Outsourcing in the World

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Federal State budgetary institution of the highest education

«FINANCIAL UNIVERSITY UNDER

THE GOVERNMENT OF THE RUSSIAN FEDERATION»

(Financial University)

 

CHAIR OF “MICROECONOMICS”

 

 

«Outsourcing and its role in modern economy»

 

 

 

 

Written by: 

Student of  IFF 1-4

Dyukov Daniil Dmitrievich

 

Tutor:

Slobodyanik Victor Vladimirovich

 

 

 

 

 

 

 

 

 

Moscow 2012

 

 

 

Contents

Introduction - 2 -

1. The concept of outsourcing - 4 -

1.1 The theory of outsourcing - 4 -

1.2 The process of outsourcing - 15 -

2. Outsourcing in the World - 17 -

2.1 Outsourcing in General Motors Company - 17 -

2.2 Outsourcing in Russia - 18 -

The conclusion - 20 -

Literature - 22 -

 

 

 

 

 

 

Introduction

 
Outsourcing happens when a company decides to purchase a product or service from a source outside of the company. It generally refers to products or services that were once done in-house, now purchased from a source external to the company. We do outsourcing in our everyday lives, such as dining out, whereby we purchase our prepared food from an external source— a restaurant— instead of making the meal ourselves.¹

Outsourcing - the modern methodology of creating highly effective and competitive organizations in a highly competitive three economic centers established by the beginning Simply speaking, outsourcing - the transfer of a third party company activities previously carried out within the organization. Subject outsourcing of virtually any non-key functions in the organization today is very relevant. Fleet management, travel, personnel, logistics, even the assembly line are transferred to specialized companies. Fit for outsourcing functions are mature, those which are not expected to innovation that can give the company a strategic advantage. Therefore, companies are outsourcing to focus on their core business, rather than administer canteens, as cleaners, in the accrual of pension funds, catching a computer virus.²

The origins of outsourcing relate to the period of confrontation in the automotive industry of the two great managers - Henry Ford and Alfred Sloan in the 30s. XX century. When it became clear that no firm can not be self-sufficient, so it is advisable to pass a number of functions to specialized firms. This was especially true of auxiliary production: maintenance and repair of equipment, production tools, etc. The expediency of transferring to the side of a variety of services for the manufacturing process in the automotive industry is due to several factors: 
• The technological complexity of the car production process; 
• High cost of the restructuring of production lines; 
• increasing competition in the international automotive market; 
•The process of economic globalization; 
• Increased demands for quality.

 

According to analysts, the company is now two-thirds of Ford parts and services ordered on the side (at 100% independent production of parts and vehicles at the time of its inception), and many computer companies (in particular, Dell and Compaq) switched to 100% of production outsourcing . 
In 1990. Some theorists management argued that the most important factor in maintaining competitiveness is the division of functions on the major and minor, and then transfer all the secondary functions of a specialist in this field. This idea was not new, but it was definitely one of those "whose time has come. "Discussions on this subject became more heated, and in the course of these disputes was born the concept of virtual organization. According to the theory underlying the virtual organization, any function that is not the main, should be transferred to an external expert in the field. 
Many scientists believe that outsourcing was developed in connection with the development of information systems and technologies, especially in activities related to programming, network administration and support of information systems in general.  
 
The relevance of this work caused by the increasing development of outsourcing as one of the most interesting and rapidly developing approach to doing business.

The purpose of the study - to justify the benefits and the possible economic effects of outsourcing in the activities of commercial firms.

 
The main objectives of the study as part of the subject: 
- Describe the concept of economic substance and the conditions of use of outsourcing in today's business; 
- To analyze the benefits of outsourcing; 
- Classify the existing forms and types of outsourcing; 
- Justify the use of outsourcing in terms of improving the efficiency of the enterprise; 
- Show positive and negative aspects of use of outsourcing

 

 

 

 

 

1. The concept of outsourcing

1.1 The theory of outsourcing

 
Almost in all sources expression outsourcing means "outside", "out the borders." This is could be: 
1. Using the services of outside companies to perform their tasks. 
2. Rejection of the own business processes and purchase services to implement this business process in other organizations.

