Outsourcing and its Effect on Survival


The globalization process has brought about economic growth, increase in competition, expansion of business opportunities and many other impacts in business. There are major trends in business that all firms feel compelled to adopt failure to which the business standing and prosperity in the competitive world is not guaranteed. Among the many trends that businesses that have adopted in this global world is "Outsourcing." So the question is what is outsourcing?

The most appropriate definition of outsourcing can be drawn from what is done in the process of outsourcing or in other words what outsourcing is all about. Outsourcing is a process by which an organization or a company delegates or shifts her day to day processes to an outside or external service provider. Outsourcing is done in anticipation that the external service provider who is an expert in the service accorded to him will deliver better quality, lower the rates and get an edge of business's competitors than if the internal personnel were to do the assignment in question. In other words outsourcing services are the services that are offered by people other than an organization's full time staff. Due to the process of globalization the people who are offering outsourcing services may be located to any part of the universe; not necessarily within the business premises (Biz brim 2008, para. 2).

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There is a wide range of services that a firm may outsource, including: Web hosting, web-security, telecommunications, website development and maintenance, customer relation management, product support, accounting and billing, payroll maintenance, logistic management, human resources management, telemarketing and call center, supply chain management, and medical transcription (Biz brim 2008, para. 6).

There are various reasons as to why firms and organizations employ outsourcing, such include: To cut the costs involved in production and marketing, to increase the profit margin as well as firm's productivity, foster start up followed by development, provide more quality products and services at lower rates, increase the value of shareholders, concentrate on key competences, increase reliability and security while maximizing on uptime, and stay on top in of business competitors (Biz brim 2008 para. 7).

Firm relocation

In an attempt to understand the concept of firm relocation, Mariotti (2005, p. 14) stated that there is a tendency of many firms to remain in their current locations throughout their lifespan. He argued that firm relocation can not be considered as a goal per se, rather it's a particular form of adjustment which implies having some spatial reallocation of its economic activities. Many times firm relocation and migration are referred to as one and the same thing. The spatial moves by firms can be ordered into three categories, including: international, inter-regional and intra-regional (Mariotti 2005, p. 14).

Intra-regional moves majorly concerns industrial suburbanization around the bigger urban agglomerations. On the other hand inter-regional relocation majorly involves decentralization of industries from economic central areas to the peripheral or to development areas. These measures are/were employed in an attempt to transfer wealth into the more depressed regions. The expansion of globalization has played a very significant role in the current trends in international relocation. Both medium sizes as well as small sized firms are experiencing immense growth in internationalization process just like multinational enterprises (Mariotti 2005, p. 14).

The relocations are as a result of opened internal and external boarders as countries embrace more of their neighbors and far off countries to transact business with them. In international relocation, there are many pieces of research process, production process and marketing processes that are moved abroad through international strategies alliances. The firm that intends to relocate realizes business opportunities abroad and after doing a research on the viability of the business, it employs its resources in the new business location, either by establishing a branch plant or acquisition of partnership (financial) to a firm already in existence (Mariotti 2005, p. 14).

As globalization continues to touch even the interior parts of the universe and even some small firms get into the temptations of employing outsourcing in their firms, it's worth noting that as far as outsourcing is a tactical solution to many challenges; it sometimes backfires as often as it's known to succeed. Outsourcing is known to be a risky venture for a firm that indulges into it, one is never sure that the results would be outright positive. Some of the risks that a firm is exposed to in the indulgence of outsourcing may include:

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Loss of control: When one looks at the other side of a coin of handing over the responsibilities and the blames to a service provider, it basically means that one is giving up the control of the firms activities to the third party. The absolute control over the operations of the organization are handed over to another party; the hands of the management are tied in that even if one does not like the way activities are carried out or rather identifies a loophole in such running, there is very little that one may do, other than to make suggestions and hope that the service provider would implement them (Bizhelp n.d., p.3).

