Outsourcing is not a temporary solution but a strategic orientation of many enterprises at present and in the future. It helps reduce expense, improve core capabilities and product quality, reduce risk etc.
Business Process
Human Resource Software
Based on values created by the enterprise, we can see 2 parallel processes: Business Process and Support Process.
Business process starts from accessing market and customer to required values, investigating, researching approaches and organizing production, distribution, logistics and serving. This process directly creates added values o customers and market. Support process is responsible for active support in the areas of human resources, finance, information, relationship and institution.
In business process, enterprise can have some options:
- Cover all steps (from marketing to serving) without outsourcing
- Initially, cover some steps (and outsourcing some other steps), gradually cover all steps. Outsourcing is just temporary.
- From the beginning, implement some steps and the rest are outsourced to other companies. Outsourcing is long-term development strategy.
- Initially implement all steps. After a while, move from facilities management to outsourcing. Outsourcing is long-term development strategy. The enterprise goes towards partnership to bring about the highest added value to customers and marketplace.
Common trend of the world
In the beginning of 1990s, management model of enterprises was built towards "swiftness and flexibility" which originated in the US, expanded to Europe and Japan at late 1995 and early 1998 respectively. To do this, outsourcing process was implemented by outsourcing entire production out of the enterprise and keeping key steps including research & development, design and marketing.
With the constant change in models and features of products in IT or fashion, enterprises cannot cover all steps from research to production and distribution. Therefore, production management is outsourced to other companies. Different from subcontracting in the past, enterprise now takes charge of production in the framework of "Co-subtracting". It means that enterprise must possess high core capacity level and skills in production.
On the other hand, expense for finishing a task is various and there are large differences between developed and developing countries, especially in labour costs. In such labour-consuming areas as garment, software etc. outsourcing is cost-reducing strategy that many enterprises adopt. And in order to ensure the quality, enterprise usually send its staff to outsourcing partner's office to monitor. More sustainably, when the long-term relationship is established, enterprise can support human management and training approaches, etc. as well as share difficulties and advantages.
Enterprises in developed countries only focus on market accessing and customer to learn more about required values, investigate, research the solutions, distribution and logistics; in terms of production, they use outsourcing service to take the advantages of low labour cost.
The real benefits from outsourcing.
According to survey results conducted by some international market research organizations, 85% of leaders of largest companies in the world, which are specialized in information and electronics, plan to move production based to outsourced destination. IT sector is always in the lead of providing outsourcing services and currently more than 2/3 enterprises in the world use IT outsourcing services. In fashion sector, the percentage of enterprises using outsourcing services is very high. However, in other sectors, the trend of outsourcing entire project is not attracted by enterprises. The reasons to adopt partial outsourcing (usually production) are as follow:
Firstly, transferring production base management (including facilities and manpower) to another enterprise would turn fixed cost into variable cost. If the enterprise outsources production base management from the beginning, it can minimize fixed cost, creating its real motivation and flexibility. When sales situation is not so good in the marketplace, outsourcing is the policy for enterprise to share risks.
Secondly, the partner who adopts "co-contracting" for the enterprise might also provide this service to other enterprises. Therefore, cost and price will be lower because of economy of scale development.
Thirdly, the partner who provides outsourcing service has to be specialised in that area, thus the quality is ensured as required, and the enterprise that uses outsourcing service does not have to spend money on training staff.
Fourthly, the enterprise that uses outsourcing service can save time and money to concentrate on improving and expanding core capabilities as well as its specialized skills in research, design and brand promotion.
In conclusion, outsourcing is a policy that enterprise should prioritize. It makes enterprise more swiftly and flexible, helps turn fixed cost into variable cost to minimize cost and risk. In the trend of globalization, enterprise development strategy must consider competition and partnership to know how to bring highest added value to customers (in that scenario, direct customers will be companies that replace production base management with using outsourcing services), facilitating sustainable development of the enterprise.
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