1. Outsourcing for competitive advantage
Ajay Joshi Page 1 L0481RBRB0210
Title: How can a global business achieve a better competitive
advantage through outsourcing? A case Study: British
STUDENT ID: L0481RBRB0210
Presented in partial fulfilment of the requirements for the degree of
Masters of Business Administration
UNIVERSITY OF WALES INSTITUTE, CARDIFF
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The main purpose of this study was to examine the competitive advantages of
outsourcing and factors that can be critical for its competitiveness. Outsourcing is a
diverse topic and is a new force in global market. It was comparatively rare in
academia until a decade ago but with its growth and competitiveness, it is
transforming the global business and has initiated many new researches. Outsourcing
is building business synergy and providing almost every imaginable service to client
business. British Telecom is actively involved in outsourcing and has maintained its
competitive edge in 170 countries by outsourcing and managing services.
Outsourcing is an interesting topic to study but on the flip side it is very controversial.
It is inevitable, and every global company practice it to some extent to win
competition. It possesses displacement among workers, creating opportunities at one
place and challenges at others.
Considering, these facts about outsourcing and its significance in global economy and
companies, like BT. This report was been analyzed evaluating different competitive
advantages’ theoretical framework, various outsourcing business models and its
impact on business. To effectively examine the topic, research was conducted with
four objectives in respect to researcher’s opinion and the nature of research.
The study was carried out from qualitative perspective and quantitative data to
validate the findings. Investigation was conducted by interpretivism paradigm with
inductive approach and the strategy adopted was case study on BT. Research was
done by forming a structured questionnaire as researcher assumed that it would be
best way to arrange qualitative data.
Overall outcome of this research implies that outsourcing helps business to be
competitive by enhancing its core competency albeit this research open up various
other factors that require further consideration while analyzing the competitive
advantage of global business requiring them for further investigation .
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A c k n o w l e d g m e n t
I am grateful to my supervisor, Mr. Austin Chakadaoza, whose encouragement,
supervision and support from the preliminary to the concluding level enabled me to
develop an understanding of the subject.
I am also heartily thankful to my family and friends for their guidance & support.
Special thanks to people who helped me with research material and conduct
questionnaires with employees at HCL Technologies and British Telecom.
Lastly, I offer my regards and blessings to all of those who supported me in any
respect during the completion of the project.
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Table of Contents
1. INTRODUCTION 6
1.0 BACKGROUND OF THE STUDY 7
1.1 BRITISH TELECOM, A GLOBAL BUSINESS 8
1.1.1 A GLANCE ON BT’S MAJOR OUTSOURCING DEAL (BT, 2009) 9
1.1.2 FACTS & FIGURES OF BT- HOW GLOBAL IS THE COMPANY? 9
(PLUNKETT, 2011). 9
1.2 RATIONALE 9
1.3 AIMS & OBJECTIVES 11
1.4 RESEARCH QUESTIONS 12
1.5 STATEMENT OF THE PROBLEM 12
1.6 THE STRUCTURE OF DISSERTATION 14
1.7 CONCLUSION 14
2. LITERATURE REVIEW 15
2.0 INTRODUCTION 15
2.1 OUTSOURCING AFTER RECESSION 16
2.2 SHADES OF OUTSOURCING 17
2.3 AN OUTSOURCING, INSOURCING & OFFSHORING 19
2.4 BENEFITS OF OUTSOURCING 20
2.5 MYTHS OF OUTSOURCING 23
2.6 OUTSOURCING’S COMPETITIVE ADVANTAGE CONCEPTUAL MODELS &
THEORETICAL FRAMEWORK 26
2.7 THEORY OF COMPARATIVE ADVANTAGE 29
2.8 THEORY OF COMPETITIVE ADVANTAGE & OUTSOURCING 31
2.9 OUTSOURCING BUSINESS MODELS 31
2.10 CONCLUSION 34
3. RESEARCH METHODOLOGY 36
3.0 INTRODUCTION 36
3.1 RESEARCH PHILOSOPHY 36
3.1.1 POSITIVISM 37
3.1.2 INTERPRETIVISM 37
3.1.3 REALISM 38
3.1.4 SELECTION 38
3.2 RESEARCH APPROACH 38
3.2.1 DEDUCTIVE APPROACH 39
3.2.2 INDUCTIVE APPROACH 39
3.2.3 SELECTION 39
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3.3 RESEARCH STRATEGIES 40
3.3.1 ETHNOGRAPHY RESEARCH 40
3.3.2 EXPERIMENTAL RESEARCH 41
3.3.3 SURVEY RESEARCH 41
3.3.4 CASE STUDY 42
3.3.5 GROUND THEORY RESEARCH 42
3.3.6 SELECTION 42
3.4 DATA COLLECTION METHOD 43
3.4.1 PRIMARY DATA 43
3.4.2 SECONDARY DATA 44
3.4.3 SELECTION 45
3.4.4 RELIABILITY 45
3.4.5 VALIDITY 45
3.4.6 ETHICS 45
3.4.7 LIMITATIONS 46
3.5 CONCLUSION 46
4. ANALYSIS & FINDINGS 47
4.0 INTRODUCTION 47
4.1 GLOBAL BUSINESS’S COMPARATIVE ADVANTAGE 48
4.2 DO PEOPLE THINK IT IS GOOD FOR THEM 50
4.3 OUTSOURCING, BY COUNTRY. 52
4.4 OUTSOURCING, A BLEND OF COMPARATIVE & COMPETITIVE
4.5 HOW GOOD IS OUTSOURCING? 56
4.6 WHAT MAKES OUTSOURCING BAD? 60
4.7 CONCLUSION 62
5. CONCLUSION AND RECOMMENDATIONS 63
5.0 INRODUCTION 63
5.1 EVALUATING THE FINDINGS 63
5.2 REASEARCH OBJECTIVE & QUESTIONS LINDKED TO RESEARCH
5.3 RELATION BETWEEN OUTSOURCING & COMPRTITIVE ADVANTAGE 67
5.4 IMPACT OF OUTSOURCING ON THE COMPETITIVE ADVANTAGES 68
5.5 RECOMMENDATIONS 68
5.6 FUTURE RESEARCH DIRECTIONS 71
5.7 CONCLUSION 72
APPENDIX: QUESTIONNAIRE 78
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‘Outsourcing’ is fairly new in global economy but has become a major business and
economic concern across the economic fraternities. Ever since its inception it has met
with mixed-reaction. For a company that outsource a part of its job to third party, in
other country or company is considered as loss of job for the home country but is a
gain for the third-party or ‘vendor’. In layman terms, an outsourcing is sub-servicing
or transferring a part of operation to third-party that is not ‘core competence’ of its
business but which may help its client to gain comparative advantage edge in its
It was an extension of free trade movement; big companies eyed on bigger market
share and plunged in global market that would improve its market position and help
them make optimum utilization of available ‘global’ resources.
Outsourcing is a team-based approach, according to which a business understands that
diverse skill set is not always present with one individual but it is found with group of
various-people, that can be blended together to achieve common organizational
objectives (Duening & Click, 2005 p138).
It is a social-technical phenomenon, which involves social as well as technical
resources of the organization. With improved technologies all businesses are now part
of global communication network that help in smooth functioning of all operation at
diverse location and perform as ‘one-single-social-unit’.
Outsourcing for any business is now a strategic business choice not merely to reduce
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Cost but for the enhancement of the services. It is combined asset pool, exploring
core-competence of third-party and the host company to attain business goal.
Everyone involved in process are motivated to achieve mutual benefit and attaining
organisational objective in the process.
There was a digital revolution in the business and a dramatic slump in the cost of
international telecommunications. Companies in America and western countries were
paying one-tenth more to there labour compared to labours of developing countries
(Bragg, 2006). Private business saw that if a same job was done by their outsourcing-
counterparts it would cost them low without compromising on the quality. White-
collar jobs started shifting to outsourcing companies due to increasing global
competition. Call-centre agents, data processors, medical technicians, and software
programmers all tradable jobs flourished in emerging markets.
1.0 BACKGROUND OF THE STUDY
British telecom or BT group PLC is one of the oldest global telecommunication
service company, that has it’s headquarter in London. It is also the first
telecommunication company in UK. BT happens to be the largest telecommunication
company having it global-presence in 170 countries.
BT global solution is one of the major suppliers of telecom service to businesses
worldwide and government agenises. BT retail is supplier of broadband, telephone
equipment and television subscriptions to its customer.
British telecom, a global Organization was started in 1846 in City of London by an
entrepreneur and politician John Ricardo and his partner William Cooke. Ever since
then it has grown and has innovated and abandoned many business strategies to stay
over its competition. Its major strategic alliances during 1991-2001 with other
telecommunication companies worldwide helped BT to capture overseas market. It
rebranded itself to penetrate in wider markets. British telecom has always been a
changing company that combated and confronted its competitor and retain its market
share for more than a century.
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In 2005, BT went through a Global expansion plan with number of acquisitions (BT
Annual Report, 2010).
1.1 BRITISH TELECOM, A GLOBAL BUSINESS
British telecom’s business process is marketing and advertising, call centre, technical
support and consultation. Its type or nature of business is providing Network and
consulting service, telecommunication equipment-networking, broadcast transmission
products and multinational law & business consulting (Plunkett, 2011).
