Posted: November 16th, 2022

Outsourcing and Subcontracting Business Strategy

Outsourcing and Subcontracting Business Strategy
Outsourcing and subcontracting are business strategies in which a company may contact an outside company or a service provider to perform certain sections of a contract or in other cases certain sections of the project. In this particular scenario, the case at hand is that of outsourcing of offshore software development. Outsourcing in any company increases the shareholder value since it reduces operation cost. In this particular case, it is outsourcing in the field of information technology. Which refers to a total turnover of systems that relay information and communication to a third party who is a contractor so as to run a particular function (Khan & Khan, 2013)?
In any business set up, outsourcing and subcontracting plays an important role. For one it enables a company to maximise its performance. This is because of the subcontracted company or individual identifies potential areas of saving costs. Once a company decides to settle for outsourcing, it benefits from streamlined work process thus increasing turnaround time. This drives efficiency in the company up and in the long run, the company is able to achieve growth. The outsourced company plays the role of reducing the business running cost. This is achieved by the outsourced company and vendor analysing the whole process of running the business and doing away with costly processes. With reduced production cost the profits for the company soar (Mol & Brewster, 2014).
The outsourced company plays an important role in reducing risk exposure. This is because such a provider shares the responsibilities and risks of the company. This, in the long run, enables the company to remain afloat in a market environment that is likely to experience changes from time to time. Through outsourcing, a company is able to achieve its business goals since the vendor understands your business objectives and they work towards the realisation of this.
For the process of outsourcing in a project to be successful, there are certain procedures that need to be followed. The parent company first does an internal analysis of all the services that they would love provided by a vendor through what is known as a need analysis. After this, the company assesses all available service providers that can potentially handle the contract. Paying close attention to their talent and their past success rate as well as their experience.
The parent company then comes up with a contract with their potential subcontractor. This contract clearly illustrates the engagement process between the two parties. This contract contains all the details pertaining to all provisions of the contract on top of providing information with all likely states of affairs from the parent company as well as the vendor.
Such a contract should also analyse the successful completion and should include factors to do with uncertainty, specificity as well as the frequency of transaction between the two parties. This contract lays bare the process of completion of the outsourcing process so that all goals set out are met. In such an engagement, all members need to express goodwill so as to avoid a scenario of conflict in the implementation of the contract. This also serves as a motivation to all the parties so as to see to it that the project is successfully implemented. After this, the project is then initiated.
Subcontracting and outsourcing are very important to a company. With increased competition in the market, there is need to adopt strategies that ensure a company is able to compete successfully with other market players or all the same be ahead of them. Outsourcing and subcontracting is one aspect that can increase a company’s competitive advantage.
A company that decides to outsource, stands to gain from cost advantages. Outsourcing ensures that the projects get done successfully at a lower cost while at the same time maintaining the quality of the work. A critical analysis of this is by comparing wages in western countries with the Asian ones. In these two parts of the continent, there is a difference in wages. With the wage cost in Western countries being higher. This nonetheless does not mean that the labour force in Asia is less competent. In fact the quality of their work is better than the western labour force. This, therefore, means that the job can get done at a fraction of the cost in Asia as compared to in the western countries. A real case scenario is that of Fab.com whose founder used an Indian firm that developed him a software to help him build his business (Wuellenweber, Koenig, Beimborn, & Weitzel, 2009)
Outsourcing also means that a company gets to incorporate the best talent to do the task. This ensures that the company gets to save cost on recruiting as well as training the hired staff. An already existing subcontractor is likely to bring in staff who have a sea of experience and have handled such a situation before therefore they know the best strategies to adopt. A good example of this is Groove whose founder Alex Turnbull did not have enough experience to handle software development. He, therefore, chose to outsource technical support which in the long run saved him cost on employing workers while at the same time maintaining the full ownership of the company.
Outsourcing may also increase productivity. For instance, if one decides to outsource from another country or continent which belongs to another time zone, the job can get done even when the parent company that is sub-contracting has closed shop for the day in the evening or when people are asleep. The parent company wakes up to already done work. This provides an advantage of around the clock business operation.
Indeed in the long run outsourcing is a powerful tool whose benefits outmatch the likely shortcomings for companies that decide to adopt it. Companies that adopt it especially start-ups and struggling companies, may get a new lease of life and which in the long run translates to increased competitive advantage, growth and profits.

References
Khan, A. W., & Khan, S. U. (2013). Critical success factors for offshore software outsourcing contract management from vendors’ perspective: an exploratory study using a systematic literature review. IET Software, 7(6), 327-338. doi:10.1049/iet-sen.2013.0013
Mol, M. J., & Brewster, C. (2014). The Outsourcing Strategy of Local and Multinational Firms: A Supply Base Perspective. Global Strategy Journal, 4(1), 20-34. doi:10.1111/j.2042-5805.2013.01070.x
Wuellenweber, K., Koenig, W., Beimborn, D., & Weitzel, T. (2009). The Impact of Process Standardization on Business Process Outsourcing Success. Information Systems Outsourcing, 527-548. doi:10.1007/978-3-540-88851-2_23

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