Improving Cost Competitiveness by Offshoring and
Outsourcing
Outsourcing: It is a practice used by different companoes to reduce costs by transfering
portions of work to outside supllies rather than completing it internally. International
outsourcing is done when a part of the production is carried outside the local boundaries.
Advantages:
1. International outsourcing is beneficial for companies as ther tempt to rduce cost and
achieve economies of scale by choosing a location with cheaper labor or supplies
2. It may also benefit businesses entering new international markets.These businesses
may need native speakers of a particular language or local knowledge of a new
market. This strategy may eliminate the barriers encountered by a foreign business
entering a new country to establish local market share.
3. Businesses may also need professionals to carry out certain tasks therefore
outsourcing will benefit business from expertise.
4. When a MNC is out of production capacity they can use outsourcing to increase their
capacity.
5. Certain countries have international specialization over certain goods.To maintain
quality it is better to outsource production in those countries.
Disadvantages:
1. Outsourcing might compromise the quality of the product. If a MNC use multiple
sourcing partner for the same product.
2. When a business shifts a part of their production to a foreign market there will be
chances of the business of losing its manufacturing capacity in the domestic market.
This will make them more dependent on their sourcing partners.
Offshoring involves the relocation of business activities from the home country to a differnt
international location.Outsourcing can be both local and international but offshoring is only
international.
Advantages:
1. To access lower manufacturing costs(particularly in emerging markets which enjoy
the advantage of lower labor costs). As a result, a business will gain cost advantage
over their rivals that will allow them to make a higher profit margin.
2. To access potentially better skilled and higher quality supply. This will improve their
quality of their finished goods which will be a legitimate reason for charging a
premium price.
Outsourcing
Outsourcing: It is a practice used by different companoes to reduce costs by transfering
portions of work to outside supllies rather than completing it internally. International
outsourcing is done when a part of the production is carried outside the local boundaries.
Advantages:
1. International outsourcing is beneficial for companies as ther tempt to rduce cost and
achieve economies of scale by choosing a location with cheaper labor or supplies
2. It may also benefit businesses entering new international markets.These businesses
may need native speakers of a particular language or local knowledge of a new
market. This strategy may eliminate the barriers encountered by a foreign business
entering a new country to establish local market share.
3. Businesses may also need professionals to carry out certain tasks therefore
outsourcing will benefit business from expertise.
4. When a MNC is out of production capacity they can use outsourcing to increase their
capacity.
5. Certain countries have international specialization over certain goods.To maintain
quality it is better to outsource production in those countries.
Disadvantages:
1. Outsourcing might compromise the quality of the product. If a MNC use multiple
sourcing partner for the same product.
2. When a business shifts a part of their production to a foreign market there will be
chances of the business of losing its manufacturing capacity in the domestic market.
This will make them more dependent on their sourcing partners.
Offshoring involves the relocation of business activities from the home country to a differnt
international location.Outsourcing can be both local and international but offshoring is only
international.
Advantages:
1. To access lower manufacturing costs(particularly in emerging markets which enjoy
the advantage of lower labor costs). As a result, a business will gain cost advantage
over their rivals that will allow them to make a higher profit margin.
2. To access potentially better skilled and higher quality supply. This will improve their
quality of their finished goods which will be a legitimate reason for charging a
premium price.