BT global service, is international business service, it is a solution division of BT
group and one of the leading telecommunication carrier of UK (BT, 2010)
British Telecom group focuses on information and communication transmission
technology through three different segment Global financial services, government and
global telecom. Prominent people driving the company to success are Ian Livingston
(CEO) and Sir Michael Rake (Chairman).
Global financial service division provide network IT service to financial business.
It operates through subsidiaries; BT Radianz is a connectivity and hosting company.
BT trading system specialises in financial trading room system.
BT global financial solutions provide information technology outsourcing services.
BT offers IT and telecommunication service to public sector through its government
segment. BT Albacom is one of the largest operators of Italy (Plunkett, 2011).
Global telecommunication division offers consulting & operates service like network,
security and messaging support. BT Infinet is leading provider of global managed
voice and data network service for corporate customer. BT Broadcast service supplies
global broadcast solution.
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1.1.1 A GLANCE ON BT’S MAJOR OUTSOURCING DEAL (BT, 2009)
British Telecom is actively involved in outsourcing to sustain competitive advantage,
here are the few outsourcing agreements it had with companies to improve its
BT has infrastructure management deal of $750m with Hewlett Packard.
BT outsourced HR department to Accenture for $550m.
For finance and accounting it has an agreement of $355m with Xansa.
Contract worth $130m with CSC to provide application development service.
1.1.2 FACTS & FIGURES OF BT- HOW GLOBAL IS THE COMPANY?
BT Global service has over 10000 clients.
Association with 3400 multinational companies.
80% of FTSE 100 companies.
40% Fortune 500 companies.
90% UK financial institution.
25% of world’s financial market.
Trades in 51 countries.
Does direct distribution of its product & services in Austrian market,
headquarters in Vienna.
Major Client- Cisco system, Microsoft, Intel, Oracle, Nortel Network
Other new clients are Chi X, Canada TM, UK KMPG
The reason I chose Outsourcing as my dissertation topic is; not only is it a new force
in global economy but because I was part of an Outsourcing organization myself in
India. I wanted to explore something that I had done and always appreciated. I had
worked for HCL Technologies Ltd and had catered to clients like MacAfee, British
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Telecom, Oracle and many other companies from United Kingdom, America and
I have a special attachment with this topic and through my dissertation I would gain
fresh insight and concept of outsourcing done by companies. I have a quest of
understanding what are the effect of rapid evolution of outsourcing techniques and
In last decade of last century, many companies were opting to outsource certain part
of work to companies outside their own country. Big emerging markets like India,
Chain, Russia, and Brazil where matured market and had gone through economic
reform recently that promised good potential and sufficient infrastructure that helped
these companies to undertake particular 'part-of-work' with low operation cost and
high-efficiency at these location. I was tiniest part of the whole process and through
my dissertation would try to study extensively on outsourcing with a new learning. I
would know more on the subject and present a clear and concise view on the topic.
Other than my experience of doing an outsourced work, I was also inspired by the
book ‘The world is flat’ by Thomas Friedman in which he described about the ten
flatteners of the world that has made the world flat, from round. By flat he means that
now not only countries but every business on globe is closely-knitted and facilitates
each other in achieving respective business objectives. According to him outsourcing
is one of the important flattener that has happened in globalization 3.0(Globalization
The strongest reason of selecting this topic was ‘Myths’ associated with outsourcing
business or according to Lou Dobbs ‘Disadvantage of outsourcing’. I read his book
‘Exporting America’ about how outsourcing can have adverse effect on a countries’
economy and its people. How easy it is for a company to outsource their job to other
company at foreign location and how difficult it is for the society, employees and their
families who have to cope up with the loss of job due to outsourcing.
The purpose of my dissertation is to understand and find-out how outsourcing can be
a win-win situation for every company, every country, every society and every
employee. And how a business can thrive in current scenario without any one losing
any job anywhere in the world and still companies gain comparative advantage.
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1.3 AIMS & OBJECTIVES
Outsourcing is undoubtedly a new big-thing in business worldwide. My objective is to
understand and analyze the application and implementation of it in present scenario of
business. Evaluate the outsourcing opportunities, and understand how business
decides to choose a vendor from host of different options or strategies. How does
business mange changes due to the execution of outsourcing project and in-
comparison to the business that do not do outsourcing.
There are many myths associated with the Outsourcing process. My task is to
highlight this and understand its effect on every aspect of its functionalities.
According to big companies outsourcing is a boom to the economy and they promises
to provide customer better and cheaper options, value for money products and
services to the society. My objective for this dissertation is to understand the real
concept of outsourcing and identify why it is one of the way business can reduce cost
and improve quality. Emerging countries has an important role to play in this so what
can be done so that no one loses. And is there really something a business loses if it
does not do outsourcing?
To accomplice my research successfully, following are my objectives:
1. To review competitive advantages’ conceptual models and theoretical
framework, in context of outsourcing.
2. To identify any misconception and myths associated with outsourcing.
3. To analyse how important outsourcing can be for the company (British
Telecom) and economy.
4. To identify and recommend how business objective can be achieved through
outsourcing in competitive world.
These objectives will give a layout and would provide direction to all research and
findings through-out the study.
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1.4 RESEARCH QUESTIONS
The above stated objective of the research is vital in laying foundation to a good
project. It gives research a structure and support, providing guidance to overall
investigation. A research with no objective can lead to a poor study with no relevance
or meaningless conclusion. Aim of this research is to consider the effect of
outsourcing in present market scenario and how it can provide competitive advantage
to a business.
Research question is vital and would further guide to do a good research based on the
question and issues that is needed to be answered. It will further help in drawing
conclusion and achieving the purpose of dissertation. Following are the research
question that I intend to find answer through my investigation:
1. How does outsourcing affect the prospect of business in this age of
2. What comparative advantage business gets from outsourcing, which can
enhance global business’s competitiveness?
3. Does a business benefit from outsourcing and how can it gain competitive
advantage by this?
4. What are the reason that can dampen competitive advantage of outsourcing
due to its demerit and negative image?
1.5 STATEMENT OF THE PROBLEM
The concept of outsourcing is widely discussed due to its affect on global economy
and the overall performance of the organizational. It is vital in executing business
operation and explores global resources and creates economic value. There are
various issues to be considered before choosing a service provider. It may vary from
social, political or economical aspect of the international business. Based on these
problems business focuses on maintaining competitive advantage and take utmost
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benefit of the global opportunities. Business strives to provide value-for-money to its
customer and gaining competitive advantage over its competitor.
Problem can well begin before the ‘Rubber meet the road’, Post contract process is
very important as any lack of understanding of contract may hinder an organization
from achieving business benefit and client may find it difficult to work with their
service provider. Lack of support from both parties can cause passive resistance to the
entire outsourcing model. A poor mutual understanding can also result in the failure
of the process as outsourcing has multiple team members who have their personal
view that can differ from the overall interpretation of the ‘contract’ (Hutchinson,
2004). Good governance staff would help in smooth functioning of the assigned
responsibility by everyone in the business.
Outsourcing can reap good result if there is good training provided by client and if
third party can add value its delivery. There can be loss of key talent or poor
knowledge transfer from the client-end if the employees are de-motivated due to
outsourcing of the job to foreign-shore that can obstruct business benefiting from it
competitive advantage. It can cause uncertainly within the company and existing
employees may look for other opportunities outside the client organization. This can
increase operational risk as the third-party won’t be able to meet the demand of
Outsourcing’s bone of contention is the culture clash between the client and its service
provider. According to Roman Seidl (2007), ‘‘Due to the nature of outsourcing,
people from different location and with different cultural backgrounds work
together.’’ The most common process used to investigate cross-culture differences is
based on Hofstede’s (1980) work of four cultural dimensions: power distance,
individualism versus collectivism, masculinity versus femininity, uncertainty
avoidance. In broad terms it can be difference in corporate culture like the
organizational structure or decision making by two separate business-entities and
national/ regional culture like difference of language and custom and limited
communication between both parties basically by phone and email.
These problems can affect an outsourcing process which can stop organisation from
gaining from its competitive advantages.
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1.6 THE STRUCTURE OF DISSERTATION
Chapter 1 was the ‘Introduction’ where researcher had given an overview of the
dissertation. It introduces the topic and the company chosen in relation to the research.
It illustrates key area that would be covered and primary aims and objective of the
Chapter 2 would be the succeeding chapter in which researcher would analyse and
synthesise the view of other researcher on outsourcing and its direct relevance on the
business. It would discuss models and theories prevalent in outsourcing and different
business models and myths associated with dissertation.
Chapter 3 would illustrate research programme that has been designed for this
dissertation. It will elaborate on the research strategies adopted in collection
procedure and the difficulties and problems encountered in the research.
Chapter 4 would be divided in two sub-parts, initially it would analyse the findings
that would be derived from statistical data, questionnaires, and the instrument used in
research collection and measurement of data, proceeding with the summary of
Chapter 5 would be the last chapter that would emphasise on the conclusion of this
dissertation and recommendation for further studies on outsourcing. In the conclusion
all the questions and issues would be answered and any further recommendation
would be provided for better management of the problem.
