Disadvantages of Outsourcing from Local and Foreign Companies
What is outsourcing?
Outsourcing is where a company decides to contract a third party to carry out a business process on its behalf. Outsourcing may be domestic or foreign. It can entail moving employees and assets from a domestic or international firm to another. In foreign outsourcing cases, the firm can off shore or relocate its major business functions to another country.
Why do companies outsource?
The main motivation behind outsourcing is the need to source for more cost effective services from both domestic and international firms. Companies have over time discovered that labour in certain international destinations is way cheaper than in their countries. This is why they seek services from the cheaper labour markets.
Additionally, companies also outsource services so as to increase productivity levels by concentrating on the business activities that they are best at. When the minor activities are taken care of by the outsourcing firms, the employees can then concentrate on the major pursuits of the organization.
What are the disadvantages of outsourcing?
- Employment problems. When an organization outsources its services to firms in foreign countries, it creates employment gaps in its own country. This is because foreigners gain jobs at the expense of the locals who are left unemployed. This has a ripple effect on the economy at large.
- Confidentiality and insecurity issues. There can be loopholes in security and confidentiality when companies decide to use third parties to carry out their business activities. This can be in the form of leakages of important company information to other companies hence compromising the security of the company.
- Companies can become complacent when they only have to focus on the activities they are good at. They may intensify their activities towards producing the same products hence overlook the changing trends in the markets. The employees might also focus less on customers and concentrate on the market products.
- Job insecurity and disloyalty among employees. When employees know that the company is capable of outsourcing their services they feel less secure about their jobs. This creates disloyalty on their part because they are uncertain of their future in the company.
- Poor services. Companies can get poor services when they outsource their services from poor companies. This can beat the logic of outsourcing and make companies get worse instead of cutting on costs.
- Stiff competition. When several companies in a particular industry begin to outsource services, they unintentionally create stiff competition within the industry. This is because they make it easy for more entry players to access the market and hence raise the standards of the industry.
- Growing and hidden expenses. When so many companies begin to outsource services they can raise the demand for the services and hence make it expensive to access the services. Besides, the labour standards and costs have risen in some countries which were originally considered ideal destinations for cheap labour. There are also other hidden costs especially in terms of legal fees for outsourcing especially from foreign firms. This makes it more expensive to outsource from the foreign firms in such countries.
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