What actually is outsourcing

What actually is outsourcing? Simply defined, outsourcing occurs when an organization transfers some of its tasks to an outside supplier. (1) Offshore outsourcing occurs when these tasks are transferred to other countries. This outsourcing may take the form of constructing facilities and hiring labor offshore to produce services or products for sale and consumption offshore. Alternatively, offshore outsourcing may involve the utilization of offshore facilities and labor for the importation of goods and services into the U.S. In both scenarios, the purpose of offshore outsourcing is to take advantage of lower production costs, increase profits, and remain competitive in an increasingly global economy.

Economists and managers easily focus on the gains that may be generated from meeting global competition in an unencumbered world economy where all competitors face the same set of constraints. Cheaper and frequently better products are generated for consumers both domestically and in the world economy. New employment and income generating opportunities in foreign markets generate new market opportunities for domestic and international producers of goods and services. Finally, international outsourcing of production and employment causes the domestic economy to undergo a new wave of evolution that sets the stage for the next surge of economic growth. An example might be that the outsourcing of parts of the manufacturing supply chain have shifted U.S. jobs from manufacturing to services and simultaneously prepared the U.S. economy to shift its attention to activities that have a higher market value.

Financial institutions and service providers subsequently found outsourcing to be a source of competitive advantage for their businesses. The Boston Consulting Group cites the following companies (and the locations where they outsourced) as among the most prominent early movers:

* GE Capital (India, China, and Ireland);

* American Express (India and the Philippines);

* Bank of America (India and the Philippines);

* Citigroup (India, the Philippines, Malaysia, Taiwan, and Singapore);

* HSBC (India and China); and

* Standard Chartered Bank (Malaysia, India, and China). (2)

Based upon this history, outsourcing will likely increase, continuing in the manufacturing sectors and expanding significantly into the service sectors including healthcare. (3)

What factors are driving these sectors to outsource their production and employment? According to Bill Sweeny, Vice President of EDS--Global Government Affairs, the decision to outsource is based upon the following factors:

* The demand of the customer;

* The type of local talent available;

* Cost;

* Productivity;

* Political risk; and

* Infrastructure delivery. (4)

Ashok D. Bardhan and Cynthia Kroll with the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, further develop this thought by explaining that the "push" factors for outsourcing services are cost driven much like they are for manufacturing, but the "pull" factors provided by the countries where services are being outsourced are somewhat different. (5) As Bardhan and Kroll clarify, the "pull" factors include the following:

What is advantages and disadvantages of outsourcing for manufacturing company?

Outsourcing allows the company to manufacture an item without the added costs associated with equipment. If a company purchases a company that makes an aerosol but they specialize in lotions, they generally outsource the work. Also they don't have to deal with labor which is a major expense with health care skyrocketing. One disadvantage is that a company that outsources has no control over the quality. If a company outsources a product and the product that is sent to them isn't up to their customer's standards, they could eventually lose the contract.

The advantage gives them a cheaper labour force , saving them cash, because they don't have to pay unemployment, over time, unions,social security, health insurance, retirement, paid holidays, and usually bypass government restrictions. They also don't have to worry about safety concerns for those employee as they are not company employees but work for the contactor furnish them. (often the company itself owns the company or a part of it and saves millions in salary, and benefits doing this. 
 
The disadvantage is the former employees lose all of their benefits such as retirement, health, paid holidays, overtime,  
salaries, live hood, often this causes them to have to lose their homes,go on welfare, government assistance, retire early and work at low paid jobs to earn enough to get by on. It also increase divorces, breaks up fa miles, cause many people to have to relocate or stop working. 
Another factor is that this leaves the companies with fewer people who can buy their products as the company has Killied their jobs. 
The final situation is that this leads to other companies folowing suit and using outsourcing. than they all must result tolooking of reven cheaper labour as the competetion gets tough due to this practice with everyone inon it. 
This results in lost of quality in service and products.