This chapter has outlined the overall introduction to the study. It discusses about the
topic (outsourcing) and the brief information about the chosen company. It
emphasises on the research aims and objective that is the laying stone of this research
and statement of the problem. It ends with the structure of the research that divides
the study in five different sub-topics which would be further explained extensively as
the research proceeds.
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2. Literature Review
This chapter discusses about outsourcing from different perspective. Is it a good
practice or is it bad? What is the effect of outsourcing on the global economy? First
section deal with Outsourcing after recession, reason it was chosen to be the first
section was, as there were doubts in the world economy that the recently ended
recession was because of companies of developed countries are outsourcing their job
to emerging market and shifting the global economic balance away from developed
countries. Second section deal with different kinds of outsourcing business at different
level, which is different, from the outsourcing business model, but still it is very close
to various types of global sourcing.
Third section focuses on global sourcing- outsourcing, insourcing and offshoring.
There is a thin line between all three of them and they are as different as a chalk and a
cheese. It deals with the intricacy of all three of them and its operational
functionalities. Section four highlights the benefit of outsourcing at different levels.
This chapter then discusses the theoretical framework and concept of outsourcing in
context to the competitive advantage business can gain and development it can do to
the overall performance of a global company. Sixth section is discusses Myths of
outsourcing at length, which is a very interesting part. Ever since the first outsourcing
started there have been many different notions about it. People of developed countries
find it curse, as there is high risk of losing job. On the other hand it is considered a
boom for emerging markets, developing nation has solved many of their problems,
and people of these countries have a better job and a brighter future. There has been
mixed feeling about the whole process and this is the reason there are many Myths
associated with this.
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This chapter also discuss about the theories of comparative & competitive advantage
in context to outsourcing. Last section ends with discussion about different business
model and how important it is in ever changing and fast growing economy.
Outsourcing that was couple of years back, has changed, developed, evolved and have
grown which has brought changes and diversification in service delivery industry.
2.1 OUTSOURCING AFTER RECESSION
When every business is busy outsourcing and moving operations offshore, Politian
and bureaucrats are making hue and cry over the global services and blaming it for the
recent recession and growing unemployment in their country. Their strict stance
against global organizations and outsourcing companies had resulted in its slow
growth but there is more to this phenomena and it is here to stay. There are ample
potential of outsourcing still needed to be tapped.
Outsourcing before the start of Recession was growing at a steady rate and was
predicted to grow manifold with more types of high-end process handled across
borders. The tactical outsourcing is over and issues of outsourcing is the strategically
focus of companies from emerging countries. Jim O’ Neill an economist with
Goldman Sachs said there was wide range of outsourcing services delivered by BRIC
companies-Brazil, Russia, India and China(South Africa is the new entrant). There
was improvement in quality and quantity of high- end processes dealt by specialist
professional ranging from financial and accounting, legal, media et al (Kobayashi-
Hillary, 2008) there was more growth in horizontal application like procurement, HR,
Training and design Major publishing houses are publishing document and research
article to boost outsourcing-process in their country.
Recession has not changed much in the outsourcing industry other than slowing down
its pace but it is now accelerating back and is force to reckon. According to recently
published report outsourcing business has gone through continuous and substantial
change by exceeding expectation and growing as a service industry (A.T. Kearney
Global Services, 2011). There have been new types of innovative services that are
handled remotely with utmost precision. There are many new counties joining in the
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business specializing and enhancing in specialized kind of service and emerging from
the economic crisis that hit the international market two years back. All this has
caused in renewed growth but it is still fragile.
International Monetary Fund (IMF)’s latest projection of global economic growth was
estimated 4.8 percent last year and in 2011 it is 4.2 percent. Global recovery still
remain fragile due to internal rebalancing of demand from public to private source and
external rebalancing from deficit to surplus economic yet due (2011 A.T. Kearney
Global Services Location Index).
Though financial crisis of 2008 is over now, immediate and significant impact of
service-delivery is again reviving. Financial firms are the biggest clients of
outsourcing companies. There is now a major shift in economic environment that is
growing more complex. Government of developed countries are demanding re-
shoring to tackle with loss employment. Still future of outsourcing is not gloomy and
it show huge potential in new technology like cloud computing that can help
outsourcing to rapidly evolve from it traditional outsourcing model. It is in transition
phase, but is evolving fast.
2.2 SHADES OF OUTSOURCING
There is different aspect of outsourcing done by companies today. Many authors
describe it depending on the nature of business that needs to be carried out to deliver
service. Researcher has discussed here various outsourcing elements and the thin line
that differentiate it with other global sourcing. Here is the list of various outsourcing
undertaken by businesses, as described in ‘‘Outsourcing and insourcing in an
international context’’ (Schniederjans et al, 2005), and how they are different? :-
Offshore Outsourcing- Outsourcing is undertaken by firms located in foreign location.
Organizations start their own operation at foreign shores, depending on the benefit
that a business can get. Though this type of offshoring operation is not considered
outsourcing but is form of insourcing.
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Nearshore Outsourcing- It is same as any other outsourcing other than these countries
are in close proximity to each other or neighbouring countries. Example of such type
of outsourcing could be an English company rendering outsourcing job to a company
in Germany or France or an American company relying on companies based in
Mexico or Canada to ‘get-its-part-of-job’ done.
Transitional Outsourcing- Business can outsource an older business system in order to
focus and innovate on newer system. Like a client firm outsource obsolete billing
database of existing customer and concentrate on installing newer automated billing
system and make it operational without losing any business opportunities.
Co-sourcing- Client opt to pay the vendor their payment only when a certain goal is
attained, such as paying third-part if the clients sales target is achieved.
Spin-off- Outsourcing a particular type of business activity to a third party being
brought together in a whole new and separate entity. Such as outsourcing HR
department becoming a separate HR service firm.
Backsourcing- It is a type of insourcing, when a client does not get the desired result
of outsourcing takes back the outsourced job to the client firm.
Business process outsourcing (BPO) - When a business outsources, entire process or a
particular department to third-party that can be its core-competence. For example a
client firm outsource its entire technical-support department to a foreign company.
Business transformation outsourcing (BTO) - In this form of outsourcing a vendor
focuses on helping its client transform from old infrastructure or business model to a
Value added outsourcing- When the client and the service provider work together
combining each others expertise to market product or service and to achieve same
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Netsourcing- When a firm rent computer application, infrastructure, product or
service over the web network. CSC (Computer Sciences Corporation) is a company
that share various business model and delivers technology traits with other businesses.
Shared Outsourcing- When one service provider offer its service to different clients at
any give point of time having same operational requirement or are in same or diverse
line of business. Insigma Technology co, a number one Chinese software outsourcing
company delivers its service to American companies like Cisco, Microsoft as well as
to Japanese market, such as Tokyo stock exchange, Toshiba.
Multisourcing Outsourcing- A client if decides to outsource different section of job to
different vendor depending on their core competency or their competitive bidding, to
get highest quality at lowest price. British Telecom (BT) has outsourced its job to
different vendors. HCL technologies was awarded a major broadband tech support in
2005, before this it was handled by ClientLogic, Tech Mahindra supplied services to
BT’s internal systems and majorly in software development. Other companies BT
outsource to is Tata Consultancy services and Infosys.
2.3 AN OUTSOURCING, INSOURCING & OFFSHORING
To understand outsourcing it is best to differentiate it with insourcing and offshoring.
Each have different characteristic. As discussed earlier outsourcing is an agreement
that a client does with its service provider to give a part of work to the vendor which
is not a core competence of the client. Many Automobile companies have an
agreement with other ancillary industries to provide those products that can be used in
their automobile such as windshields, nuts and bolts or even a sound system. BMW
giant a German-automobile Company has outsourced with Bose Corporation, an
American company to provide them their state-of-the-art music-system that comes
with every BMW cars as a standard-fitted product. For BMW it turns-out to be
cheaper to get music-system from Bose instead of setting-up own manufacturing unit.
In outsourcing client is not involved with the operational function of its vendor and
are only concerned with the delivery from its third party (Sparrow, 2004).
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On the other hand in insourcing clients almost manage its service provider in their
operation. Insourcing client is very much involved with the delivery of its provider.
Toshiba Corporation which is a Japanese computer company has insourcing with
United Parcel service or UPS an American package delivery company. UPS controls
the supply chain of Toshiba but something that is more interesting is that in case of
any faulty or repair of Toshiba laptops, UPS picks-up the product and repairs it at its
own service centre and delivery it back to Toshiba customer. By doing this it not only
saves time but also cut- down on the cost of transportation of product to the company.
UPS hub have Toshiba service centre at almost every major cities. UPS does
something beyond shipping, it does servicing for Toshiba as well as inventory for
Nike, which is insourcing for its clients (Jenster, 2005).
