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Risks Associated with Outsourcing

written by: ciel s cantoria•edited by: Michele McDonough•updated: 12/21/2010

Outsourcing of jobs to offshore companies as an alternative to local hiring formerly presented financial benefits, but the risks of outsourcing are now gaining attention. Miscommunication, poor work quality and plagiarism issues are making companies wary about this as an alternative option.

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    What is Business Process Outsourcing?

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    Business outsourcing involves hiring the services of an external company to provide workers who will perform specific types of work, which could otherwise be performed by a company’s internal staff in the ordinary course of business operations. Although the concept of outsourcing became popular because it presented economical and administrative advantages, there are several risks associated with outsourcing.

    Eventually, this became known as the Business Process Outsourcing (BPO) industry and the majority of participating service providers come from third world developing countries. Accordingly, the differences in language and culture had given rise to risks that could make the outsourcing process detrimental to a company’s business reputation.

    The following sections outline some of the known setbacks brought about by job outsourcing.

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    Miscommunication

    In outsourced jobs, training and project instructions pass through different channels and it cannot be helped that communication between conduits could be interpreted or translated with a different meaning or concept, once they are transferred down the line.

    In addition, the lack of direct supervision from the main user to the worker could cause the latter to resort to guess work, since sending out questions and clarifications would only hamper the work flow. The time difference between two different parties belonging to different time zones could create lags in communication. In outsourced jobs, every day counts, since service providers are required to meet deadlines. Failure to deliver on time could give the service buyer the right to rescind the contract.

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    Poor Quality of Work

    In line with the miscommunication issue, the submission of poor quality job outputs is considered as the lesser evil over missing deadlines. For as long as the contracted work is submitted, the element of failing to deliver was eliminated as a possible cause for contract termination. Instead, the service buyer will merely send back the work for necessary revisions. The company’s own reputation will suffer if they will not devote extra time or money in improving the outsourced work before they can present the finished project to their clients.

    In cases where the outsourced provider cannot deliver the degree of quality expected by the hiring company, the latter will simply make it a point not to re-hire the former’s services. However, it may end-up as a trial and error process, since there is no guarantee that the next provider would be a better contender.

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    Misrepresentations and Plagiarism

    This risk is related to the demand for quality and meeting of deadlines. Freelance service contractors hire their own pool of ghostwriters or ghost developers, and pass off the work as their own. This could work out well for some time but not for long, since the contracting service provider could suddenly lose his connections with his “ghost" contacts. The risk associated with this is that the service provider tends to take on too many contracts, and could resort to plagiarism in order to meet both quality and deadline. Work that was previously rendered to another service buyer who owns copyright to a material, will sometimes be re-used and re-submitted to a different contractor.

    In contrast, an established BPO company invests time and money to select, recruit, train and maintain the most skilled service providers, albeit at higher pay rates.

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    Low Morale Among Employees

    The diversity of outsourced jobs has grown tremendously and was not expected to become an industry on its own. In the 1980s, administrative employees in a manufacturing set-up were formerly complacent that jobs being outsourced pertained only to their company’s factory division.

    Soon enough, the jobs of customer service representatives, program developers, encoders, billing clerks and the like were being outsourced to foreign workers. This resulted in low employee morale and a high rate of turnovers. Employees were inclined to take the initiative of finding employment in a more secure work environment. As a result, companies were unable to retain a set of skilled workforce, which they could rely on.

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    Summary:

    In its entirety, the BPO industry is somehow faulted as one of the causes of economic breakdown. Salaries, which could have augmented the buying powers of the citizens in the community where the business operated, were being channeled offshore.

    A community affected by this type of condition had very little monetary resources circulating in its local financial system, because not enough local work opportunities were being provided. As early as 2004, some economists already saw this as the most disastrous of all the risks associated with outsourcing local jobs to offshore companies.

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    Reference Materials and Image Credit Section:

    References:

    • Seven Disadvantages of Outsourcing by Linda P. Morton a Doctorate in Education (Ed.D.) and is accredited in Public Relations (APR)--http://www.strategicmarketsegmentation.com/seven-disadvantages-of-outsourcing-part-1/

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