What actually happens is that in outsourcing the internal staff; the staffs are more aligned to the vision, mission, culture and goals of the organization, are denied an opportunity to exercise their patriotism and loyalty to the achievements of the firm's vision (Teachtarget n.d., p.49). The employees are not motivated when a firm opts to seek external workforce to do what they had the potential of doing. Outsourcing is opposition of theory Y which was developed by Douglas McGregor postulating that employees are ambitious and self motivated with ability to exercise self control. The theory is based on the belief that employees enjoy mental and physical work duties without being scrutinized (Bizhelp n.d., p.3).

When outsourcing is done, it acts as a threat to the future of the firm. This is because the employees may lose their trust in the firm fearing that because the management does not believe in their services, they may be fired any time. The employees' loyalty, which is very important in the prosperity of the organization, is lost; consequently they may no longer be zealous to seeing the firm being more established, for they lose a sense of ownership.

The employment of a third party in the outsourcing services becomes a more risky venture for a business in the prospect of the service provider failing to finish up the work assigned to him and leaving the client in the lurch with no access to the critical service system. Such may be experienced when business competitors employ their resources under different name and approaches their competitors to offer outsourcing services. When such a competitor manages to get into the system of the organization, they may corrupt the system destroying the entire business so that they can gain absolute control over the market. Even though an organization ought to do a thorough research on an outsourcing service provider, it's possible for the provider to cover all possible traces that may be used as means to mistrust (Teachtarget n.d., p. 50).

Quality of services: Among the other reasons that a firms employs a third party service provider is in the anticipation that the outsourcer will offer better services to the firm than those offered by the internal staff. Such expectations are mostly based on the knowledge of that an explicit Service Level Agreement (SLA) will be put in place. This acts as the source of hope for the client that incase the outsourcer does not meet the expectations, SLA will be used against him (Teachtarget n.d., p. 56). Nevertheless SLA is often found to be harder to enforce owing to the fact that everyone has become a member of the SLA family.

In a situation where an outsourcer loses a client because of poor services, it's more excusable. It has been often argued that the measures employed by SLA are not adequate enough in depicting the perceived services (Jiang 2003, p. 72-76). The theory of service is employable in explanation of the question of services that are provided by the outsourcing firm. It's about the knowledge of what is permanent as well as normal in the production of service. Under this theory is the normative theory of service which contains knowledge that is generally applicable as well as tools usable in service production (Pentti, 2007, para. 3-4). When a firm renders such information to the outsourcing firm, the outsourcer can manipulate such information to ruin the firm in question. Such a move risks the current and the future trends of the firm.

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Lack of Expertise: it has often been found to be challenging to find a third party who has confirmed team of experts with the relevant experience and knowledge in a particular industry. Firms requiring outsourcing services are often warned to be careful of bait-and-switch tactic employed by incompetent actors. But with all this warnings, the shoddy outsourcers have their smart ways of ensuring that customers do not doubt them (Teachtarget n.d., p. 63). Lack of expertise in an outsourcing firm acts as a threat to the continuity of the firm. The constraint theory explains that there are some constraints that act as a barrier to a system achieving its goals.

The constraint theory explains that the barriers may either be internal or external. The internal constraint is about lack of expatriates and required skills hence blocking the prosperity of the organization (Jeff & Goldratt, 1986, p. 23-25). It also deals with policy development and in a situation where the outsourcing organization uses unqualified personnel to make policies, the policies developed may ruin the firm in question threatening its future. Constraint theory also explains on the utilization of the firm's production equipment. In a situation where the external staffs brought in are lacking the relevant skills on equipment utilization, they are likely limit the firm's ability to production of soluble goods and/or services (Jeff & Goldratt 1986, p. 23-25).

Integration of international resource allocation theory and most specific the location of activities for value-adding and organization of activities of multinational companies as well as the theory of economic organization are used in the explanation of reallocation or foreign direct investment. This process is seen by the political economists as an inevitable repercussion of capital system (Juma'h 2007, p. 2).

The relocation of firms has been found to always have an effect on the performance of the firm. There are two types of performances that are affected by the relocation of a firm to a different geographical region, namely: innovative performance and economic or financial performance. Financial performance is usually expressed in terms of sales or growth, employment, turnover, and stock prices. On the other hand innovative performances are expressed in terms of R & D expenditures, innovative sales' percentage, patents, and self reported innovations. The newly relocated region has a geographical effect on the performance of a firm. The influence is drawn from spatial externalities popularly known as agglomeration effect (Havnes 200, p. 293-302).

