5.4 Location Flashcards
(13 cards)
Outsourcing (Subcontracting)
is the use of third-party subcontractors for carrying out non-core activities of an organisation to improve operational efficiency and reduce production costs.
Advantages of outsourcing
-The organisation is freed up to concentrate on its core activities and strategy
-The organisation gains from the specialised services and cost advantages of the third-party partner
-Outsourcing helps to rationalise business operations, hence cuts costs and improves efficiency and profitability for the organisation.
Disadvantages of outsourcing
-Quality issues and concerns can arise with the use of subcontractors
-There are costs involved in monitoring and maintaining professional relationships with subcontractors
-There can be a potential conflict of interest with third-party providers.
Offshoring
-Involves relocating part of or all of an organisation’s functions or processes overseas to take advantage of lower labour costs or other competitive advantages.
Advantages of Offshoring
Wages may be significantly lower in other countries, allowing the firm’s costs to be reduced. The price can then be reduced (to gain a price advantage)
Similarly, employment laws in overseas nations may be less stringent, making it easier and cheaper for a business to operate.
Offshoring means the organisation can focus on its core competencies.
Disadvantages of Offshoring
-Offshoring is often associated with unethical business practices e.g., such as the use of child labour and mistreatment of workers in low-income countries
-There are potential problems arising from cultural issues and language barriers, possibly leading to misunderstandings and conflict.
-May be concerns about quality control and quality standards with overseas workers. Monitoring the quality of output of an external party is more difficult than doing this in-house.
Insourcing
-Refers to the use of an organisation’s resources to fulfil a specific job, function or project instead of it being outsourced to a third-party provider.
Advantages of Insourcing
-Insourcing involves the use of existing resources and employees, so this can be cheaper than using an outsourced provider.
-It enables an organisation to have better control of its operations.
-It helps to develop institutional knowledge (the collective historical and cultural awareness and understanding of skilled and experienced workers).
Disadvantages of Insourcing
Employees may not have the required knowledge, abilities or experience to perform the tasks in contrast to outsourced specialists.
Multinational companies that want to expand in overseas markets cannot rely on insourcing as a growth strategy.
Reshoring can be expensive as the costs of insourcing are likely to be high. This will hurt profits, at least in the short term.
Reshoring
is the practice of bringing back business functions to the domestic country from overseas.
Advantages of reshoring
Higher quality products for consumers - Offshore manufacturing offers the cheapest solution for many producers, due to the use of relatively cheap labour and technologies.
Greater control of production processes - Offshoring to foreign countries often has significantly less rigid laws and regulations to ensure quality and safety standards, including fair working conditions.
Domestic employment - Reshoring brings jobs back to the home country, which brings greater economic prosperity.
Subcontractors
-Are outsourced firms (producers or suppliers) that perform the non-core activities for their clients
Disadvantages of reshoring
High costs - Reshoring can be expensive, as the costs of reshoring production facilities are likely to be high.
Resourcing needs - There may be a lack of local expertise (which is a key reason for offshoring certain business functions in the first place).
Time lags - Businesses with offshoring activities are likely to be tied in for some time due to contracts with overseas producers.
