What is outsourcing?
Outsourcing is the practice of hiring outside your business, or getting an individual to perform contracted work as opposed to paying your employees to do the work.
Many businesses use outsourcing to:
- Reduce costs
- Focus on their core business
- Resolve capacity issues
- Enhance service quality
- Access to intellectual capital
Business alike use outsourcing as a means to get added expertise and exploit the cost of labour advantages. This is an ethical area as it covers a lot of grey areas, and with the rise of globalisation, outsourcing is put in the spotlight.
As we are increasingly getting more global, outsourcing has some negative connotations. Some believe that businesses have an obligation to protect jobs within the country. However, globalisation has made outsourcing an attractive strategy. Not only does it reduce the overheads of employing someone full time, but we are finding that businesses are adapting their strategy to outsourcing as a means of accessing industry professionals and furthering innovation. While it is a part of a strategy of competitive planning, businesses must strike a balance between quality management and cost-effective measures.
A major reason some people immediately dislike getting their supply from overseas is that they associate this practice with sweatshops, a term describing manufacturing facilities in foreign nations where employees — sometimes even children — receive unfair wages and poor working environments.
Companies that often outsource from these foreign conditions become the centre of public relations backlash. Big corporations aren’t spared either. Nike is still trying to shake off their reputation for exploiting sweatshop users, and other retailers like Adidas, Converse, Abercrombie and Fitch, Victoria’s Secret and Billabong have come under scrutiny.
Without a doubt, globalisation has exacerbated the problems with sweatshops. When world markets are opened to free trade, businesses race to offer the best at the cheapest cost. Without international standards and regulations, large corporations move their manufacturing plants to countries with fewer restrictions to meet the growing consumer demand. In an attempt to keep costs low, factories provide the minimum wage and ignore workplace safety requirements.
An alternative solution: ethical sourcing
To combat the stigma against outsourcing, businesses are turning towards ethical sourcing.
Ethical sourcing means the business ensures that the products they source are obtained in a responsible and sustainable way, the workers involved are treated fairly. Environmental and social impacts are taken into consideration with ethical sourcing. Ethical sourcing has become important for mitigating operational risk and upholding a good brand reputation.
Outsourcing and further implications
Some businesses face media and public scrutiny whether outsourcing domestically or abroad, especially during periods of high unemployment. Ethical or not, this pressure stems from the perspective of some people that a business should promote employment rather than choosing lower-cost contractor relationships.
The way a company treats its outsourcing partners has ethical considerations as well. In general, your business practices reflect on your business partners as well as your own company image. Outsourcing puts pressure on your business to monitor and maintain high-quality standards if you want customers to perceive you as a top provider.
The continued global pursuit of low-cost sources of supply and ethical sourcing responsibility will remain high on the agenda. If businesses fail to source fairly or ethically, they can run the risk of consumer backlash, resulting in mass boycotting of products and services.
As we are increasingly doing business in a more globalised manner, outsourcing is becoming more important to maintain a competitive advantage in highly competitive industries. There are a myriad of benefits to outsourcing but it is important to understand the implications of outsourcing and in doing so, outsource ethically and fairly.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.