BUSINESS STUDIES (CLASS 11) WORKSHEET 17-EMERGING MODES OF BUSINESS

EMERGING MODES OF BUSINESS IN INDIA

What Is Outsourcing?

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s.The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free market economies on a global scale.

Apple employs an extensive list of outsourcing partners to supply and manufacture components used in iPhones, iPads, Macs, and wearable devices. In 2020, the vast majority (98%) of Apple's direct spending on materials, manufacturing, and assembly went to 200 suppliers.

Toyota also outsources in the neighborhood of 70% of vehicle production but the company tightly controls design and engineering, using only those suppliers who've proven their ability to deliver on time, maintain quality, control cost, and continue to innovate.

The outsourcing experience appears to have been positive for Samsung and paid off. The company increased the number of devices produced by ODM companies in 2022 by 20 million units. By the end of this year, it should reach the figure of 70 million units of outsourced smartphones.

Common Types of Outsourced Work
The type of outsourcing work depends heavily on the needs of the business and the industry they operate in. The most commonly outsourced activities include:

Content writing
Customer support service
Marketing
Supply chain management
Human resource management
Accounting
Engineering
Research and design
Computer programming services
Tax compliance
Finance
Training administration

The most common reasons to outsource include:

·  Reducing operating, labour, and overhead costs
· Focusing more on the company’s core competencies, and thus improving its competitive advantages by outsourcing time-consuming processes to external companies
· Freeing up internal resources and using the resources for other purposes
· Mitigating risk by sharing risks with external parties and building meaningful partnerships
· Improving flexibility and efficiency by delegating responsibilities that are difficult to manage and control to external companies

Disadvantages of Outsourcing

· Although there are several reasons to outsource, there are also disadvantages to the practice, such as:
· Risk of losing sensitive data and the loss of confidentiality by outsourcing activities or processes to external parties
· Loss of management control and the inability to control operations of activities or processes that are outsourced
· Outsourcing companies may impose hidden or unexpected costs by creating lengthy contractual agreements with lots of fine print
· Lack of quality control, as outsourcing companies are often profit-driven rather than focused on doing a good job