Essay on Outsourcing and Company

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Does Outsourcing Save Money

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October 7, 2006

Jacqueline Lance

In this day and age, we wonder why major companies outsource and whether they are really saving money. A website named investors.com said, “More than 1.3 million additional Western jobs will vanish by 2014 due to outsourcing”. Outsourcing to foreign countries can help save larger companies money, by reducing cost and increasing revenue. Companies are finding more ways to save money and increase productivity. Outsourcing might not look like the best decision to consumers in reality it is the best choice for a business. Even though a lot of American workers are out of work, there are still several benefits to outsourcing. The main benefit to outsourcing for most companies is saving money. In this current economy it is hard to save money in America with the cost of just about everything increasing daily. Companies have no other choice but to outsource, or they might have to close down. In order to keep up with consumer demands, major companies are outsourcing to foreign countries, were they are able to get tax breaks and cost reduction on materials. With the cost savings that the companies receive they are able to produce a better product. There are several things that must be completed prior to determining if out sourcing is the best option for your business.

Outsourcing in foreign countries is becoming the new way for companies to save money. Before a company can make the decision to outsource that company must first look at the pros and cons. The number one reason most companies decide to outsource is to save money. “Outsourcing involves the procurement of physical and/or services performed internally or abstention from an activity that is well within the capacity of the firm.” (Salanţă, 2011) Other benefits of outsourcing are: focus being increased on companies core functions, cost reductions, flexibility increased and increased competiveness. Other factors that play into cost saving for companies are the wages in foreign countries are lower. Since the wages are lower companies are able to higher more employees and can also provide more training available to them. The high regulatory cost of paying a US worker and a foreign worker is a big comparison. Some countries offer tax benefits for companies that chose outsource their business. With all the saving made by outsourcing, a company is able focus on core activities. Even though there are many benefits to outsourcing, there are several risks that companies should be aware of. Some of those risk are: “selecting an inappropriate supplier, loss of customers/opportunities, loss of reputation, high degree of uncertainty because of the volatile business environment and low morale.” (Salanţă, 2011) Many people are against outsourcing in foreign countries because they say that jobs are being taken away from Americans. They must look at the good and the bad to really determine if what is being done is really hurting anyone. There are many different aspects that make outsourcing a good decision for companies.

After a company researches the pros and cons of outsourcing, they look at the important areas such as time being saved and the increase in production. There are three questions a company should ask and answer prior to outsourcing. Those questions are: “What does the company seek to through the outsourcing arrangement?, Has a convincing reason for outsourcing been developed?, and Are the goals for the outsourcing arrangement strategic or operational in nature?” (Juras, 2008) If a company can not answer those questions, then they are not at the point where they should make the decision to outsource. Just because the company knows that they can save money by outsourcing, does not mean that is the best decision for that particular company. With the time difference in foreign countries companies are able to meet deadlines faster and provide better
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