University of Nottingham Malaysia
Centre for English Language and Foundation Education
     
  

Article #21: What is outsourcing?

The concept of outsourcing is not new as the early practice of outsourcing can go as far back as the era of the Roman empire (Beregszaszi & Polay, 2012). Nowadays, despite outsourcing is getting complicated and has become highly conditional, it continues to be an increasingly popular business strategy especially among large business organisations. The global outsourcing market is huge and it is showing no sign of contraction. 

So, what is outsourcing?

In the early 1980s, ‘outsourcing’ was typically referred to the situation when firms expanded their purchases of manufactured physical inputs, like car manufacturers purchasing window cranks and seat fabrics from outside the firm rather than making them inside. But in 2004, outsourcing took on a different meaning at the global level. It refers to a specific segment of the growing international trade in services. This segment consists of arm's-length, or what Bhagwati (1984) called ‘long-distance’ purchase of services abroad, principally, but not necessarily, via electronic mediums such as the telephone, fax and the Internet; as such this definition actually refers to offshoring.

Outsourcing
 


Not limited to offshoring, Quelin & Duhamel (2003, p. 648) define outsourcing as ‘the operation of shifting a transaction previously governed internally to an external supplier through a long-term contract, involving the transfer of staff to the vendor’. This means, outsourcing need not necessarily be offshore but can be onshore and nearshore as well. In a similar definition, Kotabe & Mol (2006, p. 5) define the outsourcing process as ‘a range of actions within a clearly identifiable time-frame that lead to the transfer to outside suppliers of activities, possibly involving the transfer of assets including people as well, that were previously performed in-house or procured from other units within the corporate system’. Generally, outsourcing is ‘a process which begins with the development of a sound business case followed by the implementation of the external sourcing model, and ultimately the management of the relationship with the provider (Handley & Benton, 2009, p. 344). T¬his process involves contracting with an outside vendor to provide either a product or service to the firm, as opposed to producing the product using employees within the firm (Noe, Hollenbeck, Gerhart and Wright, 2012). This clarifies that outsourcing is the practice of obtaining goods or services from an outside provider, substituting internal sourcing (Lacity & Willcocks, 2012). It is a conscious decision not to carry out an activity in-house (Kaipia & Turkulainen, 2017). 

References: 

  • Beregszaszi, J. and Polay, D. H. (2012). Human Resource Outsourcing in Times of Economic Turbulence–A Contemporary Review of Practice, International Journal of Human Resource Studies, 2(1), pp. 46 – 65.
  • Bhagwati, J. (1984). “Splintering and Disembodiment of Services and Developing Nations”, World Economy, Vol. 7(2), pp. 133 – 144.
  • Handley, S. M. and Benton Jr., W. C. (2009). Unlocking the Business Outsourcing Process Model, Journal of Operations Management, 27(5), pp. 344 – 361.
  • Kaipia, R. and Turkulainen, V. (2017). Managing Integration in Outsourcing Relationships – The Influence of Cost and Quality Priorities, Industrial Marketing Management, 61, Pp. 114-129. 
  • Kotabe, M. and Mol, M. J. (2006). Global Supply Chain Management, Northampton, MA: Edward Elgar Publishing.
  • Lacity, M. and Willcocks, L. (2012). Outsourcing Business and IT Services: The Evidence of Success, Robust Practices and Contractual Challenges, Legal Information Management, 12(1), pp. 2 – 8.  
  • Noe, R. A., Hollenbeck, J. R., Gerhart, B. and Wright, P. M. (2012). Human Resource Management Global Edition: Gaining a Competitive Advantage, 8th Ed., Irwin: McGraw – Hill.
  • Quélin, B. and Duhamel, F. (2003). Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks, European Management Journal, 21(5), pp. 647 – 661.


Contributed by:
Mandy Sim 

Centre for English Language and Foundation Education

University of Nottingham Malaysia
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Selangor Darul Ehsan
Malaysia

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