3. Using an external organization for processing banking and other financial data in commercial transactions.

4. Attracting external resources to solve their own problems (for example, development projects). 
5. Transfer of production from the region with more expensive labor force in the region with less expensive to reduce costs.

6.  Extracting data from external sources (as opposed to obtaining data on their own). 
7. The conclusion of contracts for works with outside firms that have no union. 
8. The transfer of the companies operations abroad to use remote work of programmers.

9. Using a temporary employee without an employment contract with him (sometimes mediated by a specialized agency). 
10. Maintenance and repair equipment of the company by the external experts . 
11. Cooperation. 
12. Application of restriction of their own production activities, when the organization stops to engage itself in any direction (kind of) activity and sends it to the outside performers. 
13. Adoption of organizational solutions, which consists in the distribution functions of the business system in accordance with the principle of "leave yourself only what I can do better than others, to external performer that he is doing better than others." 
14. Transfer internal divisions or departments of the enterprise and all related assets to the organization of the service provider, offering to provide a certain service for a certain time at an agreed price. 

From these definitions it is clear that the the horizon of the use of outsourcing has no borders: manufacturing, services, finance, information technology and systems, development strategies, human resources, etc.³

 
But in any business must be defined parameters and criteria. 
It should also be noted that in the scientific literature meets a number of terms similar to outsourcing: 
shrinking - the reduction, compression of the organization; 
downsizing - reduction of the organization; 
deleyering - limiting the number of management levels; 
spin off - a selection of business units; 
externalization - the transfer of control over the implementation of any function to the company, which specializes in this area. 
However, they represent only a special case of application of the methodology of outsourcing.⁴

 
Sometimes, instead of the term "outsourcing" the term "Facilities management" is used. Outsourcing means an increase in value, and facilities management agreement simply shifts the responsibility for personnel management, property and equipment for another organization. For example, if a company wishes to transfer only part of the functions of the IT department who uses the old or legacy systems, including staff employees, equipment, system software and communications, the usual management agreement capacity would be sufficient. But if the organization also wishes to instruct another firm to develop applications and convert it into staff working in this area, it would be more correct to call this type of outsourcing agreement because it is an element of increasing the value⁵

 

 
The application of outsourcing companies develop their own forms, which can be classified as follows:

1. The full (maximum) outsourcing

This term is used to describe the contract by which staff, and possibly assets related to the the basic of the company (in fact 90% of such activity), such as information technology or finance, sent to the service provider for the time of the contract.

2. Partial (selective) outsourcing

This form outsourcing may appear only in the manufacture of various high-value products (eg household appliances). 
In addition, partial outsourcing may include a particular package redirection functions to another firm or created for this purpose subsidiary, as the experience that they have accumulated in certain areas of production, gives some benefit. 
Use of the opportunities outsourcing allows firms to eliminate the traditional market competition, particularly price, as well as a potential threat to innovation and other forms of competition from a third party. 
In accordance with this agreement, much of the division of functions is managed by the client.

3. Collaborative outsourcing

 
The term "collaborative outsourcing ', introduced by the British company EDS, describes one of the options for outsourcing, in which the parties to the agreement are partners. Recently, however, some experts use the term to describe the subcontracts involving multiple service providers.

 

 

 

 

 

 

 

4. Intermediate outsourcing

 
This kind of outsourcing occurs when an organization transfers the management of their systems and platforms to a third party, believing that its own IT professionals are able to develop new systems. An organization planning to implement an intermediate outsourcing, usually shows a high level of confidence in the abilities of their IT professionals.

 

5. The transformational outsourcing

 
Unlike the intermediate outsourcing, the organization invites a service provider that fully reorganize work units, developing new systems and creating a solid base of knowledge and skills, which then passes to the customer. The transformational outsourcing is different from the full only in that the transition of employees and assets is not final - at the end of the project the client regains control and takes its responsibilities. For many, this sounds like the usual services of a consultant. The only difference is that the transformational outsourcing provider usually operates quite independently of the client's staff. No wonder that there are few real examples of transformational outsourcing.

