This paper focuses on how do firms make the outsourcing decisions and deeply research into the determinants for outsourcing decision. Meanwhile, this paper pays attention to the potential outsourcing market in China and treats the Chinese company differently from the previous views, considering them more as outsourcers than outsourcing suppliers.
Through the literature review, I will give a definition and classification to the term “outsourcing”; then analyze the factors that influence the outsourcing decisions from the transaction cost and companies’ core competence perspectives. A decision model will be introduced in my paper based on the previous literatures. A case study focuses on how companies solved outsourcing problem will be presented and analyzed according to my model.
In 1990, C.K.Prahaoad & Gary.Hamel has written an article “The core competences of the corporation”. It was the first time that the term “outsourcing” is been used in the research and considered as a shortcut to a more competitive product.
A most important background for companies to survive and be successful in the long run is to “improve their competitive advantage by implementing different concepts, of which outsourcing is one” Outsourcing can be simply considered as the companies search for the resources outside. Some companies treated outsourcing as a cost reduction concept and tried to externalize their non-core activities to outside partners in order to focus on their core competences. Gene M. Grossman (2003) describes that we live in an age of outsourcing. “Firms seem to be subcontracting an ever expanding set of activities, ranging from product design to assembly, from research and development to marketing, distribution and after-sales service”. He even uses Feenstra’s Barbie doll example to show the widely use and influence of outsourcing activities.
The production of a perfect Barbie doll comes from the different countries around world: the components, raw material (plastic and hair) from Taiwan and Japan, conducts assembly in Indonesia and Malaysia, moulds are introduced from U.S., the doll clothing is made in China and the accessories which are used in decorating the dolls come from U.S.
But the first question is which parts of activities are core activities and which parts are not core activities? The market environment is kept on changing as time goes by: whether the functions now they decide to keep in-house still worth a lot after a long period; whether the functions they decide to be outsourced would not become core competencies in the future? Hence, it is necessary for the decision makers to distinguish their activities from core to non-core before implementing their outsourcing decisions and the most important factor that decision makers consider a lot is the outsourcing decisions consequently varies from cost reduction to the strategic decision to create competitive advantages.
Contents
1. INTRODUCTION
- 1.1 The Definition of Outsourcing
1.2 The Phases of Outsourcing
1.3 Outsourcing in China
1.4 Determinants of Outsourcing
2. ANALYTICAL FRAMEWORK
- 2.1 Transaction cost perspective
2.2 Core Competencies Theory
3. STRATEGIC DECISIONS ON OUTSOURCING AND MODELS
- 3.1. Outsourcing Object from a Transaction Cost Perspective
- 3.1.1 Dimension of asset specificity
3.1.2 Dimension of sunk cost
3.2 Outsourcing Objects from a Core Competence Perspective
3.3 Other Drives for Outsourcing
3.4 The Decision Models
- 3.4.1 Previous models
3.4.2 The integrated model
4. SUCCESS IN OUTSOURCING
- 4.1 The Example of China Development Bank
- 4.1.1 Increase the Core Competency
4.1.2 Strengthen the Planning of IT Outsourcing
4.1.3 Clarify the Responsibilities between the Bank and Its Suppliers
4.1.4 Quantification of Outsourcing Risk
4.1.5 Quantification of Working Quality
5. CONCLUSIONS
5.1 BPO TREND IN CHINA
5.2 SUGGESTIONS
- 5.2.1 Suggestions to Chinese Government
5.2.2 Suggestions to Outsourcing Service Supplier
5.2.3 Suggestions to Outsourcing Clients in China
Reference
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