What Is Strategic Outsourcing

Strategic Outsourcing

Outsourcing refers to the transfer of process to a third party for getting the work done. It refers to that transfer were in small work is outsourced to agents who are specialized in their tasks. For example an electronics manufacturing unit may outsource the components and diode to be manufactured by a third party that is specialized in this particular job. At the strategic level it refers to not only the transfer of process but also the method used in the production of goods by using a different process.

There are several risks in strategic outsourcing.

  • Debasing of quality
  • Delay in delivery of goods
  • Famished production
  • Embezzlement of designing process
  • Indirectly creating a competitor

If a company has just come up in market it is not advisable for it to go for strategic outsourcing. It has to carefully analyze the economic conditions, technical capabilities of the third party etc. Here is a list of things any organization to do before it can outsource its activities to third person.

  • Look into the economic and technical advantages of the third party
  • Check the cost of outsourcing and it is always wise to add gross margin to the charge of producing.
  • Define the opportunity, limitations and performance levels clearly to the third party.

Global outsourcing has become a trend in the past 30 years. This is happening because the companies are feeling that their national parties are not providing their services up to the mark. Global outsourcing has several advantages, like it cuts the operating costs, fundamental abilities focus, it can share risks with partner companies, contact global competences etc. Outsourcing initially started with manufacturing companies and then gradually its importance was looked in to all the sectors.  Now days in IT and ITES sectors outsourcing has become an objective itself.

In global outsourcing there are other risks involved which are as follows:

  • Governmental effects: since it involves more than one country the parties ruling the respective countries will have a influence on the strategic outsourcing decisions.
  • Charges: these are critical when it comes to global outsourcing, since an earlier political party that was in force at the time of outsourcing agreement has to convince the current party that is in force for getting the agreement of outsourcing cleared.
  • Exchange variations: the stock market and the economic conditions play a very important role. If any one of the country that is a party to outsourcing is facing economic slowdown then it is a very critical risks for both the countries under the contract of global outsourcing.