Thursday, January 22, 2015

Outsourcing “Caveat” To Remember

Credit to Mob Man

Nowadays when almost every task is outsourced, hiring workers on “as-needed-only” basis has become an integral part of almost every business’ day-to-day operation. Thus, outsourcing as a business opportunity has become one of the major industries in countries like the Philippines, India, and China to name a few.

This is inevitable considering the many benefits outsourcing has provided businesses. Not only do companies save money in eliminating the expenses of recruiting workers, they also save time because outsource providers have qualified people available for employment almost immediately. Hiring outsourced personnel frees companies from the obligation of providing the usual benefits accorded to regular employees such as vacation leaves, medical insurance, retirement plans, pensions, etc. These are the concerns of the temporary workers themselves. Furthermore, companies only pay for the productive hours of the outsourced people, unlike in the case of regular employees where they are paid even during their idle time.

A company that outsource its operation seem to have entered into a “win-win” arrangement in running its business, except that it really has not. Although outsourcing provides lots of benefits, it also has its risks, and if not given proper attention, may cause the company’s downfall.

Outsourcing is involved in almost all the aspects of a company’s operations –from administration, to finance, to manufacturing. In addition to these tangible phases of the business, outsourcing also affects its image. A good public image is the single most important thing for any business. The very existence of a company depends on its reputation in the community and the market it caters. Outsourcing can help in boosting the company’s image or can tarnish, thus leading to its demise.

Credit Outsourcing Remote Staff - Flickr

This is especially true in manufacturing. Many industries normally outsource this part of their operation to some countries for economic reasons. If they are fortunate to outsource their manufacturing to companies who produce quality products, their brand can become a byword in the market and boost their image. However, they may get unscrupulous manufacturers who cut corners and use substandard materials in their production that can ruin the brand’s reputation.

"A classic example of mistake in outsourcing is with the famous toy manufacturer Matel. The manufacturer they partnered with in China used paint that had high lead content. Not only did Matel lost money in recalling their toxic toys from their international market, it also tarnished their reputation."

Another victim of outsourcing error is the rubber shoemaker giant NIKE. Their manufacturer from India was discovered to be hiring child workers. This caused their products to be banned in some countries who were advocates of human rights.

Credit to Personal Architecture BNA - Nike Factory Store

On the other hand, IKEA, famous for their ready-to-assemble Scandinavian furniture, almost suffered a similar fate as that of NIKE. Fortunately, their quick action prevented this and even boosted their image by the timely publication of their contract with all their suppliers exhorting them to abstain from all illegal practices such as illegal logging and child-labor.

These prove how outsourcing wisely can build reputation in the market, or can cause irreparable image damage.

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