Dissertation: Change This Study Analyzes Outsourcing

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[. . .] There are a number of forms of outsourcing. The important forms of outsourcing are information technology outsourcing (ITO), business process outsourcing (BPO) and human resources outsourcing (HRO). The concept of outsourcing reveals a number of research steams. The idea of outsourcing is still unchanged due to scientific diversity. Basically outsourcing and mainly offshore outsourcing are known as noticeable strategies (Harland et al., 2005; Jahns et al., 2006; see also Paju, 2007). Idea of outsourcing makes cause of discrepancy between the researcher and practitioner. Primarily, the scholars (Domberger, 1998; Kern et al., 2002; Ring and Van De Ven, 1992) observe that outsourcing is a development and natural continuation to Williamson's (1975, 1979, and 1981) researches and others who work on contract and the transaction cost economics. In his research, Williamson vindicated that it should be sign for a potential contract if using market resulted transaction cost are lower than performing activity internally (Hatonen and Eriksson, 2009; Javalgi, 2009).

The same ideas were demonstrated by Coase (1937). He said that transactions organized within business when the market usage cost is higher than the cost for management of transactions. As we know that transaction costs play a critical role in marketing. Basically transaction costs can be defined as the cost that is incurred when buying or selling securities. These include brokers' commissions and spreads. The studies conducted by Williamson and Coase have also given ideas on the economics of the transaction cost. All these ideas were seen similar to outsourcing ideas. There are different researchers who discussed the same burning issues. In the 1972 Hymer also elaborates the merits and demerits of internalization and externalization. He showed that externalization opposes the internalization. According to Newton and Strange (2006, 190), Hymer said that the international production could now take place with the business and overcome the independently owned firms without considering ownership as the tool for control. There is a contrast between transaction costs approach and the phenomenon of internalization. And he observed that the transfer production was the means of extending instead of giving up the control over production (Newton and Strange, 2006, 181). Similarly in 1972 Richardson discussed the aspects of co-operating and coordination while using market. He also explained the market mechanisms which opposed the markets and hierarchy contradiction of transaction costs approach. While we are discussing about the garment industry, transferring of production tasks to some other companies is known as putting-out (cf. Landes, 1998). Basically all these ideas and concepts like contracting out, transaction costs and putting -out and all these approaches lead us to whether company buys or makes products (Hatonen and Eriksson, 2009; Javalgi, 2009).

In spite of all of these approaches and developments in transactions costs, some scholars (Embleton and Wright, 1998; Venkatraman and Loh, 1992) elucidate that outsourcing and contracted out both are deferent terminologies. Outsourcing refers to long-term with high degree of risk sharing and contracted out bases on work done by the outside company. In case of transaction cost, it takes into consideration buying in terms of arms-length transactions. Outsourcing also considers the various inter-organizational relations. It was argued by Morgan (for example, Morgan, 1999) that outsourcing strategies were considered as contracting out and were based on cost driven motives. With the advancement and introduction of different theories, company strategies tend to be outsourced. The relationships are moved away from the arm length arrangements. All of these ideas and concepts and theories are not becoming ancient but it has become common practice to avoid from the complications. In short the theory of transaction cost seems to be an elementary theory at the back of outsourcing (Hatonen and Eriksson, 2009; Javalgi, 2009).

But the real question is how it is defined today? The current business literature has defined outsourcing as the term which comprises of the use of external sources for a process which was previously done internally. The definition can be viewed with two different perspectives one is product and the other one is process. From the perspective of process, according to Barthelemy (2003, 87), outsourcing might be seen as turning-over complete or partial activity, previously carried out in an organization, to an outside vendor. According to the production perspective, Billington and Ellram (2001, p. 16) for instance, have defined outsourcing in terms of transferring the finished goods' production which had been executed internally to an external party. Not only the product of an industry or organization is outsourced, the management responsibilities are also outsourced. Although the approach is somewhat different for the outsourcing phenomenon defined in the two studies, irrespective both of them defined outsourcing, with slightly different characteristics. The denominator, which is common, might be considered as the primary issue due to the fact that it entails the transfer of ownership of some activity. However, the thing which varies is the extent to which it is transferred and this is the primary reason that encouraged the researchers to refine as well as extend this definition of outsourcing, for example, strategic as well as transformational outsourcing (Hatonen and Eriksson, 2009; Javalgi, 2009).

