When a company is outsourcing, it is buying from a third party a service or product it used to produce by itself. Outsourcing is not limited to a particular location; it can be done domestically or abroad. On the other hand, when a business entity is offshoring, it shifts the production of a service or product overseas. Offshoring can be in two ways. Either, a company offshores the production of particular goods or services to a foreign company, or it literally shifts its production to a foreign country. Offshoring is not a new trend. The industrial nations have already have witnessed most of their manufacturing industries turn to offshoring. The industrial migration has have been accelerating since World War II. However, after the Second World War offshoring involved mostly products but currently, there is much shift towards services. The business model of offshoring has enabled over 100 nations to export software services and products.
As the Chief Technology Officer (CTO) of Oxford University who wishes to offshore the management of the universitys email system, my desire to offshore is driven mainly by the intention to lower the operational cost. Note that; this is part of competitive response as many public organizations are offshoring this services to remain cost competitive and financially viable. If the institution does not find a method of efficiently handling its email system, then management of the university is bound to be difficult, and other learning institutions will overtake us regarding the quality of education, innovation and financial capabilities. Therefore, before making an informed decision, I must first identify the aspects that would prompt acquisition of a global contractor as compared to selecting a domestic contractor (Carmel & Tjia, 2005).
The different aspects to consider when acquiring a global contractor as compared to choosing a domestic contractor
One aspect is cost. It is the first reason that triggers an organization to outsource. In such a case, it is imperative to compare the labor costs in the USA and the developing countries like India, Due to a protective labor Union in the United States, the labor costs here is quite high as compared to countries in Asia and Latin America. With the hourly rate higher in the United States as compared to most countries, one would think that it is cheaper to outsource a global contractor than a domestic contractor. However, after analyzing the aspect of infrastructure, it is clear that outsourcing a domestic contractor is prudent. For instance, hardware and software purchases are quite expensive due to tariffs and customs imposed on them. Secondly, leasing an infrastructure line for managing the emails will be costly considering the element of higher foreign taxation (Pearce, 2014).
Secondly is the aspect of domestic culture affinity and knowledge. For instance, the university will require one who understands not only the culture of the institution but also, the American culture. Therefore, an organization like mine is likely to consider outsourcing a domestic contractor than a global contractor. It is because, the acquired domestic contractor will fit straight into the system hence, will not require time to adjust to both the American and university cultures. Moreover, despite the ability of my management team to manage various externalities such as regulation requirements, it also within the interest of the university to promote domestic talents and the nations economy. My institution believes in the American spirit. Therefore, it will be to acquire a trusted domestic contractor than a global contractor (Pearce, 2014).
At least three advantages and three challenges associated with offshoring the management of the campus e-mail system.
Advantages of offshoring
The advantage is that it increases the flexibility and agility of the organization. It is because, with cheap labor in countries like India and Philippines, the campus can assign a pool of IT experts who will do the assignment at highest speed. By acquiring cheap labor, the university will reduce its current overhead costs. Also, with e-mail system management not a core objective of the institution, by freeing itself from managing the email system only the campus can now focus entirely on other core matters such as academics. Moreover, the institution will be able to tap into excellent foreign talents to improve its Information Technology innovations within the campus (Carmel & Tjia, 2005).
Challenges of offshoring
Increased business risk
It must be noted that strategic risk management regarding intellectual properties and other sensitive data will be difficult for the management and may affect business continuity. Moreover, the government regulations have continued to prevent certain IP addresses from foreign countries. Also, the management risks are imposed by the continuing cyber-crimes across the globe (Dhar & Balakrishnan, 2006).
Loss of control and knowledge
Offshoring involves handling the process of the email system to a second party. The transfer of such duty results in a loss of control over the communication system and may lead to internal challenges. It may also be difficult for the compass to monitor performances because of factors like cultural conflicts and distance (Dhar & Balakrishnan, 2006).
More overhead costs
Another challenge that may hinder offshoring is the inability of the organization to anticipate cost overruns. It is because the university may build its offshoring intentions on wage cost alone rather than comprehensive assessments of every element that contributes to cost either directly or indirectly. Some costs aspects such as travelling to offshore localities may be underestimated. However, they could be so expensive regarding resources and costs. Also, data security and management may raise security costs thus, challenging the need for the institution to offshore (Carmel & Tjia, 2005).
Three advantages and three challenges associated with partnering with a domestic contractor for the management of the campus e-mail system.
The first advantage is that it gives the organization the needed agility and flexibility to run its activities as the management can now specialize in its core purposes of service deliveries. That is, by partnering, the institution can now specialize. Moreover, the institutions can learn some email management expertise from the domestic contractor. The second advantage is risk management. The university has the control over its data security than it was had it done a complete outsourcing. It is because, as a major partner, the University management directs the domestic partner on how it wants its data stored. Finally, it is economically viable on the part of the organization. Though it is not a complete outsourcing, the university is utilizing its existing communication department who are now partnering with the domestic contractor. Also, the saving cumulative period is short as the partnering contractor has less time to blend into the organizations culture. On the other hand, the organization should experience a seamless knowledge transfer from the contractor to its staff (Dhar & Balakrishnan, 2006).
However, the challenges of partnering with a domestic contractor are that, first, the institution may incur more overhead costs. It is because, the institution other than paying the contractor, it will continue paying its Information Technology employees for same work done. Also, the overhead costs may arise from the continual management of its partners activities in the institution. Such costs may be overlooked because they are unnoticeable but have long-term effects on the organization. Secondly, the organization may not achieve its objective to specialize on its core activities as has not relinquished entirely the power to manage its email system. Hence, the management will still experience distraction because of continual management on non-core activity. Finally, because of lack of specialization, the institution will likely find it difficult to adjust to the competitive market (Dhar & Balakrishnan, 2006).
Carmel, E., & Tjia, P. (2005). Offshoring information technology: sourcing and outsourcing to a global workforce. Cambridge University Press.Dhar, S., & Balakrishnan, B. (2006). Risks, benefits, and challenges in global IT outsourcing: Perspectives and practices. Journal of Global Information Management (JGIM), 14(3), 59-89.
Pearce, J. A. (2014). Why domestic outsourcing is leading America's reemergence in global manufacturing. Business Horizons, 57(1), 27-36.
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