Offshoring is relocation of an organizational process from its own country to an
offshore or foreign location mainly its operational aspect of business, like
manufacturing or other supporting processes. Thomas Friedman described in his book
about globalization 'The world is flat'(2005) offsourcing as a #5 flatteners, which has
improved with the entrance of China in the World Trade Organization as it has posed
a stiff competition to Malaysia, Bangladesh, Brazil & Mexico. The reason business
relocates its internal process to offshore is to take advantage of low-manufacturing
cost in these countries. It is a common practice with manufacturing companies to
lower operational cost to increase profit. According to a report by BBC two years
back British retail firms ASDA, Tesco(superstore) and Primark, leading budgeted-
clothing brand have offshoring contract with various small manufacturing unit in
2.4 BENEFITS OF OUTSOURCING
Outsourcing has proved the test of time. It not only facilitates companies’ utilization
global resources but also has many quantifiable or tangible merits as well as equally
intangible or not quantifiable benefits to the organization.
Tangible benefits are easy to measure but some intangible advantage that a business
get make it much more acceptable by global companies, some of it can be like
business can enter new markets easily, can have wider global presence and above all
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can be helpful to economy of those countries that have the skill (potential) but does
not have the infrastructure.
According to Kevin Chern, President of Total Attorney a technology-enabled legal
service provider, intangible benefit out-weighs outsourcing quantifiable advantage,
and that is what business strives for to gain competitive advantage. He explains
further, outsourcing is not merely an operation at remote location to save cost, but
there is more to it than what meets the eye.
Kevin, runs a law firm, and explains on his Total Attorney homepage that there are
many way outsourcing can make to a business effective. It can provide its client with
virtual-worker that gives flexibility to business as client can contact third-party only
when they need help. This removes the requirement of recruiting and train
unnecessary staffs. It can also curtail problems due to absenteeism and reduces low-
productivity due to sick or annual leave (Total Attorney, 2010). Outsourcing can
absorb any fluctuation in regular work and make sure there is no dip in the
operational- hours of employee. Every task is right on schedule with improved quality
control. Outsourcing can also boost office morale as employees are motivated to
perform a task, they are good at.
There is many more advantage of outsourcing, research shows that it can save 25% of
the cost for a business reducing the risk involved in operation and improving the
productivity. It can reduce the operating cost as business can outsource secondary
process to third-party and use their capital fund for their core business (Bersin, April
Companies can outsource ancillary functions to it vendor and can concentrate on its
core business function and maximize growth opportunities. Outsourcing can help its
client focus on ongoing single-project. Sony Ericsson a joint venture between a
Japanese company Sony Corporation and Swedish telecommunication company
Ericsson gets its battery made in china by third-party, this provides them time and
freedom to focus on their work-productivity, services and enhances its global
portfolio increasing its life span and sharing innovation.
Outsourcing has become a potent tool due to its innumerable benefits by improving
operational efficiency. Cost saving is one of the important factor, as business can save
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on wages and operational implementations. Business can reduce investing in
technological infrastructure and technical support services which could be re-invested
in future global expansion (Blokdijk, 2008 p165-180).
Outsourcing solution gives opportunities to companies to access global skills and vast
talent pool at different remote location on the planet and make the best use of rich
resources of technical knowledge and expertise that improves the quality standards.
Companies are now refining their own strength and competencies, as due to
outsourcing there is significant reduction of business risk in operations overall. One of
the important aspects is the reason, that there is improvement in the quality of service
or product, due to interdependence theory of vendor on its client firm, a good
performance and better delivery can strengthens the partnership and long business ties
between the two companies. On the other hand, clients also reap the advantage of
their association. Flexibility that the firm get can help it to gain comparative
advantage in business. Flexibility of business is important and improves
competitiveness. Outsourcing provide greater flexibility which is utmost important in
ever-changing technological era, it also reduces time-to-market and improves the
work processing (McIvor, 2005). Earlier outsourcing companies use to control
majority of activities internally. It helps business to be inflexible and inherent in
volatile market condition. It also helps organization in controlling and excelling in all
the activities business undertakes. Performing too many activities at the same time
would divert a business from its core competence and may loosen its hold in market.
Outsourcing can resolve all this problems in business, specialist suppliers can give
greater responsiveness than large vertically integrated organization network and
business can increase and reduce their supply depending on the market demand.
There are many other strengths of outsourcing as it help specialist do the specialized
job. Business can concentrate on its area of business that can help it focus on meeting
customer expectations and leverage the core competences of third-party. Dues to
outsourcing business can have it own network of service provider and could chose
them depending on their area of expertise and clients’ requirement. Being specialist
service provider of ones client is also very challenging as there is hostile supply
market and high competition, vendor has to develop it knowledge and expertise.
Outsourcing firm invest in harnessing and improving the skills to add value to its
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service and provide better service at low cost. Vendors are in business with the motive
to earn profit and if it does not enhance it specialization skill, it can loss the business
to competition. Western car maker generally outsource module assemblies to different
vendors and there is a stiff competition among suppliers thus it is very important
vendor keep on improving and developing product and service to stay in the business,
in the end client gets benefit of this extending it to its customer (Vashistha &
Outsourcing, definitely help business to innovate, especially at vendors-end and this
help client if they chose the right third-party to get the work done and invest in area
that can help business to grow. Dell computers are a very good example of this as it
gets every component outsourced from its supplier and focus on maintaining and
improving its market position globally.
2.5 MYTHS OF OUTSOURCING
Outsourcing is good for business but there is fear, some conflicting fact and
misinformation that have made it a controversial topic. There are many myths
associated with it. It recently emerged to be a very important agenda in presidential
election in America as it is perceived to be a risk to country’s job market, here are the
myths that many authors and economist unveiled in their books (Brown & Wilson,
2005 p. IX-XI).
Myth 1 Outsourcing is all about hiring employees of another country and losing your
own job to them.
Fact- Outsourcing is not just based in different country; business can outsource their
job to a company in their own country, as the idea is to get the work done through a
specialist and lowering the cost. Though outsourcing agreement can be done with a
foreign company but still the payroll and work load of onshore employees can be the
same or can slightly increase, there can be a change in the kind of job onshore labours
were doing before.
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Myth 2 Outsourcing is only for big companies who have multiple locations on globe
as they can only afford it. Small company cannot get the benefit of this and would
find it expansive.
Fact- It was true to some extent as in past only big companies could afford to hire and
operate in foreign location; it was difficult for medium and small business to reach-
out to other countries. But now it is possible as there are many big as well as small
firms providing outsourcing venture to small companies, there are some major
outsourcing companies providing specialized service to small firms. All firms strive to
delivery high class service to its client and earn revenue.
Myth 3 Outsourcing is not good for the country like Britain and America.
Fact- There has been various debates in developed countries on the pros and cons of
outsourcing. There has always been always different view to outsourcing; there has
been much disagreement to this concept of business. According to a report sponsored
by Information Technology Association of America (ITAA) that was prepared by the
research firm Global Insight in March 2004 states that outsourcing is good for the
countries economy and its labours (Global Insight, 2004). Recent outsourcing of
software and information Technology (IT) has boosted gross domestic product and
had helped in generating new jobs not only in IT sector but also in other businesses. It
has improved economic activities that has created twice the number of job and has
also increased the average wages. There has been a rise in Job in UK during January
and February 2011, according to a report by BBC. Tony Blair had also said when he
was prime minister in 2004 that outsourcing is good in long run. McKinsey
management consultancy on outsourcing states that it increases the provision of job.
Nasscom has claimed that its advantage outweighs the temporary social and economic
cost of job loss (Financial Times, 2005).
There are many more outsourcing Myths that are prevalent today. There is a
misconception that it has adverse effect on the countries economy and has many
doubts. There is an argument that how outsourcing can be good if it causes job loss,
why business instead of give a job to its employee ship it other company in foreign
location. Outsourcing helps to reduce cost which is too good to be true and there has
to have a flaw in outsourcing process thus there is numerous myths regarding
outsourcing. There are numerous doubts but outsourcing is still surviving. But
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prominent economist had given fact to many outsourcing myths and has predicted it to
be a necessity for the survival in the business today and ways global traders seek
competitive advantage. There are few for myths relation to outsourcing (Burkholder,
Myth 4 Business that outsource a particular function of organization consider it to be
not-critical for itself.
Fact- The fact is business that outsource a particular function consider it to be very
critical for itself. According to Outsourcing Institute 30% of global business engage in
outsourcing. Corporate business outsource information technology, major automobile
company outsource manufacture products which is very critical for the business. Data
and information flow is vital for business and every business wants to give best to its
customers. It is Visionary Corporation that aim to provide expertise, resources and
strategically focus on critical function and thus improves its performance.
Myth 5 Outsourcing is expensive other than reduction in the head counts.
Fact- If reducing the head count is the only objective of the business, than outsourcing
activity is bound to fail. Though it is very important for business to evaluate total cost
and through outsourcing there is definitely an opportunities to save cost. Through
outsourcing business can get experienced and knowledge workers and third-party can
review the complete business cycle to deliver its best service. Outsourcing can save
investment in new technology and can provide latest tool. It is only pricing on
contract that a business has to pay and other outsourcing payment depends on the
delivery of the service or product. Client can leverage with limited capital investment
and minimal operational expanse (Outsourcing Institute, 2011).
Myth 6 There is no career growth or very restricted prospect of outsourced staff.
