Outsourcing strategy refers to a strategy of procuring raw materials or parts and components from suppliers or having any value chain activities performed by outsiders.
A firm adopting an outsourcing strategy relies on outside vendors to supply products, support services, or functional activities. A firm may outsource production, assembling, marketing, delivery, accounting and finance, warehousing, or any other function to other business firms that can do them cost-effectively or better than the firm itself.
Many software companies in Bangladesh are using outsourcing strategies. They procure orders from domestic and foreign customers and then subcontract the same to other smaller companies that do the jobs for outsourcers.
Several business organizations, private universities, NGOs, and international agencies in Dhaka use outsourcing strategies in security-guard services. 3M Corp. has outsourced its manufacturing operations to a Singapore-based company.
Many American firms have outsourced their computer operations to IBM.
When is the Outsourcing Strategy Useful?
An outsourcing strategy is useful under the following circumstances:
- When an activity can be performed better or more cheaply by outside specialists.
- When the firm intends to give more concentration on the core business.
- When the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage, for example, because of their relatively less crucial importance of them, maintenance activities, cleaning activities, accounting, data processing, and some other administrative support activities can be safely and cheaply outsourced.
- When it reduces- the -firm’s risk exposure to changing technology and changing buyer preferences.
- When the firm adopts a policy of providing better customer service.
- When it allows a company to concentrate on its core business and do what it does best.
