Outsourcing agreements with firms for specialized services.
- April 26, 2018
- Posted by: nrsnepal
- Category: Business
When companies shift tasks, operations, jobs or processes to any external party on contract basis for a certain period of time to reduce cost and improve efficiency of the company is the process known as outsourcing. It is also known as contracting out. The jobs and duties assigned to the third party can either be done onsite or offsite of the business. It is a cost-saving measure, and can be seen commonly practiced in sectors like manufacturing; also used in service oriented business. One of the very common example to denote outsourcing would be manufacturers in the U.S. They outsource jobs overseas to countries like China and Bangladesh. When outsourced overseas, it is also known as offshoring as third party belongs to the different nation. Offshoring practice is known to save on labor costs. The practice is also done in customer service jobs and computer programming jobs.
Benefits of Outsourcing from Nepal Realistic Solution Pvt.Ltd
- It spares cash, employees, facilities and time resources of the company that can be utilized at more important area.
- It significantly helps reduce the expenses of the company, be that labor costs, taxes, energy costs or cost of production.
- Outsourcing strategy adapted by any company could also be to focus on its core business competencies, allowing to dedicate more resources on the best area which helps improve efficiency resulting competitiveness.
- In the case where non-core functions are outsourced could actually be core business competency for outsourcing company, benefiting the business by improved management of those functions.
- Outsourcing can also help avoid government mandates, such as environmental regulations or safety regulations and requirements.
Examples of Companies in different Industries
First example would be IBM and Grupo Gigante. IBM is a technology based company that manufactures and markets computer hardware, middle-ware and software, also provides hosting and consulting services in areas from mainframe computers to nanotechnology. Likewise, Grupo Gigante can be summarized to be a chain of supermarkets in Mexico. (Malinowski, 2009) In 2009, Grupo Gigante extended their outsourcing business contract with IBM for next five years which was also applicable to subsidiaries of Grupo Gigante which includes Gigante Grupo Inmobiliario, The Home Store and Tirndas Super Precio. Here, the role of IBM was to completely manage and monitor the information technology (IT) infrastructure under managed service modes of applications and infrastructure. IBM’s outsourcing solution for Grupo Gigante includes infrastructure services components. Infrastructure services components are used for equipment and server hosting, help desk activation, distributed computing services, on-site support services, data centre security and disaster recovery planning. Grupo Gigante will have expertise team for managing IT applications that are support of the business, enabling the company to maintain the value of the key human capital in-house that has developed over time. This would ultimately assist the company with related opportunities to test new solutions while making strategic business decision increasing the efficiency. The value chain activity involved in this case is a support activity, i.e. information technology (IT). (IBM, 2009)
The second example extracted involves an ATM-outsourcing agreement between NCR Corporation and Co-op Financial Services for three years. According to the agreement, Co-op’s credit union members are enabled to lease the ATMs instead of buying new ones decreasing the capital expenses. NCR’s marketing director Bill Allen quotes, “Leasing ATMs is a lot more attractive for some financial institutions because leasing agreements are not carried on the books as a capital expense.” A unit of Co-op Financial Services, Co-op ATM Managed Services manages credit union members’ leased ATMs. NCR fixes the ATM machines if broken down by providing first and second line maintenance. (Baker & Laws, 2010)
The above examples does not show that outsourcing agreements would threaten the competitive capabilities of the companies.
The outsourcing property of any company seems to have more pros over cons. From the examples elaborated above, outsourcing only increases the overall efficiency of any company by providing right amount of focus on different sections of the business. Ultimately, saving a lot monetarily which will always work on any business’s behalf.
Baker, J. B., & Laws, S. A. (2010). eFinance Enablers: Efficiently Moving the Buck.
Embleton, P. R., & Wright, P. C. (1998). Empowerment in Organisations. A practical guide to successful outsourcing, 94-106.
IBM. (2009, December 9). IBM and Grupo Gigante Sign Five-Year Outsourcing Agreement. Retrieved from ibm: https://www-03.ibm.com/press/us/en/pressrelease/29008.wss
Malinowski, M. (2009, December 7). Grupo Gigante taps IBM for US$16mn outsourcing contract. Retrieved from bnamericas: http://www.bnamericas.com/en/news/technology/Grupo_Gigante_taps_IBM_for_US*16mn_outsourcing_contract
Outsource Workers. (2018, 04 11). Offshoring and Outsourcing -Advantages and Disadvantages. Retrieved from Outsource Workers: http://outsourceworkers.com.au/offshoring-and-outsourcing/