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Outsourcing (or contracting out) is often defined as the delegation of non-core operations or jobs from internal production to an external entity (such as a subcontractor) that specializes in that operation. Outsourcing is a business decision that is often made to focus on core competences. A subset of the term (offshoring) also implies transferring jobs to another country, either by hiring local subcontractors or building a facility in an area where labor is cheap. It became a popular buzzword in business and management in the 1990s.
Overview
Outsourcing is defined as the management and/or day-to-day execution of an entire business function by a third party service provider.
Outsourcing and out-tasking involve transferring a significant amount of management control to the supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, co-ordination, and trust.
Organizations that deliver such services feel that outsourcing requires the turning over of management responsibility for running a segment of business. In theory, this business segment should not be mission-critical, but practice often dictates otherwise. Many companies look to employ expert organizations in the areas targeted for outsourcing. Business segments typically outsourced include Information Technology, Human Resources, Facilities and Real Estate Management and Accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering. Outsourcing business is characterized by expertise not inherent to the core of the client organization.
A related term is out-tasking: turning over a narrowly-defined segment of business to another business, typically on an annual contract, or sometimes a shorter one. This usually involves continued direct or indirect management and decision-making by the client of the out-tasking business.
Criticisms of Outsourcing
Level-of-Service Concerns
The term "outsourcing" became a household name perhaps because many high-tech companies in the early 1990s were not large enough to hire their own customer service departments. These companies later hired technical writers to completely simplify their usage instructions for their products, index the key points of information and contracted with temporary employment agencies to find, train and hire (for lower wages) low-skilled workers to answer their telephone technical support and customer service calls. These "agents" generally worked in call centers where the information needed to assist the calling customer was/is indexed in a computer system. The "agents" were/are generally not allowed to tell the customer whether or not he/she actually works for the company; thereby creating the illusion that the customer was/is calling the company.
Because the workers were not actually paid agents of the company, it has been argued that there is never really any true incentive for the agent to have any sense of loyalty or work ethic in its representation of said company. It has been therefore argued that quality levels of customer service and technical support suffered over the course of history as a result of this practice.
The amount of investment required for customer service shrank through outsourcing, and many companies, from utilities to manufacturers, closed their in-house customer relations departments and outsourced their customer service to call centers across the country. Also, with the increasing popularity of outsourcing labor overseas (for even less investment), a new trend in outsourced customer service is the offshoring of customer service.
Call centers have sprung up in India, Pakistan, Canada and even the Caribbean. Many companies, most notably Dell and AT&T Wireless, have caught much public ire for their decisions to use Indian and Pakistani labor for customer service and technical support; mostly because of the apparent language barrier that it creates.
Criticisms of outsourcing from much of the American public have been a response to what they view as lackluster customer service and techcnial support being provided by either American workers who are not actually employees of the company or by overseas workers attempting to communicate with Americans in broken or incompehensible English.
Democratic U.S. presidential candidate John Kerry blasted firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their fair share of US taxes during his unsuccessful 2004 campaign, calling such firms "Benedict Arnold corporations," in reference to the infamous traitor Benedict Arnold.
Notes
- ^ This view is born out by a recent study by Richard Freeman at the National Bureau of Economic Research in Washington. He found that in the year 2000, 17 percent of university bachelor degrees in the U.S. were in science and engineering compared with a world average of 27 percent and 52 percent in China. Universities in the European Union granted 40 percent more science and engineering doctorates than the United States, with that figure expected to reach nearly 100 percent by about 2010 according to Freeman's paper.
See also
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