 

6. Outsourcing of joint ventures

 
Outsourcing involves the creation a joint venture of the new company for future business opportunities. Staff and assets of the client will then be transferred to this joint venture, not the service provider. The aim would not only improve the quality of transferred unit, but, more importantly, the development of products and services that can be sold to a third party. Then the customer and the provider share the profits earned by the new company. Thus, the service provider will be able to fully utilize their capabilities to create systems, and the client will share with them the costs of developing new software. The joint venture takes advantage, using specialized knowledge of their customer market. Some goods and services of the joint venture will be developed using the opportunities that have arisen due to conclusion of agreements for the full outsourcing.⁶

 

 

 

In the world of business practice used by many different types of outsourcing, but they are all based on very simple idea. Its essence lies in the fact that any company, whether it's a small bakery or an international corporation specializes only in a limited number of processes. All other processes are not its specialization, which means that the company is unlikely to be able to implement them effectively. In terms of building the ideal business process, management of all non-key business functions is more profitable to give a service provider - a third-party companies that can do them better and cheaper. Let's consider a few basic types of outsourcing⁷

 
1. Business Process Outsourcing⁸

 
In the outsourcing industry, the term "business process outsourcing" describes the range of secondary technological processes which structure is constantly changing. Typically, this complex includes finance and accounting, human resources, procurement, calculation and payroll accounting, internal audit, the calculation of taxation, service centers and a number of customer-specific processes, specific to the industry.

2. IT Outsourcing

 
Currently, the term "IT - outsourcing" mean any transfer of the execution of IT processes outside the companies. By IT processes include the design, development, implementation, maintenance and development of IT infrastructure. Thus, by outsourcing IT services can be attributed very different activities – from software development and IT consulting services to printers company outsourced. 
IT outsourcing became popular due to the development of information technology in the late twentieth century. Most companies, both small and large, it is advisable to entrust the business to ensure their operation of IT support to specialized companies. This saves time and money. It should be noted that IT outsourcing is the most used form of outsourcing in the world due to high rates of development of computer technology. 

 

 

3. Outsourcing of production and economic

 
Production and economic outsourcing - one of the most common types of outsourcing, in which the care of the operation of real estate, cleaning services, nutrition workers, transport park management companies, and other goods inventory services . etc. fall on the shoulders of outsourcing companies.

 

4. Industrial (or manufacturing) outsourcing

 
There is an industrial (or manufacturing) outsourcing, where the company is more profitable to attract outsourcing than to the production process on their own. So often act electronics manufacturers and telecommunications companies. 
Release from a number of labor-intensive and non-core operations, makes it possible to focus on developing new products or services and, if necessary, quickly and painlessly restructure the production process. 
The main advantages of the industrial (manufacturing) outsourcing - reducing cost of production, quality and reliability of the outsourced functions, access to new resources.

5. Accounting outsourcing

 
Accounting outsourcing - one of the options for accounting in the enterprise for which has full responsibility, in accordance with Russian legislation, the head of the company. 
Theoretically and practically, the accounting company can fully perform all functions of accounting business until the execution of bank transfers, and exhibiting original documents counterparties. However, this does not exclude the possibility of building a quite complex and flexible business processes with external companies and their employees to achieve maximum efficiency.

6. Outsourcing of office printing

Outsourcing of office printing - the use of technology specialized company for office printing. The transition to pay for a printed page. Through the use of more efficient equipment may reduce the outsourcing company to a current operating costs for supplies and service. It assumes the risks and costs associated with the operation of printing equipment, until replaced in case of failure of operative repair. 
For a small company, with an unstable volume of printed works, this approach can significantly reduce the need for initial working capital. This allows the company not to make large single costs for the purchase of equipment.

