Volume 23, Issue 1, Year 2016 Review of General Management

IS OUTSOURCING A STRATEGIC TOOL TO ENHANCE

THE COMPETITIVE ADVANTAGE?

Elena DOVAL

1

Some companies planned to externalize as much as possible in order

to get business performance, for example, Coca-Cola (Elmore, 2014), but

others failed in competition, creating new competitors, for example,

Samsung and Foxconn by Apple outsourcing (Griffin, 2015).

Review of General Management Volume 23, Issue 1, Year 2016

companies to reduce costs by transferring portions of work to outside

suppliers rather than completing it internally‟ (Investopedia). This definition

underlines the cost-reduction way to increase the competitive advantage,

rather than the differentiation.

resources to perform activities traditionally handled by internal staff and

is a strategy by which an organization contracts out major functions to

specialized and efficient service providers, who become valued business

outsourcing many other activities where it cannot be or need not be best.

There are always some inherent risks in outsourcing, but there are also risks

and costs of insourcing‟ (Quinn & Hilmer, 1994). Nevertheless, the best

way to make the decision is to balance between the opportunities and risks

of outsourcing (Leavy, 2004). Other reasons for using the outsourcing are

considered to be: the superior competency, asset transfer, utilization

improvement, economy of scale and business risk mitigation (Chung et al.,

2002).

Volume 23, Issue 1, Year 2016 Review of General Management

accounting, legal, purchasing, information technology (IT), or

administrative support and other specialized services.

Manufacturer Out sourcing or industry-specific out sourcing involves

the transferring of blue collar jobs to a third party for various reasons such

as expertise, human capital, time to market and cost factors.

Multi-sourcing is a term that can apply to any business area but is

most commonly used when referring to IT outsourcing and IT services. It

operates in a „partner‟ relationship manner and requires a strategy, a

network of relationships and governance as well. This method promotes

equipment repair, landscaping, cleaning services, and facilities maintenance

or property management.

Project Outsourcing facilitates the function of project management or

the entire project development to replace the lack of the inside skills or

available people.

Self-employed workers is a form of outsourcing the labour force, as,

for example, in the insurance industry. The contracting worker is formally

self-employed but the conditions of work are similar to those of employees

(Muehlberger, 2007). The author argues that firms (in the insurance

industry) have established governance structures based on markets,

hierarchies and self-enforcing relational contracts so that they are able to

keep a substantial amount of control despite sourcing out of labour.

According to Harward (2010), there are four types of outsourcing

strategies: two business process outsourcing (BPO), i.e. comprehensive and

selective, and two out-tasking models, i.e. licensing and contracting.

Review of General Management Volume 23, Issue 1, Year 2016

processes, but engaging a partner in managing multiple processes within one

functional area of activity (administration, content, delivery, or technology)

but not processes across functional areas.

Licensing Agreement is an engagement of out-tasking and it is used

when sourcing a tangible asset, such as a technology or real estate for

training. When the cost of implementation and set-up are high, these deals

are often times multi-year. This allows the client to amortize costs over

longer periods of time. When these costs are low, deals often take the shape

of a month.

Contracting is the second form of out-tasking engagements, and the

attractive businesses for growing economies. A highly competitive global

services market presents opportunities and revenues for countries able to

authors also underline the importance of near shoring into the non-BRIC

developing countries, giving some examples, such as the USA in Mexico

Romania, Bulgaria, Poland, Slovakia and other 10 countries‟.

The advantages of outsourcing

Volume 23, Issue 1, Year 2016 Review of General Management

its strategic tasks and goals in the core activity‟ (Koszewska, 2004).

In order to avoid cost increasing the companies are looking for

outsource some of their support activities and are focusing on the core

activities people‟s training.

The outsourcing provides the use of the resources to a high degree and

flexibility in avoiding the fixed costs (Merk et al., 2014). It also provides the

sharing the risks with a partner company (Handfield, 2006).