Fact- Outsourcing has a good future and its opportunities abound a person joining an
outsourcer. Outsourcing deliver’s, to a wide range of businesses. A third party is
responsible in execute multitude business process. It is a growing business and
requires number of staff performing different roles. A person with good leadership
qualities and expert domain knowledge is bound to excel in outsourcing.
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Myth 7 Outsourcer are not motivated, it does not have same business driver as the
internal group, and vendors are not customer focus and are inflexible with changing
Fact- For third party clients is its customer. Client set the ground rule of its delivery
they can negotiate the service level agreement and can state outsourcer their targets
and what are expected out of them. Performance is evaluated in regular review
meeting and any change can be done depending on the market condition. Outsourcing
venture is based on supplier performance. An outsourcer is less affected by internal
politics and concentrate on its delivery. It supports its clients in meeting goals. There
is much more conflict in internal resource than in a client supplier ties which is longer
and payment is based on its delivery and client satisfaction. An outsourcer is
motivated to perform as client dissatisfaction can result in loss of business. Outsourcer
has to be flexible and change with market demand.
2.6 OUTSOURCING’S COMPETITIVE ADVANTAGE CONCEPTUAL
MODELS & THEORETICAL FRAMEWORK
Outsourcing help business to gain competitive advantage, benefits that a business gets
due to this is not limited to cost or quality enhancement but overall improvement of its
competitiveness. Below are the models that describe outsourcing improves
competitiveness of a global business.
Resource-based view of outsourcing- RBV is a business management tool to
strategically identify resources available to companies that can give business a better
market position by optimum utilization of available resources. It is the internal
analysis of an organization, in context of resource and capabilities of firm. Resource
dependency theory is for external analysis, that emphasise on level of dependency on
external factor due to existing business environment (Mehdi Khosrow-Pour, 2006)
Due to free trade policy, business has got opportunity to do trade with any company
on the globe which can make them competitive and this has worked in favour of
outsourcing. Business are eyeing on global resources to cut cost. There is external
factor responsible for this, such as competition and customer demand.
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Resource-based Model of outsourcing
Identify & Study :- RESOURCES
Input into firm’s operational function.
Determine - CAPABILITY
Capacity of an internal set of resources to
integrative perform a task or activity.
Determine:- COMPETITIVE ADVANTAGE
Ability of a firm to outperform its
Locate:- AN ATTRACTIVE INDUSTRY
An industry with opportunities that can
be exploited by the firm’s resources and
Select & Act:- STRATEGY FORMULATION &
Strategic action taken to outsource task
that business does not have expertise.
ENJOY Performance improvement, cost
Adapted from: Strategic Management Journal, Mitchell(2001)
Outsourcing can meet the unique needs of a firm which may not have expertise in
certain area and can be resources for its client and help business sustainable
competitive advantage. When business identify these potential resources and their
capabilities it will decrease risk and uncertainty in business and would lead to
Core Competency- It is a specific factor that an organization identify as its core
business and the way its employee work together so that it is not easy for its
competitor to imitate and leverage widely to market requirement. Outsourcing help
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businesses harness its core competencies and derive benefit from it. Technical,
knowledge know-how could be outsourced if it is non-core function of business and
can focus on activities that it continuously engaged in (Tho, 2005).
Core competency of outsourcing companies in Top 10 countries
Source: A.T. Kearney Global services Location Index, 2011
Economies of Scale: It is a microeconomic concept, according to this companies gets
cost advantage when they expand their business. Factor that can cause this in long run
can be due to business’s cost reduced as the output increased. There is reduction in
cost as size of facility and usage level is increased. In outsourcing both client and its
vendor get benefit of this. Third party that provides service to its client invest on the
infrastructure and application and if it can sell the same service to other client at no
further investment it can thus achieve economic of scale (Barrar & Gervais, 2006 p4-
5). This will encourage new entrant and that would give client more option to select
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its outsourcer. Benefit of economic of scale will be for the client as well because price
will go down when production increases. Business can outsource part of its function
and could focus on its economic of scale in which it has core competency.
Value chain- This is a concept of business management. It is chain of activities of a
business in a particular industry. A product or services pass through a series of
activity and with each activity it gains value. The sum of independent activity gives it
a value. When all activity is managed perfectly at each linkage it gives competitive
advantage to business. Outsourcing help business climbs a value chain (Patel, 2005).
Every activity is important in outsourcing clients can overall improve its value chain
and increase economic competitiveness. It depends on the position outsourcing is
positioned in value chain. It is an opportunity for business to revalue its value chain
and focus on core function. This would be vital factor to outperform in core function
and take good control of all the activities in the chain. Other activities, outsourcing
firm would achieve providing competitive parity level and lower cost (Hoskisson et
Above analysis on competitive advantage of outsourcing show that business today has
number of strategically choices, hence it is very important for global business to
evaluate its performance and make decision what it can develop in-house and what it
can outsource. Outsourcing can give competitive advantage if business can balance its
internal and external function. Companies should consider weather it has to train and
develop its internal staff or get service from external market any decision that it take
should the made to overcome competition.
2.7 THEORY OF COMPARATIVE ADVANTAGE
Companies are gaining due to free trade that has made outsourcing easier for all types
of businesses withstanding their size and location. The comparative advantage theory
developed in 1817 by David Ricardo states that if every nation produces that they
produces best and allow free trade will realize that all nation will lower price and
there will be higher level of output, income and consumption which is not possible to
achieve in isolation. Is this theory of comparative advantage relevant today when
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white collar jobs are shifting to other nation that can perform at lower cost? Jobs
ranging from software programming, engineering to customer services are been
outsourced in view of achieving benefit but does it conflict with Ricardo’s
principle(Keuschnigg,1999). In 1817 when this theory was formulated major factor of
production were those that was hard to move from one nation to other such as climate,
resources, soil or geography.
However, critics of Ricardo theory states that today factor of production such as
technology, idea, capital can be easily moved and that weakens the comparative
advantage as now resources can be moved where it can be most productive. Due to
cheap labour there is no longer a share benefit for nation as one nation’s lose is other
nation’s gain. It is companies that gain all the way (Carbaugh, 2010 p423).
Critics of theory of comparative advantage defend there view based on three major
developments in global economy:
Strong education system: There are million of skilled workers available in developing
nation. Due to strong education system in these nations these labours can do the same
job at a much lower cost and there is good competition among themselves due to large
skill labour-pool in these nation it is always cost-competitive with no bargain in
Inexpensive Internet technology- In current information era, where information travel
faster and with low cost, it is easy for companies to outsource to any company at any
location. Due to low cost fibre optics cables which allow nation to participate in
global economy and thus there is a rise in outsourcing (Forsyth, 2005).
Political Stability- New political stability allows technology and capital to move
freely. Companies are located at multi location and are still well connected. Good
political stability helps business to operate all it organizational functions at remote
There is a direct competition in almost all jobs. Job that does not require face to face
interaction are easily outsourced to gaining comparative advantage due to low-cost
and availability of equally skilled labour across nations.
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Gitman & McDaniel (2008) further explains that globalization has become an engine
that has created job and wealth due to global trade. Productivity has grown
significantly ever since countries has produced products and services that can give
comparative advantage to business and has improved standard of living
2.8 THEORY OF COMPETITIVE ADVANTAGE & OUTSOURCING
According to this theory it is the strategic advantage of a business over its rival in its
competitive market. It helps business to strengthen it market position with business
environment. Competitive advantage theory was proposed by economist Michael
Porter in 1985 and was based on improving productivity by employing lower wage
labour. To sustain competitive advantage business acquires or develops an attribute or
both of these to get an edge over its competition.
In context of outsourcing global traders outperform competition by accessing to high
trained & skilled resources. Through outsourcing business gain competitive advantage
in delivering better and lower priced products and services than its competition.
Information technology has helped business to take full advantage of outsourcing and
outperform competition by staying ahead and outperforming competition. A firm is
said to have a competitive advantage when it is implementing a value creating
strategy not simultaneously being implemented by any current or potential player
(Barney, 1991). Client’s superior performance and strategic outsourcing help it to
achieve competitive advantage and gain market leadership.
2.9 OUTSOURCING BUSINESS MODELS
Rather than regular IT services there are various business model of outsourcing that
carter to different requirement of business. There has been many development and
diversification of outsourcing services in present internet-age. With the advent of
improved internet infrastructure, high speed connectivity and fast communication
sending knowledge work to far-flung companies has become very easy
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Now outsourcers carve to find a niche that can generate higher profit and deliver their
client more effectively and efficient service. Companies know that there is no point
investing in businesses that do not give considerable return. Clients have good option
of large supply network delivery customer service to high-end knowledge processing.
There are majorly three business model in outsourcing commonly used by company
seeking to outsource their job. And there others as well but BPO and KPO are a new
wave that has been all-pervasive in client-delivery and knowledge-oriented sectors.
Business process Outsourcing
Knowledge process Outsourcing
Technology Service Outsourcing
Business process Outsourcing
It is also known as BPO, was started in 1995. With the growth of internet business
BPO services became one of the important business models for the outsourcer. It
involves operational function and performs vast range of task like customer relation
management, documentation, health care and insurance, professional task like
accounting, human resource. BPO also provide service to logistics, equipment,
manufacturing, security and procurement. Even Media, financial modelling and equity
research jobs are also outsourced (Krishnamurthy & Elumalai, 2010).
