The Risks Associated with Outsourcing Essay Example | Topics and Well Written Essays - 1000 words

The Risks Associated with Outsourcing - Essay Example Offshoring refers to the location of the work while outsourcing refers to who does the work. A company may offshore without outsourcing if the jobs are relocated to its captive unit or its own office in another country (Scott, Ticoll & Murti, 2005). Thus, in general terms outsourcing refers to a buyer contracting with an outside supplier for services. Various factors are responsible for this but both the buyer and the supplier are subject to risks in different fields. Outsourcing as a cost-effective strategy has shown positive results but significant risks have to be recognized and managed. Since the company relies on some other company for its functions, they have to be managed properly otherwise it could adversely affect the customers and their operations (O’Keeffe & Vanlandingham, n.d.). As far as the buyer is concerned, delays by the supplier can affect customer satisfaction and performance level. In production units, this would mean maintaining higher levels of stocks to mitigate risks but then this involves higher working capital to be blocked. Secondly, the product or service quality may suffer in outsourcing. Hence it is important that the partners or the suppliers have to be assessed carefully before finalizing the deal. If the supplier does not have the capacity to carry out the work or have the financial stability to service the contract, it poses a risk for the buyer (McKenna & Price, 2007) Suppliers may not be financially viabl e thus exposing the buyer to supply interruption risk. Loh and Venkatraman (1995) emphasize that the control issue is the major inhibitor. Firms are reluctant in shifting the locus of competencies towards the external suppliers. This would mean that the decisions rights over the assets are vested in the vendors that might not share the same goals and objectives as the client organization. Thus, even though the benefits of outsourcing offer temptations to the client organization, the risks to have to be considered before signing the contract. Both parties face risk although the client organization is more at risk than the vendor. The skills and competencies of the vendor are critical to the success of the alliance. The client has to transfer not just the technical know-how to the supplier but also communicate the larger goals and objectives so that the vendor’s approach is in alignment with the company objectives. In fact, unless both the parties work in unison, risks would be on both sides. Â