Whether you sign a contract to have another company perform the function of an entire department or single task, you are turning the management and control of that function over to another company.True, you will have a contract, but the managerial control will belong to another company.Your outsourcing company will not be driven by the same standards and mission that drives your company. They will be driven to make a profit from the services that they are providing to you and other businesses like yours.
Example: When Company A outsourcing a non-core business to Company B. They need to sign a contract with Company B. When they sign the contract, the managerial control will belong to Company B. Its mean Company A need to give the managerial control to Company B.
Example: When Company A outsourcing a non-core business to Company B. They need to sign a contract with Company B. When they sign the contract, the managerial control will belong to Company B. Its mean Company A need to give the managerial control to Company B.
Hidden Costs
You will sign a contract with the outsourcing company that will cover the detail of the service that they will be providing. Any thing not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is the outsourcing company's business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start.
Example: Company A will sign a contract with company to outsource their non-core business. Company A need to pay additional charges for the thing that didn't cover in the contract. Besides, Company A need to pay the lawyer fees to hire a lawyer to review the contract that write by Company B.
Example: Company A will sign a contract with company to outsource their non-core business. Company A need to pay additional charges for the thing that didn't cover in the contract. Besides, Company A need to pay the lawyer fees to hire a lawyer to review the contract that write by Company B.
Threat to Security and Confidentiality
The life-blood of any business is the information that keeps it running. If you have payroll,medical records or any other confidential information that will be transmitted to the outsourcing company,there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.
Example : Vendors dealing with salaries, bank accounts and financial matters have to maintain high levels of confidentiality and secrecy. They are engaged in good faith. Any breach in the security and confidentiality can result in irreparable damage to the reputation of the service provider. Both the outsourcer and the vendor have to guard against frauds. Employees of vendors have to be screened properly for this reason. Outsourcers have to be clear whether they want to outsource a particular task at all considering the risk they may be putting themselves to. When RTR Company outsources their accounting to GYG Company, all information about the gain, loss, creditor, debt, and so on will in those account will be display to GYG Company. In a nutshell, RTR Company do have any confidential and privacy about their company sales, purchases, loss,gain and so on. Moreover, this may cause a problem, if GYG Company sell those information to RTR Company competitor to againts RTR Company and this may cause RTR Company hard to survive.
Quality Problems
The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business enviroment. The contract will ve very specific and you will pay extra for changes.
Example : Measurement of service quality is through SLA or Service level Agreement, which is contained in the outsourcing contract, which are not defined appropriately, do not possess any quality measures.
Tied to the Financial Well-Being of Another Company
Since you will be turning over part of the operations of your business to another company. you will now be tied to the financial well-being of that company. It wouldn't be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag.
Example: Directors may not engage in any conduct or activities that are inconsistent with the company's best interests or that disropt or impair the company's relationship with any person or entity with which the company has or proposes to enter into a business or contractual relationship.
Bad Publicity and Ill-Will
The word "outsourcing" brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations. morale may suffer in the remaining work force.
Differences in Language
This problem shows up more often when outsourcing inbound and outbound telemarketing job. APT Services, an outsourcing firm in Indian quoted that when a function that needs handling of calls is outsourced to a foreign location and the first language of that nation which outsources the function, it may lead to low quality call handling (APT Services). This low quality call handling seen a lot when calling certain customer service representatives such as a credit card company. Usage of words and phrases and accents varies firm country to country, therefore making it more difficult to understand the person (APT Services). Overall, it is risky for a firm to outsource jobs to a foreign country that does not have a great deal of knowledge of the main language used in the country that is outsourcing the job.
Example: Company A usage of words and pronunciation and variant of accent from country to country, there made people difficult to understand what they want to inform it.
Reduce Technical Team-how for Future
Outsourcing is a way of exploiting the intellect of another organization, so it can also mean that your organization will no longer possess that expertise internally. If you outsources because you don't have the necessary technical expertise today, you'll probably have to outsource for the same reason tomorrow.
