Outsourcing Strategy

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.

When a firm adopts outsourcing strategy, it 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 who can do them cost-effectively or better than the firm itself.

Many software companies in Bangladesh are using outsourcing strategy. They procure orders from the domestic and foreign customers and then subcontract the same to other smaller companies who do the jobs for outsourcers.

Several business organizations, private universities, NGOs and international agencies in Dhaka are using outsourcing strategy 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?

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 the 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 services.
• When it allows a company to concentrate on its core business and do what it does best.