Wednesday, 26 March 2014
Outsourcing and why I find it interesting
Of the topics from the greenfield geography site, the one that interests me the most is outsourcing. For me, outsourcing is an interesting topic because of all the reasons for and against outsourcing.
It is understandable that outsourcing is a form of cutting cost for firms. Outsourcing reduces the costs of firms as it decreases the cost of the factors of production. Having another firm handle certain company functions reduces the cost to the main company as the main company no longer has to divert resources into said functions.
The interesting part in this is the consequences of outsourcing. It is understandable that outsourcing allows companies and firms to expand their operations and profits as they now have less costs and are thus more able to do so, however outsourcing has many other consequences outside of the parent company. For example, despite the fact that outsourcing reduces cost for companies, the labour in the companies tend to lose their jobs to cheaper labour. This has occured in the US and in places like India and the Philippines.
Outsourcing has interestin effects on the society where outsourcing is taking place. In the Philippines, there are many call centers that cater to international calls.
My question is : What are the factors that will dictate where a firm will outsource its functions?
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I think the answer to that question is easy. If I'm understanding you right, your answer can be found by looking at the diagram at the top of the Greenfield geography website. http://greenfieldgeography.wikispaces.com/Information+flows
ReplyDeleteThese factors include transfer of risk, cost saving, access to expertise, saving time, focus on core processes, technology knowhow and capacity management. These would all be considerations for why a TNC would choose where to international outsource.
I agree with the factors that Mr. Barnes stated. While there are consequences such as people losing jobs in the parent company to cheaper labor, many of these companies would rather reduce costs through cheaper labor as it allows them to earn more profits and expand further. Places like the Philippines have many call centers not only because of cheaper labor but also due to its attractiveness. There is a large highly educated workforce with a relatively strong ability in English which is very important for making international calls. Business environment is also another factor as companies want to be in places where it is relatively easy to setup their company where their investments will be worth investing in.
ReplyDeleteI agree with Mr. Barnes, the answer to your question is pretty straight forward. It's still a thought provoking question, nonetheless! I do have something to add though. In my blog post (yay for self promotion), part of it is how the call centre industry is favourable towards Filipinos because of their ability to emulate an American accent. While there are straightforward answers to your question, I think that there are definitely some subjective factors as to why a firm will outsource its functions. I guess it depends on the classification of goods or services.
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