2. Outsourcing is a very relevant topic which is also very
sensitive.
Outsourcing means contracting a part of your business
• Local
• Overseas
3. Before outsourcing : DIY
Started in the 20th century
Offshore outsourcing started about 20 years ago
4. Cost saving
Focus on core business
Knowledge
Follow business
5. What should be outsourced?
Selecting a reliable partner
Transfer of knowledge
6. Low cost countries can achieve 20 to 25% gain in productivity
Companies can easily reflect the production demand
“rules-based’’ tasks are the most successful
Time-Zone Overlap
7. Endengenous
◦ Cultural issues
◦ Costs
◦ Investment
◦ laws
Exogenic
◦ RE = ∑i P(UOi) x L(UOi)
RE: risque
P(UOi) : probability of a negativeconsequence
L(UOi) : generatedloss
Editor's Notes
Today I’m going to talk to you about outsourcing, and its evolution since companies started to externalise their businesses.
Outsourcing is a very up-to-date subject. Very often on the news we hear about factories which are being moved to other countries. People often complain about the fact that the work is going away without knowing the real reasons or the real interests of this practice. Trough my presentation I will try to light you up about this phenomenon.We can observe 2 types of outsourcing: local outsourcing and overseas outsourcing. I will concentrate more on overseas outsourcing.
Before companies started to externalise their work they use to make everything themselves from scratch (from the design to the manufacturing of the product). It was a king of do it yourself practice.Everything started in the 20th century when globalisation started. The progress in the communication and transport areas gave companies new opportunities to deal with other businesses. At the beginning contracts stayed local and began to be offshored about 20 years ago.The first tasks to be sub-contracted were: human resources, payrolls, and data encoding.And the first big players in externalisation were the US and the UK. Destinations at the time where and still are low cost countries such as India, Philippines, Russia, china and a few others.
We can ask ourselves how outsourcing can be profitable for a company.There are many reasons to move a part of its business:- The first big factor is cost saving: indeed industries are looking for the cheapest labour force that can produce the quality expected.The other reason is to focus on core business. All the tasks which are ‘’simple’’, which don’t ask any special knowledge are more likely to be outsourced in order to let the company to focus on its special competencies. Another factor is to gain access to new knowledge. Some countries can offer special services which are more likely to be found outside the country (and for less money).Some times it can simply be to follow an ordering party which represent a big part of the business orders (especially in the automotive industry).
Outsourcing is a very complex practice with many risks.There are few key questions that a company should ask herself before moving a business: - What task should be outsourced? An Why outsourcing the task? Externalising a part of the business is costly. Moving the wrong or non strategic part can be disastrous. - Where to outsource? The company can’t just pick a low cost country but has to find a strategic location. It can depend on the supplier or the customer location, on the country’s culture, on the infrastructures (some countries have very low reliability infrastructures like India). - How to proceed? This will depend on the transaction cost, the local culture, the corporate culture and so on. What is common to all the outsourcings is to put in place a training program and an efficient communication strategy. Communication is probably the most important aspect in an externalisation program. If the communication is bad, directions can be misinterpreted and the work can be subpar.
Although outsourcing has many risks, if its ran intelligently it can be very beneficial for the company.We can identify many benefits such as:A 20 to 25% gain in productivity in low cost countries if the tasks are well chosen. (ruled-based tasks are more likely to be outsourced that a core-competency)It is also easier for a company to reflect the customer demand by outsourcing part of its business.Another advantage is the time-zone overlap. It can be a real advantage for a company to have offices in many different time zones. That way it is always ready to respond to any given situation.
Outsourcing business involvestakingrisks. Theycanbe of different nature: endogenous and exogenic.The exogenicriskis hard to evaluate. Everyunpredictableevent, naturalcatastrophy.There is the riskthat the companyencouters cultural problems. When a company moves to a foregn country it has to beaware of the local culture and how to adapt.Anotherrisque are the hiddencosts.
