PC06: Offshoring vs. Outsourcing

Question 1

Outsourcing (def)

Answer 1

Moving internal operations to a third party that has greater expertise in the field, third party

• Performing activities outside the boundaries of the firm - move operations to a third party (an expert)

Question 2

Offshoring (def)

Answer 2

Moving production of goods and services abroad where it is cheaper, in-house activity

Performing activities within the firm but in locations abroad/ it is primarily a geographic activitiy.

Question 3

Outsourcing Pro & Con

Answer 3

Pro:

• allows the company to focus more on own expertise and gain greater specialization/ concentrate on your core activities
• leverage third-party expertise
• saving time
• it combines the competitive advantage of different firms

Contra:

• Company might lose its own capabilities
• Knowledge and human capital are outsourced even if they may have been hard to acquire
• leads to job losses in the domestic country

Question 4

Offshoring Pro & Con

Answer 4

Pro:

• keep control of the process
• reduce costs for the seller and the price for the consumer
• provide jobs and stimulate wealth in developing countries
• way of entering new markets

Contra:

• exploits vulnerable populations with no legal protection who face harsh conditions
• communication issues
• cultural differences
• quality control
• long- term commitment