OUTSOURCING

Analysis of Criteria used By Firms in Selecting International Outsourcing Suppliers

Introduction

The terms foreign outsourcing or offshoring apply when the components of a good or service are produced in several countries. The term offshoring often refers to a company moving some of its operations overseas, but retaining ownership of those operations. Intel, for example, produces microchips in China and Costa Rica using subsidiaries that it owns, so these production activities have moved offshore. In contrast, outsourcing refers to moving activities outside of a firm (which could be to another firm in the same country, as with domestic outsourcing, or to another firm in another country, as with foreign outsourcing). Mattel, for example, arranges for the production of the Barbie doll in several different countries, so it is engaged in foreign outsourcing. Unlike Intel, however, Mattel does not actually own the firms in those countries. In this entry we will not be concerned with the distinction between foreign outsourcing or offshoring, and use either term to refer to shifting activities to another country. (Bettis 2002 7-22)

Firms contend with rising costs of their full-time workers. In addition to providing sizable financial advantages, outsourcing's other advantages are:

Capital Conservation

Expertise

Management

Personnel Flexibility

Time Savings

Outsourcing is not just about saving money and cutting costs. It is concerning how to do things more efficiently, quicker, maximizing workforce flexibility, gaining access to highly qualified employees, and getting to the market faster than the competitors. Outsourcing is getting one of the most important business movements of this time (Uzzi 2007 35-67). This paper critically analyses and evaluates the criteria used by firms in selecting international outsourcing suppliers.

Discussion

The outsourcing is the process in which a company spends the resources designed to fulfill certain tasks to an outside company through a contract. This is especially true in the case of outsourcing of specialized companies. The contracting company transfers some administrative and operational control to the contractor, so that it can perform their work away from the normal relationship of the contracting company and its customers. Outsourcing is used in more favorable areas such as IT, human resources, asset management and real estate and accounting, although some also outsource user support and management of telephone calls, manufacturing and engineering among others. For example, a company may outsource its hiring process by giving the contract to a consultant company or third party who would hire people for them according to the company's requirements. They outsource their whole recruitment and selection process to avoid time of hiring. While there are historical examples of companies doing some of their production in another country, outsourcing is generally thought to be a feature of the modern world economy made possible by improvements in international trade, transportation, and communication. Indeed, the earliest known use of the word outsourcing in a published source is from an American auto executive in the Journal of the Royal Society of Arts, 1979, who wrote: “We are so short of professional engineers in the motor industry that we are having to outsource design work ...