Answer to Question #271083 in Management for jayega

Question

Outsourcing is widely utilized by international business firms. Critically discuss the justification and challenges associated in outsourcing to low-cost countries.

Answer 1

Outsourcing is promoted as one of the most powerful trends in modern management. It is a practice applied by different companies to reduce costs by transferring portion of of work to outside supplier rather than competing internally. A low cost country sourcing is a procurement strategy in which a firm sources from countries with lower labour and production costs in order to reduce expenses. The reason behind outsourcing some functions especially for international firms include; substantial financial economies, ability of increased strategic expertise and ability to demand for measurable and improved service levels.

Challenges

1. Intellectual property and data security - There is a risk of losing intellectual properties.
2. Challenge of different languages
3. Cultural preferences
4. Difficult managing offshore relationship due to time zones
5. High shipping cost
6. Local tariffs
7. Administration cost