Outsourcing
Introduction
Outsourcing is the current trend in most management and operation activities of most companies. This is due to its flexibility, convenience and the indirect cost savings associated with it. Outsourcing refers to delegation of non-core processes or functions to other companies, organizations or other external specialists in their area of service while refers to a situation where an organization or a company decides to develop or to utilize some of the functions within its own departments to perform certain specialize tasks.
In large organizations, the labor intensive sections are normally outsourced to smaller and easily manageable companies whose management is not very complex but their services are reliable. These services or production functions are mostly allocated to regions where their economic benefits can be maximized. Most of the workers are normally untrained and they do not possess other skills that may be utilized in other companies and there are in most cases trained in accordance to the requirements and needs of the company. (Bardhan and Kroll, 2003)
The major benefit of outsourcing besides cost savings and convenience, are to gain the best practices, access improved quality, allow the company to concentrate on the core business and also make use of the best technology. The motive and the drivers of the HR outsourcing should be clearly identified and defined. (Woodall, Scott-Jackson, Newham, and Gurney, 2009)
Companies that experience rapid changes in the labor or other resources in the market may outsource the major functions which are highly affected by such changes to avoid interruptions in its production processes. (Miller, 1987) Companies that adopt proactive strategies to deal with unpredictable situations may opt to rely highly on outsourced functions of other specialized smaller companies.
The sneaker industry has intense competition and most of the companies are under intense pressure to adopt manufacturing practices that require large productions and maintenance of quality standards. These actions may prove to be costly to maintain and also challenging to the management. (Drucker, 1999) The major leader of the sneaker industry, Nike and which controls 47% of the American footwear industry while Reebok follows at 16% and Addidas at 6%. Outsourcing in the home market has major advantage of convenience in operations supervision and monitoring activities, access to specialized staff and government subsidies to induce job creation and expansion in form of tax waivers and other fiscal measures. The major disadvantage is mostly the high costs of labor in the home countries and lack of the raw materials required in the production processes.
The major problems related to outsourcing in foreign countries are the fears that the company’s proprietary skills may be pirated by other competitors or replicated by other unauthorized persons. The benefits may include, reduced capital needs and production risks, low wages and the available ability to focus mainly on the core competencies of firm.
Nike utilizes the services of the subcontractors in all its manufacturing plants across the world. They have a major presence in China, Indonesia and in Vietnam. Other factories are in South Korea, Taiwan and Philippines. Nike has directly employed four expatriates in each of the above three countries to monitor quality. They also have a code of production standards that the subcontractors have to adhere to.
Adidas have literally adjusted their operations from the vertical strategy in Germany in the early 1960’s to outsourcing in the Asian countries. Adidas manufacturing practices are the lowest among the leaders of the industry. (Van, 1998)
New Balance has a market share of 3% and has five plants in New England. Its label is made in the USA. Its strategy is to internalize its structures and relies heavily on its patriotic principles of maintaining jobs in the US and which forms the major strategy of its marketing technique. They are specialized on the Niche market and running shoes. They only outsource their technical products only. (Van, 1998)
To conclude, Outsourcing these services may eventually be economical and convenient for an organization. The main company does not have to grapple with the problems of staff welfare, employee absenteeism, strikes or unions. These problems are handled by the subcontracted companies. The major challenges facing these companies are the issues of human rights and the workers working conditions. However, outsourcing practices or trends will certainly increase in the industry in future.
Reference
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.
Bardhan, A.D. and Kroll, C. (2003) “The New Wave of Outsourcing”). Fisher Center for Real Estate & Urban Economics. Fisher Center Research Reports.
Miller, P. (1987) Strategic Industrial relations and Human resources Management: Distinction, Definition and Recognition. Journal of Management Studies, Vol. 24 No. 4, pp. 347-61
Woodall, J., Scott-Jackson, W., Newham, T. and Gurney, M. (2009), “Making the decision to
outsource human resources”, Personnel Review, Vol. 38 No. 3, pp. 236-52.
Van, D. (1998) Manufacturing Practices of the Footwear industry, UNC – Chapel Hill.
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