Academic journal article ASBBS E - Journal

Outsourcing: Pre- and Post- Economic Meltdown

Academic journal article ASBBS E - Journal

Outsourcing: Pre- and Post- Economic Meltdown

Article excerpt

ABSTRACT

Many businesses have suffered severely from the recent global economic crisis that resulted from the subprime mortgage scandal, and from the loss of vital input resources provided by companies that provide services and business processes unrelated to a firm's core competency. These large organizations have been forced to reposition themselves in the market; develop new strategies and procedures to obtain the goods and services vital to their survival; retain their competitive advantage; and sustain their economic positions in order to compete in an ever expanding global market. The purpose of this study is to investigate the state of the outsourcing of non-core activities before and after the economic meltdown starting in 2007 to determine, and to evaluate, the changes made by both client and vendor firms, as they adjust to the new market environment that has resulted from the crisis.

INTRODUCTION

Many businesses have suffered severely from the recent global economic crisis that resulted from the subprime mortgage scandal, and their vulnerability was evident from the outcomes that were triggered, including reduction in operations, firm down-sizing, and bankruptcy declaration. Several service providers, particularly those providing services and business processes unrelated to a firm's core competency, were forced to shut down, and this resulted in the loss of vital input resources for large organizations that rely on outsourcing to procure goods and services for their operations. Consequently, these large organizations have been faced with challenges to reposition themselves in the market; develop new strategies and procedures to obtain the goods and services vital to their survival; retain their competitive advantage; and sustain their economic positions in order to compete in an ever expanding global market.

Over the past three decades, outsourcing has experienced spectacular growth and has become one of the most widely used management strategies. The policy involves the relinquishment of control of the production of a good or provision of service from the management to a third party, the service provider. Outsourcing is a strategy of total quality management (TQM) which is a philosophy that encompasses quality from as far back and as far forward in a company's supply chain as possible. TQM includes the concepts of Continuous Improvement, Benchmarking, Use of Cross-Functional Teams, Knowledge Tools, and Just-in-Time Practices. The concept of continuous improvement is embodied in the strategy of outsourcing. Firms outsource business fonctions to outside organizations which have the experience and the ability to achieve economies of scale, and this allows them to provide high quality services to customers at lower costs. The service providers (the vendors) produce goods or provide certain services which were previously performed in-house because they possess the capabilities and the resources to perform them more efficiently than the firm (the client). This gives the firm the opportunity to concentrate on, and develop its core business fonctions, and increase its competitive advantage.

As the economy begins to recover from the economic meltdown however, there has been a turnaround in firm demand for outsourcing providers. The change in demand for outsourcing services was the focus of an article in the May 3, 2010 issue of Fortune Magazine which noted that the financial crisis was a signal of changes in market conditions and that businesses needed to change as well. According to Michael Corbett, Chairman of the International Association of Outsourcing Professionals (LAOP) ..."Companies are realizing that they need flexibility, the ability to contract when problems arise and expand when opportunities appear...." For that reason, companies may sometimes be forced to adjust their outsourcing contracts because of changing circumstances and the need to compete in a global economy. This may involve returning to the in-house production of the services/fonctions that were previously outsourced. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.