A typical BPO performs a specific task. Client firm outsource certain process that is
not core competency of it. A BPO business model delivers to two different aspect of
operational function- front-office or back office. Front-office is customer-oriented
task like survey and marketing or customer and technical support. Back-office is
internal jobs like payroll, accounting or billing and enquires. Other operational
outsourcing is data entry, medical transcription, book-keeping or consultancy.
Business process outsourcing has improved with internet-technology.
Knowledge process Outsourcing
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Or otherwise know as KPO is more sophisticated form of outsourcing compared to
BPO. Outsourcer has evolved from providing services like call-centre or data entry to
providing KPO services by new emerging players, and it is relatively newer than a
BPO services which is still most popular outsourcing business model. KPO involves
shorter peripheral project and provide advance research for the clients that requires
cognitive and analytical skills, technical know-how and good judgemental or
knowledge expertise (Kuznetsov, 2006). In BPOs client guide with the execution of
the process where as in KPOs service provider has liberty to work independently and
produce results, KPO specialist has managerial control and takes decision to deliver
better. Services like intellectual property research or content writing, database
development services and research and development are some outsourcing services
Technology Service Outsourcing
In this fast changing technology era, it is mandatory for every business to keep pace
with the sophisticated technology system. There is world of innovation happening in
technology that is evolving business and economic model globally. Technology is
improving overtime in telecommunication, e-commerce, infrastructure and
application. Every business has to cope up with this but investing in its manpower is
rather expensive. Even in-house may not perform that well, thus business outsource
technology aspect to third party if they have specialised knowledge and are cost
KPO is upward shift of BPO in the value chain which focuses on process expertise
(Sople, 2009). KPO concentrate on knowledge expertise and author emphasises on
Knowledge management for the success in current market scenario.
Apart from above outsourcing models there are few more additions to the model and
are new force to reckon in outsourcing business. Here is few more Outsourcing
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Legal process outsourcing- Or LPO, started with low end transcription work but has
now providing service to wide variety of legal process from client advising,
documentation, pre ligation to high-end patent application drafting or writing software
licensing agreement. LPO is also involved with legal research for its clients that
outsource to these firms (Bryer, 2011 p336).
Research Process Outsourcing or Recruitment process outsourcing (RPO) -
Research Process Outsourcing is part of Bio Technology Industry. Business outsource
research and development job (R&D) to third party (Sharman et al, 2010).
Recruitment process outsourcing model is main component of Human resource
management and delivers job relating to training & staffing, travel & expenses
management, payroll administration and retirement to its client. Client outsource HR
job in order to concentrate on their core business.
Medical Business Process Outsourcing- MBPO was first started by Apollo
Hospitals to provide service to healthcare institution (United Nations, 2009 p206). It
is medical transcription work that Apollo hospital does for its New York based
hospital and is growing in medial and health care sector.
This chapter begun with outsourcing after recession and ways it has thrived in
recession all by continuous customer capture; company has continuously turned to
outsourcing in order to save cost. Gartner analyst Linda Cohen quotes ‘‘whenever
there is a downturn people outsource more, not less’’ (Gartner, 2010). Business tried
to cut-cost, without hampering the quality of service, and outsourcing turned out to be
good option for companies. Different outsourcing option available to the companies
benefited them to outsource more to different type of outsourcing industries.
Difference between various global sourcing was also very important to understand as
depending on that organization make there operational strategies. Identifying various
benefit of outsourcing was very vital, as business can weigh the pros and cons before
getting into any outsourcing contract with third-party. Outsourcing theoretical
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framework is also important to understand the competitiveness of the whole process
which was also compared with the comparative advantage.
Outsourcing has many myths and it is very critical for business and its stakeholder to
understand these facts so that it is good not only for the business but also the society
and the country. This chapter’s last section focused on business models of outsourcing
that deal with various models depending on different type of project (job) that
outsourcing companies offer to its clients and their compensation scheme.
Organization makes their business strategy to provide service to wider number of
clients and too deliver to their more specific requirement. This section of research
covered the overview of the whole process with its importance to the competitive
advantage based on the different views of authors, economist and businesses.
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3. Research Methodology
This chapter underlines the research methodologies, undertaken in order to conduct
research successfully and meet research objectives. Through this key concern would
be highlighted that would have influenced and helped to conduct this study like
approach through which data was analysed, strategies carried out and individual
outcomes, different methods used to collect data- primary & secondary and benefits of
techniques and identifying limitations.
This section of report will emphasise extensively on how research has been
conducted, what influenced the gathering, analysis of the information presented, how
finding were interpreted their main relevance and methods implemented throughout
the research. This will help reader to understand the research better and its restriction
In nutshell, it depicts the understanding about different dimension related to research
methodology such as- Research Philosophy, approach strategy, data collection and
3.1 RESEARCH PHILOSOPHY
It is an idea about the approach of what data and method of collection is examined
and utilized (Saunders et al, 2003). Research Philosophy determines the value and
belief of the researcher; selection of certain paradigm is based of the researcher’s
view, different research topic would require different approach. There may be other
factors as well like timeline, availability of sample and its size.
Research paradigm gives a guideline and a layout for designing a research, it gives an
idea how data would be collected and analysed (Collis & Hussey, 2003). ” It is
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consideration of how we would be aware of the reality and how do we see it. Gliner
and Morgan (2000) elaborate ‘‘paradigm is a way of thinking about and conducting a
research. It is not strictly a methodology, but more of a philosophy that guides how
the research is to be conducted.’’
It is one of the two types of research paradigm. Positivism paradigm generalise the
findings, Kasi (2009) it applies to a positivistic researcher. It is based on assumption
and has a realistic view on the topic to achieve the objective. Positivist research is one
of the vital characteristic of research philosophy that gives an opportunity to guide the
research and study clearly, it is reliable and unbiased. Positivistic researcher protects
important information, and do not influence the data and does not lose data during the
process of research study (Saunders et al, 2009)
It is ‘anti-positivist’ according to Kasi (2009). Researcher following this paradigm do
not generalise the findings as they believe on multiple truth, depending on scenario.
They concentrate on small sample but study extensively. It is knowledge of an
experience (lee & lings, 2008). When analysing this method there would be
uncertainty, contrast & disagreement (Maylor & Blackman, 2005).
The main focus of this research is outsourcing and different people would have
different perception on this. That can be because of environment and circumstance
that can impact an individual’s idea on this topic. Considering, the influence of the
environment, idea that there is no single truth in regard to this topic. According to
Thomas (2009), “the main point about interpretivism is that we are interested in
people and the way that they interrelate – what they think and how they form ideas
about the world.”
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It is based on epistemological assumption which is something distinct from the
process of mind. Assuming that there is reality available to investigate and to be
understood, based on the data gathered and scrutinizing the supportive evidences
(Somekh and Lewin, 2005). Moore & Russell (1925) argues on ‘classic’ and
‘commonsense’ realism, Hunt (2010) explains external world of tangible objects
exists independently on perception.
Eventually, this research is on the growth of outsourcing and its impact on gaining
competitive advantage in business. There is a need to understand the insights and
observations on this process and comprehend the notion related to this. There is direct
relation of the researcher and the objective of the research it strongly demands to
interact and based on this phenomenological research philosophy this research is
developed. This study focus mainly on interpretivism paradigm as the interpretivist
researchers believe that reality exists inside human beings.
3.2 RESEARCH APPROACH
It is an integral part of any investigation; it is to understand the paradigm. Right
selection of research approach support the process of researching as it defining the
methodologies followed during the research. Research approach is important question
that is needed to be asked and rightly answer before researcher starts his research
(Saunders et al, 2009).A wrong selection of research approach that is an inappropriate
or unsuitable approach would result in an irreverent research as researcher would not
be able to answer the aims and objective of research. Deductive and inductive
approaches are two main types of research approach.
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3.2.1 DEDUCTIVE APPROACH
This is a process of using established theories to develop hypothesis, it is an inflexible
method, as it does not allow giving different explanations on what is going on. It
works from more general to more specific ‘top-down approach. Crowther and
Lancaster (2009) explain that a “deductive research develops theories or hypotheses
and then tests out these theories or hypotheses through empirical observation.” It
might begin with begin with thinking up a theory of interest and then narrow down to
even further. A deductive approach is linked to positivism paradigm and inductive
approach is to Interpretivism. Saunders et al(2007), “such labelling is potentially
misleading and of no real practical value.” it is vital to understand deductive and
inductive methods as that can help in picking correct approach in research.
3.2.2 INDUCTIVE APPROACH
To overcome the limitations of the deductive approach researchers can opt for
inductive approach. According to Gill and Johnson (2009), it is “concerned with
developing a pre-understanding of the substantive area of interest that provides a
starting point for research”. This study opts for the inductive approach as inductive
approach is more feasible and provides alternative descriptions to researcher to find
out better. Another advantage is that this approach does not require a pre-determined
theory to do a research and provide more flexibility. It works from specific
observations to wider generalization and theories, or a 'bottom-up approach’,” we can
build our theories based on our observations thereby allowing a problem or issue to be
studied or approached in several possible different ways with alternative explanations
of what is going on” as explained by Crowther and Lancaster (2009).