The fundamental queries in outsourcing studies

First of all, going back to theory of transaction cost, researchers across different disciplines have shown their interest in finding the answer about why firms look to purchase rather than manufacturing. (See Fig. 1 for summary of research questions). As discussed earlier, the earlier cost did put lights on the motive of outsourcing and have now become more comprehensive. Based on the theory disciplines e.g., Transaction cost theory (Coase, 1937; Williamson, 1975), the type of view according to the resources (see Wernerfelt, 1984; Barney, 1991) and based on theories of organizations (see Hymer, 1976; Caves, 1971), earlier researchers have found three motives of outsourcing. First motive is financial savings, which includes lowering the price of operational costs, controlling finances and looking forward for some profitable business. Next are the areas of improvement and core competence values that need to be checked: i.e. 1) Gaining more flexibility in the internal re-organization, to complete the projects well in time; 2) Lessen the time to reach market; 3) Have a more flexible workforce, and 4) Focus on the business must be sharpened. Lastly, comes capability enhancements that include gaining access to those resources that are not available, getting access to skillful labor, improvement in the quality of services, acquiring innovations that are already available and keeping up the pace with new technology (Cordon and Heikkila, 2002; Kakabadse and Kakabadse, 2002; Duhamel and Quelin, 2003).

Even though there have been researches conducted to find out why the companies outsource, in the recent years it has been seen that the operations have now become more tough to handle and new issues have also become clearer than before. Hence, this question that used to be amongst important questions before has now become worthless and now there are some other questions that need to be answered (Hatonen and Eriksson, 2009; Javalgi, 2009).

"What to outsource?" is the most important question nowadays among researchers as opposed to why should one outsource (E.g. Harland et al., 2005). The question can also be approached by the perspective cost of transaction. The idea of core competence was an introduction of this (Hamel and Prahalad, 1990, 1994) that started the discussion about this fact and it made the researchers and thinkers and practitioners rethink the activities related to outsourcing. In addition to this, Outsourcing was not only taken as the way of reducing the finances but to take advantage from the skills that are not available inside the firm which makes outsourcing a phenomenon beyond the transaction cost analysis. In start of 1990s the transaction cost analysis' static nature was discussed against outsourcing. For example, a study done by Takeuchi and Nonaka (1994) gave the basic knowledge of outsourcing as a theory, which was often linked with the specifications of assets of a company, enabling it to be accepted all over the globe. There are still some conspiracies among the researchers regarding the question of "what" should be outsourced. To argue is, for example, the literature cannot fully satisfy the fact that whether or not outsourcing reaches its core value as expected. Furthermore, public policy wants to know what is to be outsourced, and at the end, the extents up to which things that can be outsourced deserve more attention (Harland et al., 2005). Therefore, "What to outsource?" remains amongst the most researched question (Hatonen and Eriksson, 2009; Javalgi, 2009).

After this discussion, a question rose about the placement of outsourcing (i.e. where one should outsource) in a researcher's mind, in the beginning of 1990s, especially between the strategic management and IB researchers. The diminishing of the national boundaries and the improvement in communication links enabled to take advantage of external resource markets on the worldwide scale. The most discussed topics between practitioner, researchers and stakeholder group is the offshore outsourcing's phenomenon. This off shore outsourcing became very popular in the mid of 1990s. Ramamurti in 2004 asserts that offshore outsourcing is amongst… [END OF PREVIEW]

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