Management

Week 3: “Outsourcing to Low Cost Countries (LCCS)”

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What are the advantages and disadvantages of outsourcing to Low Cost Countries (LCCS)? How can the risks of outsourcing be mitigated?

 ANSWER

Outsourcing to Low Cost Countries

Advantage and Disadvantage of Outsourcing

Outsourcing is considered as an allocation of business processes to an external service provider. Organizations cannot manage all the business processes internally. Therefore, some processes are outsourced to the service providers who take responsibility for completing the tasks and maintaining the organization’s assets. A low-cost country sourcing is considered a strategy in which a company moves production to countries with low production and labor cost to lower the expenses. For instance, the price dispersion in a low-cost country may entice a business to relocate operations or production to cheaper costs to benefit from decreased production and labor costs. Relatively, this is essential in maintaining competitiveness and increasing the profitability of the business within the industry.

The primary benefit of outsourcing in low-cost countries is the cost-saving initiative. Companies tend to save on production costs, which influence the revenue of the organization (Aswini, 2018). This can deliver great savings for the organization since the operations are done at a lower cost. Hiring and staffing in low-cost countries are less expensive, reducing the cost of hiring, training, and development of staff. Another advantage of outsourcing in low-cost countries is that there are fewer regulatory outsources which reduce the costs of operations while boosting productivity, effectiveness, and efficiency.

The limitations of outsourcing are the threat of losing sensitive information as well as the loss of privacy. Anytime a business sources any process, it increases its confidentiality risk. For instance, lacking an understanding of the outsourcing provider’s culture may result to poor communication and low efficiency (Aswini, 2018). Additionally, there may be additional costs related to legal terms, which may not be clearly defined. Relocation can also add unforeseen costs, impact workforce morale, service availability, and service quality.

Mitigating Outsourcing Risks

Managers need to have a plan and strategy for the risks and challenges that are associated with outsourcing. Extensive research on outsourcing providers’ ability is essential to have a measured and effective process of working to mitigate risks. Managers need to have risk management processes that should be integrated into the project management system. This can enable the identification of risks and the development of effective mitigation strategies that manage cost and risks.

References

Aswini, K. (2018). Advantages and Disadvantages of Outsourcing.