Study Of The Risk Management Involved In Outsourcing: Study Of Multinational Firms

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CHAPTER 1: INTRODUCTION

To meet the contingencies of a globally competitive marketplace, organizations must constantly improve their abilities to produce goods and services at reduced prices, increase the speed-to-market or speed-of-delivery of products and services respectively, and offer the highest quality products and services at a competitive price. This requires organizations to continuously evaluate and improve their internal processes. According to Bhagwati (2004), during the last 2 decades, organizations have tried various restructuring business models such as reengineering, downsizing, and strategic sourcing to achieve these objectives (Chichilnisky, 2008, 85).

Reengineering methods allow organizations to optimize their operations by streamlining the organizations' processes and reducing waste of resources.

Obtaining outsourcing services from organizations that have skilled resources improves the effectiveness and efficiency of the organizations other internal processes. Acquisition of skilled resources at lower costs allows organizations to improve the organization's overall performance (Farrell, 2006) and reduces their overall cost of operations. Cascio (2006) stated that when organizations in high-wage economies use providers in low-wage countries, it further reduces the cost of outsourcing. Outsourcing to other countries is called offshore-outsourcing and sometimes off-shoring.

Background of the Problem

Research-based findings during the past ten years will demonstrate that outsourcing strategies of many U.K organizations lack concern for long-term risks in terms of shareholder's values, business continuity, or the long-term economic consequences. Rossetti (2005) demonstrated that one common problem with organizations' outsourcing strategy is the use of low-bid or low-cost method to select outsourcing partners (Welch, 2006, 27).

Research Questions and Hypotheses

The research questions that will guide this study are (a) Which risk management strategies or BP were being used most and least by outsourcing organizations, and (b) Which risk management strategies or BP were most and least used by organizations that used offshore-outsourcing and for longer than five years? The answer to these research questions might explain whether the current strategies used by outsourcing organizations can prevent future economic losses.

The following null hypotheses will be tested.

Null Hypothesis 1 - H01: The framework of risk management strategies used by outsourcing companies can prevent future economic losses.

Null Hypothesis 2 - H02: The framework of risk management strategies used by organizations that use offshore-outsourcing and for longer than five years can prevent future economic losses.

Purpose of the Study

The purpose of the study will be to determine whether outsourcing organizations used responsible risk management strategies to prevent unnecessary resource waste that expose the U.K economy to competitive disadvantage.

According to Enlow (2006), despite the fact that outsourcing is laden with risks, the use of responsible risk management strategies can reduce the impact of these risks and allow organizations to meet their outsourcing objectives and prevent resource wastes. Dean (2006) indicated that carefully selected risk management strategies or BP can help organizations achieve their outsourcing goals and ensure that resource waste are prevented.

CHAPTER 2: LITERATURE REVIEW

In the corporate world, risks represent threats to the value the stakeholders or owners have in the business. Stakeholders include customers, stockholders, distributors, suppliers, creditors, competitors, industry, ...