OUTSOURCING

Analysis of Criteria used By Firms in Selecting International Outsourcing Suppliers



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

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 to Germany”. This example shows that outsourcing may involve the shifting of service activities (like design work) overseas, in addition to the shifting of production activities (like making the Barbie doll) overseas. In this entry we first concentrate on the shifting of production activities to other countries and then discuss service outsourcing. (Domberger 2008, 14)

Analysis of Criteria used By Firms in Selecting International Outsourcing Suppliers

This latter activity, international outsourcing, has taken on the most visible role in business and corporate strategy in recent years. International outsourcing is not a new phenomenon. For instance, Nike has been designing shoes and other apparel for decades and manufacturing them abroad. Similarly, Pacific Cycle does not make a single Schwinn or Mongoose bicycle in the United States but instead imports them from Taiwanese and Chinese ...