Businessmen would like to keep the capital and cost of production minimal and their profits in maximum. This old-age business approach has produced a lot of tricks, like procuring supplies in wholesale so one can ask for a bargain price or situating the business near to the suppliers for less delivery expenses. Today, with globalization as a trend and a platform to win the stiff competition in the market, businesses all over the world are discovering the genius of outsourcing.
Outsourcing is a business strategy which transfers the performance of an activity or manufacturing of a product to a destination with cheaper labor and supplies. In simple terms, it is a way of getting one job or an aspect of a business in the most efficient, cheapest way. There are two types of outsourcing: domestic and international. Domestic outsourcing means that the business processes are conducted to a different place, but within the country. International outsourcing means that a company of (usually developed) countries would transfer some business processes to less expensive (usually developing) countries like China, India and Philippines.
Outsourcing lowers the cost of production while maintaining quality. For an example, a silicon company on manufacturing semiconductor products might find it cheaper to hire Indian engineers than American or European counterparts of the same level of engineering skills and expertise. Or, wood workers of the Philippines can live on lower salary than Canadian carpenters, which would be very beneficial to a furniture company. The downside on this, on the other hand, is the need for rigorous training and education of workers to have abilities found in those in developed countries.
Companies can also enjoy the competitive advantage of outsourcing destination. Countries have developed expertise or fields of specialization. India, for example, is fast becoming a leader in information technology, China is concentrating on mass production of plastic and household products, and Vietnam is into agriculture. Businesses, by making full use of this specialization, can reap the benefits of this specialization, which would expedite or speed up the manufacturing or business processes.
Businesses can enjoy tax relief and favorable packages from the outsourcing host. This is because the host (developing) country will make their business environment conducive for foreign investment through relaxed taxation system, business packages, and privileges in using the natural resources. Moreover, the host will also be obliged in giving these incentives to investors, as their businesses can create jobs and make the countrymen wealthier and smarter.
Companies would like to focus on major priorities and let outsourcing plants take care of the details. By delegating some aspects of the business, the top honcho can concentrate on other urgent areas like competition, expansion, and acquisition. This will give businessmen more breathing space and keep them abreast on the big issues in the office. Outsourcing is slowly changing the business landscape, connecting companies, labor and resources closer and cheaper. It is also fueling the push for globalization, with the pressing need for greater cooperation among nations in the world.