7. Outsourcing as hiring – outstaffing

 
  Quite often, different companies have a need to hire skilled workers without legal registration. To solve this problem and turn to outsourcing to companies that are most often recruitment agencies. There are three types of out staffing - staff leasing (staff leasing), recruitment of temporary staff (temporary staffing) and removing personnel from the staff (outstaffing). 
  In the first case there are such relationships, when a recruitment agency enters into an employment contract with the employee on his own behalf, and then forwards it to work for more than 3 months. Temporary staff is selected for the short-term projects - from one day to 3 months. Typically, this staff recruited for a period of illness or vacation of one of the staff, as well as administrators and support staff at exhibitions, fairs and conferences. Withdrawal of staff for the state means that the recruitment agency chooses not staff, and draws in his State of the existing employees of the client, which then remain at the same workplace. " 

8. Outsourcing of marketing

 
Outsourcing of marketing - is the transfer of functions of marketing company specializing in this field. By outsourcing marketing resorted to when the company is more profitable to solve marketing problems to use the services of specialized companies. The choice of marketing work to transfer to outsourcing is unique to each company. It depends on the specifics of the company, availability in the state of the company have enough of their own marketing and the level of their qualifications.

The advantages of outsourcing marketing: 
- Cost savings on maintenance and management of the marketing department; 
- The narrow specialization of marketing specialist allows the customer company to not only get results, as well as to solve specific problems; 
- Reduces the likelihood of poor-quality solution; 
- Outsourcing of marketing gives a company additional competitive advantages.

Outsourcing services for state power bodies and local government 
In Russia, outsourcing, in general, demanded for small and medium businesses, as well as enterprises at the stage of formation and rapid growth. 
Dynamic market every day poses new challenges in business. To provide a good level of profits, entrepreneurs have to cut costs. One way to save money - to request part of the work to external performers - outsourcing firms, outsourcing operators.

In the area of ​​support and development of small and medium-sized businesses:

 
• The organization and conduct of research and analytical work in different directions and topics related to the development of small and medium-sized businesses; 
• Preparation, organization and conduct promotional activities (round tables, conferences, etc.) of subjects of entrepreneurship (including youth and innovative direction, as well as foreign economic activities of small and medium-sized businesses); 
• Preparing, organizing and conducting training activities, as entrepreneurs, and representatives of government and local governments, and organizations supporting infrastructure; 
• Development of regional programs to support and develop small and medium-sized businesses that contain innovative mechanisms and tools to support, as well as monitoring and feedback; 
• Development and implementation of programs and activities to develop, support and development of infrastructure organizations to support small and medium-sized businesses; 
• Development and publication of practical guides and brochures, teaching materials in some areas.

In the framework of administrative reform: 
• Developing and control of operations federal, state, municipal, special programs, including departmental; 
• improving the quality and effectiveness of government. Implementing a quality management system for regional and municipal administration in accordance with international standards; 
• regulation and standardization of performance of public functions and public and municipal services; 
• improving the quality and availability of public and municipal services; 
• Improving management of subordinate organizations; 
• optimization of functions of the executive branch (changes in the structure of executive power on the basis the construction of of functional units ); 
• expert review of normative and legal acts; 
• Design, creation and development of multi-functional centers for the provision of public and municipal services . 

 

The reform of public service:

• regulation of the interaction between government officials of various government agencies in the performance of official duties; 
• mechanisms of interaction between the civil service at federal and regional levels, as well as public service with the municipal service; 
• mechanisms for independent experts and civil society assessment (audit) the impact of the professional performance of public servants; 
• institutional mechanisms to ensure the objectivity of the selection of independent experts in the Commission on Public Service, created in the apparatus of government; 
• Information management systems in the public service (a system of personnel management, work planning and evaluation of civil servants); 
• mechanisms for combating corruption in the public service; 
• Ensure compliance and relationship goals and objectives of government regulations and officials of public servants; 
• ensuring compliance with regulations of officials of public servants administrative regulations of state agencies; 
• Electronic information systems planning, regulation and monitoring of professional performance of public servants based on the performance and effectiveness; 
• A system of indicators for assessing the impact of the professional performance of public servants; 
• program and project objectives and principles of organization of public servants