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Outsourcing and Offshoring: Risks and Advantages

Outsourcing and Offshoring

Although often used as synonyms, outsourcing and offshoring are, in fact, quite different from each other. Outsourcing typically presupposes buying certain services from a different company, whereas offshoring means shifting the services of a company to a different location (Hearh & Kishore, 2009). In addition, outsourcing can be viewed as rather a form of relationship management. Offshoring, in its turn, is typically identified as a subcontract (Hearh & Kishore, 2009). It should be noted, though, that outsourcing and offshoring can be combined into a single strategy for improving the use of the company’s resources. As a result of the above-mentioned step, the identification of possible risks regarding the collaboration initiatives becomes possible.

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Purchasing Process Stages

When analyzing the process of customer’s decision-making, Simon’s four stage model (Hearh & Kishore, 2009) is traditionally used. The model incorporates the following stages: intelligence, design, choice, and implementation (Liutvinavičius & Lopata, 2015). For instance, the process of purchasing a burger involves the recognition of the physical need, i.e., hunger (intelligence), the identification of the existing solutions, i.e., design (e.g., McDonald’s, Denny’s, etc.), the identification of the most adequate one based on the quality–price ratio, i.e., the choice (e.g., McDonald’s), and the purchase, i.e., implementation.

Another concept of buyers’ decision-making suggests viewing the process of purchasing from a slightly different angle. It also presupposes passing the stages of need recognition and information analysis, as well as the identification of the best option and the actual purchase of the product or service needed; however, it also involves a post-purchase stage, i.e., the analysis of the actions taken (e.g., the analysis of other factors such as the quality of services at McDonalds, time of waiting in line, etc.). The specified model should be considered more informative and, therefore, more useful, as it provides important information about the buyers’ choices.

Problems in Outsourcing

Despite the obvious advantages that outsourcing has to offer for a company planning an expansion into the global market, the aforementioned strategy may also pose several obstacles to the organization’s development. Particularly, the fact that outsourcing may trigger serious problems in the “key areas of expertise” (Hearh & Kishore, 2009, p. 316) should be mentioned. As a result, an organization may lose a significant portion of its competitiveness, in the global market.

Apart from the aforementioned problem, the issue regarding the comparatively low level of competence of the outside providers should be brought up. Alternatively, the new providers may have insufficient experience to perform the tasks that they have been assigned with (Nayeem, 2015). The problems in question are typically identified in the target area on a regular basis; herein the need to come up with a coherent strategy to address them lies.

Contingency Planning: Factors

The design of contracts can be considered the key factor in contingency planning (Hearh & Kishore, 2009). The significance of the specified factor is predetermined by the degree, to which the contract points are being explored. Moreover, external and internal changes play a significant part in the contingency planning process. For instance, the needs of the entrepreneurship (internal) or customers’ needs (external) can be interpreted as the key factors defining the planning process. The communication issues, particularly the possible conflicts between the company and the vendors, the organization and the target customers, the staff members, and the managers, etc., have to be taken into account when considering the contingency planning. The expected outcomes also define the planning process.

Reference List

Hearh, T., & Kishore, R. (2009). Offshore outsourcing: Risks, challenges, and potential solutions. Information Systems Management, 26(4), 312–326. Web.

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Liutvinavičius, M., & Lopata, A. (2015). Knowledge based modeling of financial decision support systems. BIR Workshops 1(1), 148–155. Web.

Nayeem, T. (2015). Decision-making styles of individualist and collectivist automobile consumers in Australia. International Journal of Business and Management, 7(16), 44–55. Web.

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