensure excellent call quality. Outsourcing also permits an organization to end up more productive by giving work that cannot be proficient in-house in a reasonable amount of time to the individuals who are specialized in the field and hold the equipment to do a given task right and do it rapidly (Jones, 2003).

All facts considered, it is vital to discuss the disadvantages offshore outsourcing may cause for the company.

1. Complexity and lack of staff training. A standout amongst the most difficult parts of offshore outsourcing is the difficulty in finding qualified workers or in training the existing ones. The language barrier can make it difficult to evaluate the quality of the employees' training and preparation as well as can prompt quality control issues or diminish production effectiveness in case if the training methodology is not managed directly (Mayers, 2016). Moreover, the time gap and distance between the countries can make training ineffective and cause a significant loss in quality of customer related services.

2. The difficulty of technology setup. Offshore outsourcing can prompt complex technology issues, such as guaranteeing that offshore employees have full access to the company's domestic servers, have needful tools and equipment for completing their tasks, and, in general, have the equivalent or the same capacities as the domestic employees. A failure in assuring the network setup can lead to missing deadlines and other miscalculations.

3. Onshore stakeholder concerns. Outsourcing to such a distant country as India can have a negative effect on the onshore employees' morale. The company's customers and domestic partners may likewise express worries that outsourcing abroad will lessen the quality and level of products and services they are usually getting. There could be no "one size fits all" response for deciding if outsourcing will satisfy all stakeholders, domestic employees, partners, and, of course, clients. It is very important to consider various elements that are particular to the company's business needs and engagement model.

4. Cultural mismatch. Indeed, even with local outsourcing, contracts in organizational cultures can be an issue. Offshore outsourcing to such a distant country as India is likely to have significant organizational differences, in addition to a contrast in employee morale, social order, and behavioral standards that might be hard to comply with. Introducing an individualistic culture with the hard-driving attitude towards work such as the United States into a conflict-avoiding and consensus driven Indian culture can cause a cultural clash and lead to conflicts within the company. Differences in religious beliefs and language barriers could present another complication and lead to further misunderstanding.

5. Lack of communication between different departments. A time difference and a language barrier that exists between the two countries can lead to potential misunderstanding between the employees of domestic departments and the offshore ones. A difficulty in communication can leave the offshoring staff members not specifically included in the company's targets and strategic plans which will lead to disruptive conduct.

Not all organizations will find themselves comfortable while locating an offshore operation, particularly doing that for the first time. However, to make a coherent decision on whether or not to relocate a domestic call center to India, the company needs to analyze the genuine expenses of treating the domestic department with those of relocating it to a new place. That implies assessing the company's specific requirements for a given offshore operation along other measurements, for example, availability of specialists, business environment, or connectivity and seeing how different location in India can address those issues — and at what cost and risk —for the planned future.

The issues confronting the problem areas, combined with the development of numerous cities in India capable and willing to give offshore services, imply that picking a site has turned out to be more difficult. The company needs a procedure for articulating correctly what it requires from an offshoring service and accessing all the areas that could address those issues into the future at suitable risk and cost. This includes assessing current conditions and how dynamic free market activity conditions in the local labor markets are prone to influence the organization's operation after some time (Farrell, 2006).

The company ought to weight information on alternative locales on the premise of the relative significance of the components driving its choice to go offshore. In case if the requirement for the lowest-cost laborers is the primary impulse, then information on this variable ought to get the most noteworthy weighting. However, some organizations also choose to give generous weight to different elements, for example, the measure of the business sector open from a specific site or whether any supervisors from the domestic department will need and want to relocate to another country to proceed with offshoring. A careful examining of these and other issues connected to offshore outsourcing as well as ranking the potential of outsourcing will give a more genuine answer to the question.

The analysis of the general supply of skilled low-wage laborers shows a huge growth in the quantity of college graduates in developing nations: 5.5% every year, contrasted to a yearly increment of only 1% in developed nations. Obviously, developed nations have a bigger base of graduates, still a fast development in the developing nations' graduate pool is gradually closing this gap (Farrell, 2006). Below presented a case of a company that took an advantage of a pool of low-paid skilled laborers in one of the developing countries trough going offshore.

General Electronic Case

General Electric (GE) is an example of the successful offshore user. GE Capital uses offshore services for bookkeeping, customer management, and transaction processing. Through all business departments, GE utilizes offshore administrations for call center, help desk, debt accumulation, and remote trouble managing. What is more, for design and engineering, GE utilizes India's and China's innovation center for R&D and an engineering examination center. Comparing the development of third-party suppliers with that of "captive centers", organizations that have built up their own offshore arrangements, the last grew to 90% (Craig, 2008).

General Motors (GM) is the perfect case for outsourcing and has been subsequent to the 1980s. At that time, the company outsourced for all intents and purposes its whole IT services to Electronic Data Systems (EDS). After some time, as GM's outsourcing model has developed and differentiated to various suppliers, one thing has finished what had been started, GM's internal IT group. At present, the group comprises of about 2,000 individuals and stays in charge of overseeing outsourced services. Within the company, the role of IT has not decreased, IT organization is still in charge of conveying business services, but the model has changed on an external level. There are a couple of zones where such an outsourcing model has a tendency to be especially fruitful. One is the point at which IT organization uses it to address those zones of the business that are outside its key competency. For GM, that principal competency is vehicles producing, not IT. GM has benefited a lot from understanding this early and moving towards an outsourcing model ahead of a significant part of the

A study from Deloitte reports that endeavors who apply outsourcing plans are concentrating too vigorously on decreasing expenses mainly through labor arbitrage, bringing about increased risks and dissatisfaction despite the fact that most organizations are acknowledging critical cost investment funds. The Deloitte Consulting study found that 83 percent of surveyed organizations had accomplished a ROI of more than 25 percent on their outsourcing ventures. Nonetheless, 49 percent of the surveyed organizations said they would have characterized administration levels that adjusted better to their organizations' business objectives on the off chance that they could begin their outsourcing plans once again, and just 34 percent of respondents reported that they had received advantages from the transferring of their operations to another location. Below is an example of a major company that had met critical disadvantages while going into offshore outsourcing and ended up shutting down the outsourcing plan.

Hyatt Case

Numerous hotels outsource some of their departments offshore. Offshore outsourcing can be accessed all around the globe. In 2010, Hyatt lodgings started outsourcing some of their bookkeeping customer services to India. Prior to this move, the bookkeeping departments at the properties where the visitors stayed were in charge of the calls. When a certain severe customer service issue was raised, Hyatt Corporate Offices got included and assumed control over the case. Hyatt additionally outsourced financial departments to India. Every hotel still had a finance expert, however once the payroll was finished it was sent over to India for final approval and check conveyance. At the point when Hyatt made a move to outsourcing this department offshore numerous clients and employee started to appear. Clients had difficulties with understanding the accents of the Indian representatives when communicating in English. The agents were completely prepared and ready to handle the telephone calls yet it did not always work properly because the clients got to be disappointed with the accents. Numerous calls transferred to the Indian offshore call center brought about multiple client complaints and a conceivable misfortune in future business. Moreover, the domestic employees were complaining about the long time it took for Indian representatives to proceed with payroll issues (Smith, 2012).