Outsourcing – the future of business
Outsourcing is becoming a more and more actively used term. The concept of it is simple – contracting out a business process to a third party. Contracting can be both foreign and domestic and include both services and the production of goods. In this podcast we will look at reasons to outsource, the advantages and disadvantages of it, as well as the implications of outsourcing for the world.
It's a no brainer that the key reason why so many companies choose to outsource is to avoid or at least minimize certain costs. These costs may include taxes, energy, production or labor costs, and mandated benefits ( social security, safety protection and medical care). Yet what is interesting to know, is that even though companies are trying to reduce their costs, it seems those reductions include only some specific ones. In 2011 almost 30 biggest US corporations paid more to their CEOs than to the government in taxation. This just goes to show that companies, at least in the US, are willing to cut down the costs of most things, but the top management salaries.
Yet there is a less obvious advantage of outsourcing, which is moving into the fastest growing markets such as Brazil, Russia, China and India. Such a step implies that a company is able not only to lessen the costs, but also gain market share in the country it has outsourced its operations to.
On the downside, the clients can get frustrated if made to speak to a person who is on the other end of the world and speaks very basic English (something that often happens with call centers in India).
Apart from that, clients security can also be threatened. That was the case for Citibank in April 2005 when a couple of call-centre workers stole around 350.000 dollars from four clients' accounts.
Yet another major problem, created by outsourcing, is that the developed world is rapidly losing its jobs. A good example of this trend is General Electric (GE). In 2000 around 30 per cent of its business was overseas, whereas now this number is close to 50 per cent. This means that in about 13-14 years, almost 30 per cent of the GE workers in the US were let go.
When it comes to the environmental issues, outsourcing is claimed to have lowered the environmental standards. This is mainly due to the fact that developing countries compete to attract foreign investment and projects. And they get their competitive edge by sacrificing the environment.
It‘s quite obvious that in the case of outsourcing, the disadvantages clearly outnumber the advantages. Yet from the viewpoint of any business owner, the trend is here to stay, so the only thing to do is to focus on the upside and do our best to diminish the downside.
1. contracting out - giving work to another company instead of using your own company to do it
2. a third party - a person or organization that is not one of the two main people or organizations involved in the business
3. implications of - possible effects or results of
4. It's a no brainer – it's obvious
5. mandated benefits – additional things that an employer has to give to each employee because the law states so
6. social security - the system by which the government regularly pays money to people who do not have a job, or who are too ill or too old to work
7. This just goes to show that – this proves that
8. Implies - suggests that you think something without saying it directly
9. not only to lessen – not only to make smaller
10. On the downside – as a disadvantage
11. get frustrated – get upset or annoyed because you can't achieve something
12. can also be threatened – can also be harmed, caused damage to
13. rapidly – quickly
14. were let go – lost their jobs
15. due to – because of
16. competitive edge – something that makes a company better in comparison to other companies (e.g. better location, knowledge of the market etc)
17. outnumber – bigger in number, more
18. diminish – make smaller