Deductive approach is more oriented to objectivism explains Saunders et al (2009). It
aims to test hypothesis and a research conducted before testing right or wrong in a
scientific research. On the other hand, Inductive thoroughly understands human
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tendency on certain action or event. In this research Inductive approach has been
A through investigation on the impact of outsourcing and comparative advantage
gained due to this would be understood in context of British Telecom. To carry out
this research, data would be collected efficiently through questionnaire by appropriate
samplers having an understanding of the process. In depth knowledge on outsourcing
is to be acquired to understand different opinion and belief on outsourcing.
3.3 RESEARCH STRATEGIES
Research strategy is the plan of action or making strategy to conduct a research
efficiently, “the research strategy defines the general approach to the research
investigation.” explained Walsh and Wigens (2003; p.151). It provides direction to the
effort to conduct research systematically. According to Saunders et al (2007; p.135)
strategy must be in line with the research objectives and the resources available to
researcher. It should present types of strategy combined with each other throughout
the study. A good research strategy helps to be focused on achieving the aims and
objective of the study, reducing frustration and saving time. Without a good research
strategy research could go haywire and result in poor quality.
Good research strategy focuses on surveys and case studies, “the survey strategy aims
to produce generalisations about populations by collecting information from samples”
Thomas (2004, p.21). A good planning or research strategy and a good execution
result in good research.
3.3.1 ETHNOGRAPHY RESEARCH
It involves an intensive study on characteristic of a given culture and pattern in those
features. If this is done efficiently, research would be clear and concise and reader
would understand the culture, even if they have not experienced personally explains
Gall et al, (2007).
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Ethnography offers a rich and in-depth exploration of value, belief and practices of
cultural group. It is a way of knowing a working nature of culture, symbol and norms.
It helps to identify importance of multiple-worldviews. It offers an approach of
building understanding through the research (O’Leary, 2004).
3.3.2 EXPERIMENTAL RESEARCH
An experimental research is based on experimentation duration and its nature of
contract identified beforehand. Research is consistently controlled by researcher. It is
a quantitative technique and is utmost deductive in nature. This type of research is a
face-to-face interaction of the subject and its researcher, mostly experimental in
laboratory. Important advantage of this is that variables are controlled by the
researcher thus can be repetitive in experiment. Major flaw it is it needs theory to
develop the hypothesis. This need to be considered in advance as environment can
change only a reason.
3.3.3 SURVEY RESEARCH
A survey is conducted by a quantitative method that shows the expectation in certain
cases; it is an application of qualitative method. According to Saunders et al (2007) a
surveys research is “although the research is undertaken in context, the ability to
explore and understand this context is limited by the number of variables for which
the data can be collected.” (p.139). Data is gathered by interviews with the objective
to obtain reports of social phenomenon or attitude in which they actually occur
(Nardi, 2005). A survey is the relationship between the surveyors and subject for a
limited period of time; it last till the goal is attained. It can be done by face to face
interaction or through sending questionnaires by post, e-mail or phone. This research
relies heavily on large number of respondent to provide data. Major advantage of this
is it is cheap, no expert required to carry-out the survey and ensure that all respond
provide data, its downside is it is time consuming, chances are that there can be low
rate of response especially when it is not done through face to face meeting and
results depends on large number of respondent.
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3.3.4 CASE STUDY
The case study approach an attempts to thoroughly assess number of factors by
concentrating a small number of case, it assesses the world or unit as it exist. Case
study is an information-oriented sampling and is helpful in in-depth of investigation.
It focuses on real life context, it is natural, unaltered and focuses on single case but
multiple sources. Major drawback of it is, it is difficult to generalize, can be biased
and its open ended nature allows investigator to influence the outcome of the study
(Adam & Schvaneveldt, 1985 p.405). Case study is a current phenomenon and is
prevalent in current business scenario.
3.3.5 GROUND THEORY RESEARCH
A Grounded theory research allows both beginners and an experienced hand to
conduct qualitative research with precision, as this method helps in structuring and
organizing the data gathered and analysed (Charmaz, 2004 p.208). It provides a
systematic method to shape and handle large qualitative samples and quantitative
data. Glaser and Strauss (2008 p.271) counterview on this as researcher solely collect
data relevant to their theories which can lead to its early closure. Researcher generally
ignores data that can be useful in explaining the reason of a certain occurrence.
After identifying all the above mentioned research strategies researcher has come to
the conclusion to use case study in the investigation. Single case study type has been
employed in this research as the researcher lays emphasis on a single organization. In
the research, researcher would do a case study on British Telecom and its prevailing
outsourcing practices in the urge to gain competitive advantage. This chosen method
of research strategy would help in understanding the research better and achieving the
aims and objective of the research.
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3.4 DATA COLLECTION METHOD
It refers to two types of data researcher collect to conduct research; it can be primary
and secondary information. It depends on the choice of researcher what type of data to
collect in order to meet the aims and objective of the research. Data collection method
also depends on the time and money factor. According to Velde, Jansen & Anderson
(2004; p.96), there are four main types of data collection like using existing material,
through observation, oral interview and written questionnaires to collect primary or
secondary data. Ghauri and Gronhaug (2005, p. 91) states that “secondary data are
useful not only to find information to solve our research problem, but also to better
understand and explain our research problem.” A good research study is a balance of
primary and secondary data.
In the following chapter, an extensive analysis of secondary data has been done and
the source of these data has been books and journals. Majumdar (2007; p.41) explains
further that secondary data collection possesses time and cost benefits as well as being
a good source of improvement and ideas for the research. It is very vital for any
research to understand the correct data collection method, as any inaccuracy in
collection can have an adverse effect on the result of the study and may lead to invalid
3.4.1 PRIMARY DATA
Primary Data is the method of collecting information with proper evidence. It is
relevant and supplements the evidences and findings by secondary sources. According
to Tull & Hawkins (1987, p736) these data are gathered to solve problem, it provides
an opportunities to make decision. Primary data can be collected by questionnaire,
interview or mail survey. Questionnaire is an inexpensive way of collecting primary
data, it gives respondents time to response at their own convenience. Through there
are few disadvantaging such as low response rate of mail responses as it is never a
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Types of questionnaire Source: Saunders et al (2007) Research Methods for
Business Students; p.357
Interview is personal form of research to collect primary data. Interviewer works
directly with the respondent that gives opportunities to probe or ask following
question, which is not possible in mail surveys or questionnaires. It is easy for
respondent to provide information but interviews are expensive, time consuming and
3.4.2 SECONDARY DATA
According to Saunders et al (2003), secondary data is re-analyzing data that has been
previous collected for some other reason. It includes qualitative and quantitative data.
In Offredy & Vickers (2010) Fred Kerlinger explains ‘‘there is no such thing as
qualitative data. Everything is either 1 or 0’’ and Donald Campbell cites ‘‘All
research ultimately has a qualitative grounding’’ (p296). Both qualitative and
quantitative data can be used for explanatory research. It is collected from Journal,
Newspaper, official records, magazines and internet. They provide useful information
to answer fundamental question of research objective. These Data are cost effective
and saves money and is easily accessible through internet or library. Saunders et al
(2003) argues that as it is derived from secondary source it is not very reliable or
relevant with problematic situation.
Self - administered
Interviewer - administered
Self - administered
Interviewer - administered
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This research would have secondary as well as primary data as it is demanded by the
nature and requirement of the research question. Researcher would conduct
questionnaire to understand the outsourcing process better and un-structured
interviews with people working in real-life situation or knowing about outsourcing to
get a closer-view of its functionality and their viewpoint.
The research methodology followed in this research is relevant to the research aims
and objective. It does not follow a single method and gathers different pieces of
relevant information. This give flexibility that can be seen in the line with the
interpretivism paradigm adopted as it is based on different perspective on the research
and understands there is not one single truth
The qualitative approach followed in this research would help researcher to conduct
an extensive analysis of all different responses. It provide a better framework to this
study, it has a stronger arguments and a detailed insight on the respondents' point of
view. It is also a consideration of people’s opinions alongside the understanding of
external factors that makes it possible to build a better comprehension of the issue.
The participants of the questionnaire were people with a good level of understanding
about the organisation or outsourcing and are analysed based on that. They provide
relevant ideas and opinions based on their experiences and their understanding about
outsourcing function. Researcher’s easy access to the organisation alongside, personal
experience with the company proved to be a positive factor during the research. Other
strengths of the methodology include the relationships developed between the cause
and consequences of the issue in question. Such approach allowed researcher to better
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develop theories which could be used by future researches as well as contributing for
organisations and outsourcing firm in future planning and strategic management.
