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2. Outsourcing
ABSTRACT 2.1. The benefits of outsourcing
The goal of this paper is to analyze and structure the The benefits or, to put it in other words, the advantages
most wanted benefits and the most dangerous risks of enjoyed by companies as a result of outsourcing are
outsourcing. The research is primarily based on uncountable and frequently discussed, even though
professional literature reviews. sometimes slightly overrated. In this paper, we chose to
The benefits are well known and most businesses count approach the risks from the perspective of the
on them when launching into outsourcing. They dominating company that considers the possibility of
generally aim cost reduction, access to new outsourcing.
technologies, focus on core competences or improve According to Tjader et. all., the outsourcing-related
customer service. It is quite difficult to accurately benefits include: increased focus on the company's core
quantify the total benefit generated by outsourcing, but functions, cost reductions, increased flexibility, the
all companies that use outsourcing as a business emergence of a variable cost structure that may allow
strategy are well aware of the possible benefits. for the transformation of fixed costs in variable costs,
The risks are generally less spoken about, but equally improved productivity, increased competitiveness,
important. Hidden costs, violations of the outsourcing access to external skills and competences, risk sharing,
contract, loss of customers/opportunities, potentially improved quality, the preservation of own capitals,
conflicting interests are just some of the most frequent stimulation of innovation (Tjader, X.C., Shang, J.S.,
outsourcing related risks. Vargas, L., 2010).
Moreover, we are offering a set of methods for reducing Authors like Kremic add new elements to this list, such
or even avoiding some of the most dangerous risks of as: shorter feed-back time to customer orders, access to
outsourcing. The most popular method to minimize new infrastructures and technologies, competitor
risks is a close cooperation between the companies emulation, juridical alignment with the supplier
involved in the outsourcing process. The contribution of company, a more effective and efficient management,
this paper refers to organizing the main benefits and input of capital (Kremic, T., 2006, p. 471). Preston and
risks related to outsourcing provided by the literature. Brohman add further benefits of outsourcing to the list,
namely:
KEYWORDS: outsourcing, outsourcing risks, specialization of the company that provides
outsourcing benefits, outsourcing risk mitigation outsourced services in order to obtain
economies of scale;
1. Introduction access to advanced technologies
Outsourcing is a fully-fledged business megatrend an fresh, innovative way to do business
around the world. Outsourcing involves the (Preston, D., Brohman, K., 2002, p. 207).
procurement of physical and/or service inputs from Another noteworthy advantage to be added to the list
outside organizations either through cessation of an above is the fact that companies that consider
activity that was previously performed internally or international outsourcing have the possibility to use the
abstention from an activity that is well within the time zones to their advantage, i.e. be available for their
capability of the firm (Barrar, P., Gervais, R.,, 2006) customers at any moment of the day - or night.
Because of the high popularity of this business strategy, Multinational companies resort to this type of
researchers have pointed out that there is an initial outsourcing because IT system malfunctions have to be
tendency to overstate benefits from outsourcing and to dealt with in real time.
minimize the unsuccessful experiences that accrue It is quite difficult to accurately quantify the total
undesirable consequences. Furthermore, we consider benefit generated by outsourcing logistics to a third-
important to structure the risks and benefits of party provider; however, Corbert has proven that the
outsourcing as previous literature has often described value acquired by a company as a result of outsourcing
them in a linguistic manner. As the degree of is made up of:
involvement in outsourcing differs among firms, the
complexity of the interfaces between firms may differ,
leading to different benefits and risks concern (Ellram,
, whereby:
3. VE signifies the value acquired as a result of
L., Billington C., 2001).
outsourcing;
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4. VT signifies the value of transaction; result of outsourcing. This makes the outsourcing
5. v signifies the rate of return (?); contract extremely difficult to terminate in case of
6. F signifies flexibility, that is defined as the either party's discontent.
fraction / percentage of the an organization's A second set of risks concerns the capabilities of the
resources that may undergo positive or suppliers. They may exert themselves in a flawed
negative variations in response to the changes manner, with limited international mobility, limited
that occur according to the company's needs. knowledge of the customers' activities and limited
(Corbett, 2004). capital (Quelin, B., Brohman, K., 2003, p. 652). The
In order to summarize all points referred to in this sub- degree of dependence between the companies involved
chapter, we have sketched the Figure 1, that illustrates in the process is very high and there from stems
the main benefits of the outsourcing process. naturally the concern about the suppliers' capabilities.
The third major class of outsourcing risks includes the
ecological and social hazards. They are extremely
dangerous and difficult to quantify. Figure 2
summarizes the main risks encountered in the process
of outsourcing.
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