The firm relocation theory plays a significant role in explaining the concept of firm relocation and the risk involved in relation to the future of the firm. Behavioral theory and neo-classical theory argues the initial choosing of a firm location is based on the expectations that the revenues as well as the cost of production will be profitable. The only pronounced difference between neo-classical theory and behavioral theory is that while the former assumes that firms' behaviors are rational and based on perfect information which leads to optimal location of choice the latter is believes on partial availability of information upon which decisions as well as their bounded information utilization ability resulting to satisfaction as opposed to optimal choice location given the capacity and the availability of analyzing information. Relocation theory explains that a firm will remain at its current position and will only relocate when it does not make profits any more or when the current profit margin is not optimal (Knobben n.d., p. 109)

It's good to realize that though relocation is done in the hopes of increasing the profit margin and may be providing an opportunity for the firm to be more innovative, this is not always the case; sometimes a firm can relocate to an area that may bring about the downfall of an organization. A firm may relocate and eventually the situation change affecting the business climate of the organization. For example, if a firm moves to a certain region like Africa in order to obtain cheap labor and then the economic conditions of the African country in question improves; many people may resign for better jobs with more pays. If the firm is not able match with its competitors, there is a high likelihood that the organization may close or relocate to another region (Knobben n.d., p. 110)

It is also possible for the resources (raw materials) that had motivated the organization to relocate be depleted. In such a situation, an organization is faced with a challenge of either transporting the raw materials from afar draining its profits or relocating afresh which is a very expensive endeavor, sometimes too costly for the continuity of the organization. One can therefore argue that the success of business relocation to a new region is highly dependent on the thoroughness and perfectness of the research process that was employed before a firm made a decision to relocate. If the research was not through consequently had some loopholes, the future of the organization is not very assured. On the other hand if an expected change takes place, it may jeopardize the future of the firm. For example if a firm relocates to an area because there were no other firms to act as competitors and then later some other competitor first crops up, the profit margins of the firm will be lowered as the competitors acts as a threat to the standing of the organization.

Relocation may disrupt the benefits that a firm may draw from its organizational embeddedness. This is because knowledge exchange is usually facilitated by inter organizational relations that are found to be stable. Relocations may act as a threat to the stability consequently hampering the functioning of the relationships. This will ultimately have an effect on the performance of the firm (Knoben & Oerlemans, n.d., p. 15).

The direction of a firm's relocation is very key in determination of the success and the future of the firm. Knoben (2008, p.117) has argued "the importance of the direction of relocation stems from the idea that differences between the region of origin and region of destination could matter for both the available spatial externalities and the network activity of the firm and its subsequent performance." Such an example is when a firm benefits from relocation from a rural region to an urban region where there are spatial externalities and more abundant externalities respectively. On the other hand the firms that are moving from urban region to rural regions experience loss of spatial externalities consequently having severe impact upon their performances (Knoben 2008, p.117-118).


As globalization continues to have its impact in almost all sectors, firms are not exemptions to its effect. Many firms can now employ external expatriates located to whichever part of the globe to do some of the jobs that the management feels its regular staff are not able to do. Outsourcing involves having external expatriates offering their services to a firm over a specified job. Outsourcing as it has been discussed in this paper is not an outright solution to firm's challenges; sometimes the outsourcers fail to deliver as expected.

There are other negative implications of employing outsourcing in running the affairs of an organization. It demoralizes employees, it risks business security, and outsourcing firm may render low quality services among many other limitations of employing this approach. All the limitations above jeopardizes the future of an organization, hence the management should be very cautious in employing outsourcing in a firm.

Relocation of firms is a very prominent trend with globalization. Many opportunities continue to present themselves for firms to increase their profit margin. Nevertheless it is not without some risk factors that organizations relocate to different regions. Firm relocation theory has been used to explain the implication of relocation to the future of the firm in question. It's never a guarantee that the new region of relocation will automatically bear positive fruits; some times things may go haywire as explained above in the essay resulting to the closure of the business.