International outsourcing has
made the world "flat" (Fried-
man, 2005). The growing trend has changed the way of doing
business globally (Doh, 2005; Kotabe, 1998). Outsourcing has been
concerned with `make-or-buy', or `in- source, out-source' decisions in
relation to the behavior of enterprises (Loh and Venkatraman,
1992; Coase, 1937; Williamson, 1979; Carlson, 1989; Hart, 1995). Most
of the researches deal with transaction cost economics (Williamson,
1985; Grover et al., 1994; 1996; Nam et al., 1996; Lacity and
Hirschheim, 1993). Some researches are giving the reason for outsourcing from
the resource-based view also (Conner and Prahalad, 1996).
Outsourcing is often defined as the delegation of non-core operations or jobs
from internal production within a business to an external entity that
specializes in that operation. Levina and Ross (2003) identified
those activities in which clients or firms have no comparative advantage
and outsource them to a vendor firm, under the assumption that
the vendor's scale of production and comparative advantage with
respect to the outsourced activity will result in cost savings to client
firms. With the help of outsourcing, companies are able to delegate their
peripheral activities to a firm that specializes in the process/task and
can concentrate more on their core competencies and which results
in cost reduction to the company too (Figure 1). When a firm is
having an advantage in buying a process, instead of making, it takes the
decision to outsource. Another reason is vertical integration; when a
firm wants to confirm the supply of some materials or services from
outside, instead of producing these itself. Other reasons are: reduction
in capital expenditure, improvement in efficiency, offloading of
non-core functions, access to specialized skills, saving of manpower and
training costs, reduction in operating costs, improvement in speed and
service, ability to provide value-added services, increase in customer
satisfaction, etc.
|