The disadvantages of outsourcing

In the global market, the outsourcing might have a different

connotation. While the emerging countries offer cheaper labour force, the

companies from the developed countries are willing to outsource some of

their tasks to increase their profit on the basics of cutting the expenses with

the wages. But, the transfer of many activities overseas might increase the

downsizing and the unemployment rate, as well, in the home countries. As a

consequence, the legal framework is discouraging the outsourcing, by

increasing taxes on the revenues or profits obtained or by offering incentives

to the businesses returned back to the home countries.

Outsourcing some important tasks of the business in other

geographical sites, especially in countries with different culture and

even parts or full production contracts. Some other environmental factors of

Review of General Management Volume 23, Issue 1, Year 2016

suppliers and maybe the time loss to find new suppliers. However, the

potential benefits of outsourcing for small businesses are often indeed

significant (Sonfield, 2014).

Despite its disadvantages, the outsourcing is used not only in the

international businesses but also in the businesses that are not run

internationally. A survey carried out, which „had representation from 22

industry sectors, and geographical diversity, with respondents from 30

can dampen the appeal of outsourcing, for the foreseeable future, we expect

to see a continued growth of the [outsourcing] industry‟.

The literature, creativity and databases are conclusive factors in the

decision-making process (Negulescu, 2014). However, the rapid pace of the

occurrence of new information leads to the need of the professional

adaptation to new knowledge and competencies that support obtaining and

increasing the managerial performance (Dragomir & Panzaru, 2014).

Moreover, the most of the management decisions are taken under the

2014).

Volume 23, Issue 1, Year 2016 Review of General Management

The competition in the country of origin market may constitute the

factor for outsourcing on a market with less competition that is decreasing

the costs.

The continuing development of the IT systems is a factor for the

outsourcing that influence the time effectiveness and costs decrease, as well.

A flexible with few levels organizational structure may influence the

decisions for outsourcing aiming to decrease the overhead costs.

The fiscal regulation is a decisional factor for outsourcing in countries

with tax breaks.

Review of General Management Volume 23, Issue 1, Year 2016

The outsourcing may be considered an important tool for the strategic

management or a strategy. The bunch of the outsourcing enumerated in this

paper and defined by different authors could be used for the decision

making in correlation with the factors that are facilitating the outsourcing.

The model proposed may be a useful tool for the managers that are

1. Chaudharya, S. & Kishoreb, R. (2010), Determinants and impacts of

governance forms on outsourcing performance: evidence from a case

study, Journal of Information Technology Case and Application

Research, Volume 12, Issue 1, 2010, Special Issue on Smart Sourcing,

Volume 23, Issue 1, Year 2016 Review of General Management

competitors, CIO [online] http://www.cio.com/article/2926435/

innovation/how-apples-outsourcing-strategy-created-two-giant-

competitors.html.

7. Handfield, R. (2006), A Brief History of Outsourcing, Published online

on: Jun, 01, 2006, https://scm.ncsu.edu/scm-articles/article/a-brief-

history-of-outsourcing.

8. Harward, D. (2010), 4 Sourcing strategies - Which is best for your

business?, Training industry [online], June 24, 2010,

https://www.training industry.com/ blog/blog-entries/4-strategies-for-

outsourcing.aspx.

12. Manktelow, J., Pavey, S., et al. (2016), The Outsourcing Decision

Matrix. Analyzing the Make-or-Buy Decision, the Mind Tools [online],

accessed on January 20, 2016.

13. Merk, C., Silver, J. & Torrisi, F. D. (2014), Rebalancing your sourcing

strategy, McKinsey Insights & Publications [online],

http://www.mckinsey.com/ insights/business_technology/rebalancing_

your_sourcing_strategy.

14. Muehlberger, U. (2007), Hierarchical forms of outsourcing and the

creation of dependency, Organization Studies, May 2007, vol. 28, no. 5,

Sage publications, p. 709-727.

15. Negulescu, O. (2014), Using a decision-making process model in

strategic management, Review of General Management, Volume 19,

Issue 1, Year 2014, p. 111-123.

16. Olive, B. (2004), Outsourcing Growing, Despite Controversy, Power,

148(4), p. 19–20.