There were few short comings of this research firstly the methodology used in this
research can be regarding the validity and reliability of the findings. This issue relates
to, as explained by Ridenour, Benz and Newman (2008), “the truth value of research
outcomes.” (p.36); and the reliability of this study refers to, elaborated by Pellissier
(2008) “the degree to which an assessment or instrument consistently measures an
attribute.” (p.12). these limitations mean that the results derived in this research
cannot be considered as out-and-out precise and trustworthy it does not represent the
exact reality of third party’s behaviour and client strategies. In future such kind of
study was conducted again considering different situation or in a different scenario,
the result may vary than the one presented in this research. Last weaknesses of this are
the limited duration in which research was done and, eventually, the fact that the
researcher had to concentrate on key areas for the analysis instead of examining all
relevant situation and factors. The length of the questionnaire also added to the time
constraint experienced during the study.
This chapter outlines the rationale behind choosing the interpretivism paradigm,
inductive approach as well as the case study strategy emphasizing the benefits and
outcomes of utilizing such method in the current report. Similarly, in this part of the
study, the advantages of respondent, questionnaires data collection method has been
highlighted alongside their consequences. At last, this section explained various
strengths and limitations that the researcher has encountered during the research.
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4. Analysis & Findings
This chapter would present an account of conclusion drawn from the entire study.
Secondary data will be taken in account, based on the questionnaire. This chapter will
examine aims & objective of this study, which will be based on secondary data
collected for the purpose and primary data, would be used for validating and
In order to survive, business today has to cope and adapt to environmental need and
gain competitive advantages. There has been a sharp dip in the life expectancy of
business from 1975 to 2005; it has dropped from 30 to 15 years (Foster & Kaplan,
2010). This research emphasises on gaining competitive advantage through
outsourcing and to analyse the process ‘Outsourcing’ and understand the general view
about the concept of outsourcing and its advantages. Researcher prepared a
questionnaire which was done by contacting sample through email and face to face
This was carried out in-between mid-march to mid-April. People between 21-50
years and of both gender living in London and New Delhi were sampled in this
research. 96% of respondent answered to the question and the objective of this was to
capture people’s viewpoint about corporates doing outsourcing. People’s Perception
of competitive advantage, comparative advantage and pitfalls of outsourcing.
The result of this was as expected outsourcing still remains very controversial and
politically explosive. Results show that Comparative advantage of nation is no longer
same what it was a decade ago and has changed. Now companies are getting into
outsourcing to gain comparative advantage and exploring low-wage market and
getting competitive in the process.
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4.1 GLOBAL BUSINESS’S COMPARATIVE ADVANTAGE
Respondent had different ideas about the comparative advantage of country to the
question; ‘Do companies get comparative advantage through outsourcing?’ The idea
was to know that if companies do outsourcing based on comparative advantage of
country like low-wage, software knowledge, language skill etc. Result of which is on
‘YES’- there is comparative advantage of outsourcing
Out of the entire respondent, 60% agree that there is definitely comparative advantage
of outsourcing or else it wouldn’t have been so successful, country-specifically or
done by almost all major companies of the world based on location. Respondent feel
that comparative advantage that business get help them to stay ahead in competition.
People feel companies that strategically do outsourcing gaining competition
advantage and it is not just about downsizing or cost reduction but is an effective tool
to achieve financial stability. Respondent feel that a business that has gain
comparative advantage will also have competitive advantage as business can
outsource task in which it has no core competency and focus on gaining competitive
Do companies get comparative advantage through
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Manager with Tata consultancy services added to this, it is very important for
business to improve its comparative advantage as due to globalization every business
has access to every client and every outsourcing firm. It is vital to improve ones’
expertise and get into tradable service with the companies that deliver best in the
‘NO’- it is not
30% of respondent say NO there is no comparative advantage; it is an outright labour
arbitrage. Respondents feel that it is loss of job at the cost of companies benefiting
from free trade policy. For these companies, what they loss is replaced with new
worker from different nation working at lower price for them. But these companies
don’t replace loss of job of their employees with anything else other then making
those unemployed. Such companies don’t seek for comparative advantage but operate
to gain absolute advantage by outsourcing.
People feel that it is loss of capital, wage-reduction and unemployment due to
outsourcing. Developing countries that provide outsourcing gain by this process, they
become more productive, and get better paid. Government attract foreign investment
that improves country’s economy.
One of the respond in mid 20s, working as part-timer says people of developed
countries loss their job, are paid less and more over government lose on tax. All this
causes difficulty in maintaining infrastructure and loss of public commitment. The
worst part is countries that had comparative advantage lose that due to high labour
20% of people aged between 30-40 years from London and New Delhi, strongly
disagree that outsourcing is good for developed nation but agree that it has increased
direct world competition in almost all white-collar jobs.
According to a MBA student from Africa it is only for the benefit of companies and is
not good for the society. This respondent (aged 25) feels that there is no mutual
benefit for two nations by outsourcing, but is just mutual gain for two companies.
Organization cash-on low operation cost to improve their profit with no substitute for
a job-loss. They turn blind eye to the comparative advantage of any country. Call
centre in Philippines moved to India, and now looking for cheaper options in Africa.
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‘MAY BE’ there is some?
There is some comparative advantage or some competitive advantage of outsourcing.
Respondent feel that there is definitely competitive advantage for companies but no or
very little comparative advantage. 10% say may be it is not for comparative advantage
but definitely it is done to gain competitive edge over rivals’ business do outsourcing.
A young student at LSC, Bachelor in business administration aged 19 from
Bangladesh say it is competitive advantage of outsourcing but comparative advantage
is considered depending on the company that is opting outsourcing and realising how
important that ‘activity’ is for business.
At organizational level it refers to transaction and production cost, strategic impact
and operational contribution associated with outsourcing. All these concepts evaluate
in favour of outsourcing and have comparative advantage over in- house production
explains Dibbern, (2004, p. 150).
4.2 DO PEOPLE THINK IT IS GOOD FOR THEM
There is a stiff competition in global market and outsourcing can provide an edge over
its competition. How much is this true? Respondent were asked do they agree to
outsourcing. Results show it is fairly acceptable, see figure 2.
Yes No Not Sure
Do you agree to outsourcing?
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YES, BUT THERE IS MORE TO IT.
Yes-70% respondent said it is important in current business scenario. Business is
doing this for the benefit of its customer. Companies outsource to provide better and
cost-effective products and services to customer. Due to outsourcing business has
improved its performance without increasing the extra cost which is good for them.
A respondent from India said that outsourcing has helped countries that have
potential but lack technology and infrastructure to reach out to global market.
Standard of living of developing countries had definitely improved. It has also
benefited companies of developed companies as their capital cost has gone down and
these companies can invest this money on research & development and innovation.
Another participant from Pakistan doing MBA from LSC said that it is not only
companies but people are getting benefit by outsourcing because if employees in an
outsourcing firm posses a specialized skill or knowledge, then that person can work
with any company, any where in the world. It motivate employee to upgrade and
improve their expertise to work for big organization. Outsourcing is now not company
or country based it is skill based or companies are on look-out, if you are competitive
No-20% disagree with this concept according to them outsourcing is all about taking
someone’s job to give it to someone who can do it for cheap. It is all about cost
cutting with no effort to provide better quality or better performance. Small businesses
do it to save capital cost and big companies do it to invest in new market for profit
An English lady working with Tesco aged 35 disagree with this concept. She said it is
definitely done to save cost but not to provide better service. She elaborates that many
telecommunication companies have outsourced their customer service to remote
location which is not always a good experience for customer. It is due to their cultural
and language differences. And it takes longer time to resolve an issue by someone
who cannot understand your language or problem; it is much easier and quicker with
people who share same language and understanding.
Another respondent from Nigeria disagree with outsourcing, he explains that it is one
selfish way companies operate to reduce cost, ignoring their customer, their
employee(people), their society and their country. Had it been good, people would
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have never lost their job. People don’t lose job because they are incapable but
because they are costly (earn high wages).
No idea- 10 % have no idea about this as according to them companies do what is
good for their growth. Every business, aim to earn profit and in process do unethical
things and outsourcing can be just a part of this.
One employee with British Telecom say he don’t mind if outsourcing is good or bad,
as long as I am earning it don’t bother me. I am earning, my company is earning, and
everyone’s happy and growing.
Another employee working with Wipro Technologies in London say every three to
four year a new concept in business comes up that effect certain section of employee
in an organization. The best way to overcome this is upgrading and improving your
expertise. There was software boom in 90s than came call centre than BPO than KPO
and what next? Even business cannot do anything about it due to highly competitive
environment, if it is there, it has to be accepted or not-accepted, but just can’t be
ignored. But still it is confusing.
Business outsources at a lower cost but there is one more factor that helps business to
get their job done at a competitive rate. Vendors cost advantage is based on the
economic of scale, their expertise, experience and location (McIvor, 2005). This help
business provide better service at competitive rate.
4.3 OUTSOURCING, BY COUNTRY.
Next important aspect to know was is it good for the company of their country?
Researcher by this wanted to know about the people’s perception on outsourcing done
by companies of their country. Questions:
1. Which country you belong?
2. What is your reaction about the companies of your country doing outsourcing?
Result of this (Figure 3) was as expected India was top of the charts (mostly agreed to
outsourcing), China were second as it is catching up with India and is doing major
outsourcing job for Japanese companies. UK had 70% yes to outsourcing and
American being the lowest in accepting outsourcing.