Outsourcing risk,is it worth it?
...t less money. These foreign workers usually contain degrees of all sorts like bachelors and some even have MBA’s, highly educated and cost a lot less, why wouldn’t a company want that? The cost of living in countries such as India is a lot less than the cost of living in America. For example an engineer making $14,420 in Russia would be equivalent to an American engineer making $70,000.5 (Hira, 2004). With every good reason to outsource there follows a bad one. When a company is deciding to offshore outsource they need to take into consideration their reputation. For example, “Grassroots efforts in New Jersey and California have promoted protectionist legislation. In fact, the New Jersey Senate is considering a bill (Senate No. 494) to outlaw offshoring of state jobs” (Beasley, Bradford, & Pagach, 2004, Risks, 11). Reputation is a company’s most valuable asset. Media can be a good thing and then it can be bad. With the negative media hype, Americans now realize that jobs’ moving overseas is accelerating. Companies are now no longer hiring or are sizing down their American operations. These actions can send out fears to American employees, fear of losing their jobs. What employee wants to give their 100% best to a company who is about to give their job to a worker in another country? These thought process by employees may cause service levels to drop in business operations. Choosing the right vendor is a crucial decision in the outsourcing process. Selecting the wrong vendor can significantly affect operational risk, which often increases as the transition of processing from internal to external operations begins. Vendors need to be capable of learning complex operational processes, and they may need to invest in training and education for them. Also thorough investigation of a vendor’s reputation and capabilities is critical to ensure core business operations are maintained. (Beasley, Bradford, & Pagach, 2004, p.5) A company must make certain that the vendor is what they say they are. In some cases an offshore provider can un-expectantly change their prices once the company has outsourced to them. A good provider would offer a fee that would be guaranteed (Spee, 2004). There are several hidden expenses that may come with these vendors. Second, the vendor most likely will need to be trained on complex business processes, systems, software and hardware. Some companies often need laid-off workers during the transition period to help train their overseas counterparts. So not only must these workers be paid-severance but also retention bonuses. All of these costs could ultimately threaten the labor cost-savings potential that motivated the outsourcing decision in the first place. (Beasley, Bradford, & Pagach, 2004, p.6) These vendors must learn these processes’s and use them productively. If there happens to be any discrepancies in service or quality, this may lead to customer frustration and dissatisfaction. Another hidden expense can be traveling back and forth to maintain business and keeping the hardware and software up to date. However there is a cost that no one really thinks of, and that is the severance of the American based employees, this can be a huge chunk of money for the company. Language barriers can also play an enormous role in the process of outsourcing. Even though these foreign workers train to overcome their accents, it’s not always enough. Poor language and culture differences can lead to the customer not being taken care of the right way (Beasley, Bradford, & Pagach, 2004). When ever a Company involves an outside vendor to do work for them, they are allowing that vendor access to their confidential data bases. This vendor will be entrusted with the company’s core business systems. The company needs to have 100% trusts with the vendor chosen for the job. With the threat of terrorism now of days and other harmful obstacles, a company needs to be very carefully on their decision of choosing a vendor. There are several laws in place in order to protect customer from misuse of their personal information. Such as in California there is the SB 1386 law that is set up for protection of customer information. Vendors who handle information on California residence are affected by SB 1386. The bill specifies that an agency that maintains computerized personal information that the agency does not own must notify the owner or licensee of the information of any breach of the security of the data immediately following discovery, if the personal information was, or is reasonably believe to have been, acquired by an unauthorized person. Companies employing outsourcing vendors to handle the personal information of California residence should ensure that provisions are in place that permit the required notifications. (Rhodes, Dennis, & Roach, 2004, p 4) E...