Example: A company which is lack of necessary technical expertise today such as human resource, operation technical. Therefore, the company need to waste the cost and time for outsource the technical above until the company posses that expertise internally.
Reduce Degree of Control
Outsourcing means giving up control. No matter what you choose to outsource, you are in some way giving up control over the function.
Example: When ABC Company outsources their non-core business to HIGH Company in Amerika, it means that ABC company had given HIGH Company the autority to control those non-core business. In a result, this may lead ABC Company lose their control towards those non-core business that they outsources.
Increase Vulnerability of Your Strategic Information
Example: Some customers might write negative comment about your business or company in their blog or some of your competitors might like to damage your reputation by creating fake comment about your site.
Differences in Language
This problem shows up more often when outsourcing inbound and outbound telemarketing job. APT Services, an outsourcing firm in Indian quoted that when a function that needs handling of calls is outsourced to a foreign location and the first language of that nation which outsources the function, it may lead to low quality call handling (APT Services). This low quality call handling seen a lot when calling certain customer service representatives such as a credit card company. Usage of words and phrases and accents varies firm country to country, therefore making it more difficult to understand the person (APT Services). Overall, it is risky for a firm to outsource jobs to a foreign country that does not have a great deal of knowledge of the main language used in the country that is outsourcing the job.
Example: Company A usage of words and pronunciation and variant of accent from country to country, there made people difficult to understand what they want to inform it.
Reduce Technical Team-how for Future
Outsourcing is a way of exploiting the intellect of another organization, so it can also mean that your organization will no longer possess that expertise internally. If you outsources because you don't have the necessary technical expertise today, you'll probably have to outsource for the same reason tomorrow.
Example: A company which is lack of necessary technical expertise today such as human resource, operation technical. Therefore, the company need to waste the cost and time for outsource the technical above until the company posses that expertise internally.
Reduce Degree of Control
Outsourcing means giving up control. No matter what you choose to outsource, you are in some way giving up control over the function.
Example: When ABC Company outsources their non-core business to HIGH Company in Amerika, it means that ABC company had given HIGH Company the autority to control those non-core business. In a result, this may lead ABC Company lose their control towards those non-core business that they outsources.
Increase Vulnerability of Your Strategic Information
Outsourcing systems develpoment involves telling another organization what information you use and how you use that information. In doing so, you could be giving away strategic information and secrets.
Example: When TART Company in India want to outsources some of their non-core system, they must told the company that they outsources about their information- how to use those information, what technique they are using, how to use those technique to apply the information and so on. In a nutshell, TART Company may lose their competitive advantage towards those system that they outsource because that company maybe will steal their technique or strategy to apply on their own system and this may lead a big lose towards TART Company.
Example: When TART Company in India want to outsources some of their non-core system, they must told the company that they outsources about their information- how to use those information, what technique they are using, how to use those technique to apply the information and so on. In a nutshell, TART Company may lose their competitive advantage towards those system that they outsource because that company maybe will steal their technique or strategy to apply on their own system and this may lead a big lose towards TART Company.
Increases Dpendency On Other Organization
As soon as you start outsourcing, you immediately begin depending on another organization to perform many of your business functions.
Example:When Company AA outsourcers its non-core business such as accounting, design, telecommunications and so on to others company, it means, it depending on others company skill and expertise to work on its non-core business. In a result, no ones in Company AA will know the skills or strategic to handle those non-core business because most of its workers focus on core business and this may lead Company AA to always depending on the company to handle their non-core business - which they lack of skills to handle those non-care business.
Example:When Company AA outsourcers its non-core business such as accounting, design, telecommunications and so on to others company, it means, it depending on others company skill and expertise to work on its non-core business. In a result, no ones in Company AA will know the skills or strategic to handle those non-core business because most of its workers focus on core business and this may lead Company AA to always depending on the company to handle their non-core business - which they lack of skills to handle those non-care business.
