Research Paper on Outsourcing and its Effects on Business is published for informational purposes only. The free papers are not written by our writers, they are contributed by users, so we are not responsible for the content of this free sample paper. If you want to buy a quality Essay on Research Paper on Outsourcing and its Effects on Business at affordable prices please use our essay writing services offered by EssayEmpire.

Outsourcing can be defined as a contract service agreement as a company's decision to hire an outside firm to handle the company's IT responsibilities for a specified time. It involves reassigning a considerable amount of management control to the supplier or the vendor. The primary reason for outsourcing IT jobs is to gain immediate economic gains for the company, usually comes from saving costs which allows companies to be more competitive. The strategic decision to outsource is one that is made by the higher management when they realize that the handling of these operations by another party will reduce costs and expenses. In the early 1990s, outsourcing became better known since there was a growth in the number of high-tech companies who were not large enough to be able to maintain their customer service departments on their own. The first company that established the outsourcing business was EDS (Wikipedia, 2005). Nowadays, more companies are leaning towards outsourcing because are finding it difficult to supply IT services from within in order to remain efficient and competitive. For this reason, IT managers decide to choose transfer non-core activities such as IT services to foreign specialist supplier who can potentially deliver quality services at a lower cost. Outsourcing is also seen as an effect of globalization. Outsourcing, especially to India and China, is rooted in increasing globalization and global economy of scale (Kriegel, 2004). To attain and maintain global competitiveness, it is wise for the companies to transfer their high-cost professional jobs to low-cost countries.

Outsourcing has been occurring for decades and has using affected the manufacturing sector in the past. Since cheap manual labour was available overseas, corporations became profitable by outsourcing tasks to foreign markets. In the early years in North American History, America outsourced tasks of building covered wagon covers and clipper ships' sails to workers in Scotland, with raw material were imported from India. England's textile industry became so efficient in the 1830s that eventually Indian manufacturers couldn't compete, and that work was outsourced to England (Kelly, 2004).

The roots of modern outsourcing are associated with the computer bureau of the 1960s which offered business support services such as payroll data processing. The outsourcer's investment into the infrastructure would be recovered from its client group, who in return received up-to-date processing services for significantly less cost than acquiring and maintaining its own operations. In the US during the 1970s, it was a common practice for companies to outsource their payrolls to out of state vendors for processing tasks. During this time, most of the tasks were outsourced to out of state service providers, not overseas service providers. In the 1980s, most common tasks that were outsourced included accounting services, payroll, billing, and word processing and in the late 1980s outsourcing started to emerge in the business world (Moore, 2005). Meanwhile, in technology circles, the focus on outsourcing turned from its efficiency to its economy and productivity. Companies like Kodak, American Standard and EDS were some of the first companies that caught the business eye through the use of outsourcing.

Over time outsourcing started with blue-collar jobs such as manufacturing. Recently outsourcing has shifted more towards white-collar jobs, such as back-office work, call centers, IT, software programming, and financial analysis. This movement is made possible by advances in communication and driven by increasing global competition.

In today's world, most successful companies also beginning not only to outsource unskilled manual labor tasks but also white-collar tasks. Companies like Dell Computers and Cisco Systems rely on their suppliers to do their development work. Dell Computers focuses on the few aspects it performs well and outsources the rest of its responsibilities (Woody, 2004). Also corporations are beginning to outsource more highly skilled positions such as financial services, human resource services and information technology services.

There are many reasons that a firm might outsource some or all of its information system services. Companies today want to make use of the outsourcing advantage in order to progress and stay abreast of the competition. This is the reason why more and more companies irrespective of certain failures are entering the race of outsourcing. Here are some of the main advantages:

Lower costs and quality concerns: It is possible to achieve high-quality systems at a lower price through economics of scale, better management of hardware, lower labor costs and better software licenses. Since the wages and rent of the workforce in outsourcing destinations like India and China are low, outsourcing makes it possible to attain high quality information systems at very low rates. This in turn reduces costs and improves productivity which allows companies to save on operational costs. In fact most companies can cut their operating costs to half by outsourcing. This allows a company to stay ahead of its competition by providing better service and better customer satisfaction. Since all corporations are pursuing low cost and high return on investment, it makes economic sense to produce products or provide services where the labor cost is lower. In addition to its low cost of living and wage standards, outsourcing destinations such as India, has a huge highly educated workforce that speaks English fluently. These jobs, which require English speakers, are often liable to flow to India, including call centers and software programming (Canadian Heritage, 2004).

Simplifying and downsizing: Organizations under competitive pressure attempt to focus on their core competencies by cutting huge costs through outsourcing while their non-core operations are looked over by a specialized foreign firm. Outsourcing frees up human resources and allows the company to be more flexible for future changes and avoids potential internal problems as they become the responsibility of the outside firm. Outsourcing leads to tighter relations between strategy and IT. Knowledge which usually flows slowly can flow freely, and a company has more access to outside technology. Outsourcing can also unlock organizational structures which provide better mechanism for costing user requests, prioritizing technology initiatives and controlling expenditures (Canadian Heritage, 2004).

The availability of a highly motivated workforce: Business process outsourcing is also not just about cutting costs. The willingness to work in certain areas, such as centers and back-office functions are much higher in outsourcing destinations like India than in North America since call center turnover is generally pretty high and motivation is very low. Also employees are more willing to work overtime or finish work at home in places like China where as its lower in North America.

Problems in IS performance: IS departments may have problems meeting acceptable service standards because of cost overruns, delayed systems, underutilized or poorly performing systems. During such cases, the higher management may decide to increase its reliability by outsourcing to outside vendors or suppliers.

