Table of Content | | I. About this report | 2 | | II. Introduction a- Outsourcing b- Benefits c- Risks d- Reasons e- Case study 1 Korean bank and IBM f- Case study 2 Apple and outsourcing g- Outsourcing in real economy h- The Apple China connection i- Bibliography | 33455611121314 |
About this report
This report will summarize the observation, findings and discussion about the outsourcing core reasons, why companies go for outsourcing and what are the risks involves as well as the benefits.
Included in this report are two real life recent examples of outsourcing titled as case study 1 and case study 2.
We expect this report to be of significant interest for the non-financial and financial readers and other interested public i.e. shareholders or stakeholders as well as investing and analyst community from overseas who have interest in how the work is done in global corporations and more specifically in profit maximizing schemes of their nominated businesses in order to make investment decisions.
Umair Ahmed - 104308
Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees. Often the tasks that are outsourced could be performed by the company itself, but in many cases there are financial advantages that come from outsourcing. Many large companies now outsource jobs such as call centre services, e-mail services, and payroll. These jobs are handled by separate companies that specialize in each service, and are often located overseas.
Outsourcing also allows companies to focus on other business issues while having the details taken care of by outside experts. This means that a large amount of resources and attention, which might fall on the shoulders of management professionals, can be used for more important, broader issues within the company. The specialized company that handles the outsourced work is often streamlined, and often has world-class capabilities and access to new technology that a company couldn't afford to buy on their own. Plus, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries.
Benefits of Outsourcing * Access to expertise
* Focus on Core Business.
* Lower cost
* Higher quality
* Expensive capital goods requiring scale
* Enhance capacity for innovation
* Capacity management. Risks of Outsourcing * Contract risk
* Outsource firm risk ( insolvency, strikes)
* Future pricing risk
* Compromise in competitive advantage
* Information privacy risk
* Firm specific task
Reasons for outsourcing
Organizations that outsource are seeking to realize benefits or address the following issues:
Cost savings — The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation,and cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.
Focus on Core Business — Resources (for example investment, people ,infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.
Cost restructuring —Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
Improve quality — Achieve a steep change in quality through contracting out theservice with a new service level agreement.
Knowledge — Access to intellectual property and wider experience andknowledge.
Contract — Services will be provided to a legally binding contract with