For every advantage there is always a related disadvantage, and one must not overlook the disadvantages of outsourcing. These disadvantages are the reasons why companies should thoroughly do their research and think twice before outsourcing. Outsourcing contract failure costs can be considerable and can be very complicated to turn around. Here are some of the main disadvantages:

Loss of jobs and its effects: Outsourcing results in loss of jobs in first world nations that cause employees to respond negatively from the fear of losing their job and thus affecting their quality of work. The current employees in the company that outsourcers may feel threatened due to outsourcing and may not work as useful as before. The attitude of people in the developed countries against companies that outsource is not that great and the domestic IT intellectual property resources have been decreasing because of the fear of outsourcing. "The number of students in engineering and IT is going down. ... Staying ahead means setting a very high bar," Gates said (Kallender, 2005). Loss of generated talent within an organization is another problem which is a result of job loss. Outsourcing hinders the growth of an employee by relieving him from the experience which he could have gained by handling various issues himself then by passing it over an external party.

Hidden costs: When outsourcing, companies tend to miscalculate the potential hidden costs of outsourcing which includes legal costs of putting together a contract between companies and time spent on coordinating the contracts. The total cost of outsourcing includes regular costs such as wage, rent and additional costs like training fees and transportation (MacMillan, 2004). Overall costs become underestimated since hidden and missed out costs of outsourcing are usually hard to predict. In order to be successful, a business model to needs to be developed to determine the true cost of doing business.

Security and confidentiality: Another disadvantage is that outsourcing can also prove to be a threat to the security and confidentiality of issues of a company. If your company is outsourcing important business processes such as payroll, confidential information such as salary will be known to the outsourcing service provider. Therefore one must be very careful in choosing which business process to outsource and which one not. Customers in developed nations can get annoyed if they find out their personal details (bank, credit-cards etc) are in foreigner hands instead of domestic hands (Canadian Heritage, 2004).. Competitors can also be using the same Foreign Service provider which could potentially cause leakage of valuable information.

Cultural conflicts: The firm and its supplier may develop problems with communications because of language and culture barriers. What is accepted in one culture maybe different in another, causing worker and management related problems. Since is no proper alternative for a face-to-face meeting, lack of communication between the company and their supplier may possibly lead to major losses. The company will eventually reach a point where a decision between inexpensive labor and loss of communication needs to be made (Yee, 2005).

Loss of control: Outsourcing also results in the loss of control of business operations to the Foreign Service provider. Many businesses are suspicious of outsourcing because they're concerned about handing over key business functions to an outside business over which they have no control over. This happens since it is harder to manage the outsourcing service provider when compared one's own employees.

Many organizations that have benefiting immensely because of outsourcing and the success stories keep increasing. Cinergy and JM Family achieved success by outsourcing processes that had clear business rules. The tasks were easily defined, and both CIO's wanted to outsource in order to gain access to technology expertise, "to deal with variable demand for certain IT services", and free up internal staff within both companies (Overby, 2005).

Cinergy Corp. outsourced database administration services and had no plan to extend the contract. After Cinergy centralized IT, CIO Bennett Gaines called on the outsourcer to provide database administration services who has been influential in transferring from data marts to an enterprise data warehouse. JM Family Enterprises outsourced all mainframe hardware, software and operations because mainframe usage at the $8.2 billion automotive holding company had leveled off (Overby, 2005). The outsourcing supplier configured their operation policies so that month-end financial reports were received by the JM Family executives first thing in the morning.

Not all outsourcing relationships result in success; Outsourcing that have failed, are seldom reported because firms are often hesitant to publish them. One example of an outsourcing relationship that didn't become a success was an HR services deal. ePeopleServe entered into a relationship with both Accenture and British Telecom to provide HR services. The contract came to an end in 2002, after Accenture 'rebranded' it Accenture HR Services and acquired British Telecom's investment in ePeopleServe for 70M dollars (Personnel Today, 2002). For British Telecom, the outsourcing deal was having problems because it didn't drive down costs and had to shell out an extra 5 million pounds for total costs of 80 million pounds in 2002. British Telecom expected 5 million pounds in return, however ended up paying 4 million pounds more.

Another example would be the backlash of using foreign call centers. Dell Computers stopped using a call center in India to handle calls from its corporate customers because of the harsh criticisms it had received. Customers in America complained about the difficulty communication between them and the Indian technical-support representatives.

It is typically very complicated to predict what the future might hold for outsourcing, but given the recent data on global outsourcing and IT outsourcing presentation suggests that outsourcing will stay in the years to come. As time passes, newer and better innovations in technologies will support smoother flow of communications between the parties involved in an outsourcing contract. Currently, outsourcing is a huge business which generates global revenues of $298.5 billion in 2003. Forrester Research estimates that by 2015, as many as 3.3 million US jobs and $136 billion in wages will move not only to India, but also to China, Russia, Pakistan, and Vietnam (Ramos, 2005). It is also wildy speculated that India's IT community could find itself dealing with potential rivals such China as they have become an alternative for outsourcing. Destinations like Romania and other Eastern European nations are also said to be future outsourcing destinations. In short, the movement of tasks outsourced offshore will accelerate in the next coming years. . .

Free essays are not written to satisfy your specific instructions. You can order a term paper, research paper or custom TOPIC at our site which offers professional essay writing services. Get your high quality custom paper at relatively cheap prices. EssayEmpire is the best solution for those who seek help in essay writing related to TOPIC and other relevant topics.