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"Offsourcing" is a coined word formed by merging the two words "offshore" and "outsourcing". It refers to the sourcing of both goods and services from external entities (organizations or persons) from locations outside the country. It can either be of manufactured goods or of professional/other services. It is the restructuring of a supply chain where one company relies on its supplier for functions previously performed in-house. What makes it so powerful is that the supply chain is tightened as the functioning of the employees in the new environment improved.
Offsourcing differs from outsourcing because the service provider/supplier already has a supplier-customer relationship with the customer, and the transaction merely shifts a business function up the supply chain for increased efficiencies and economies of scale. Indeed, effectively designed, the "customer" can ensure that its capital investment in its employees can be applied to resolve problems, and create value, for the customer.
Offsourcing takes the "buy vs. build" decision to a new level and enables you to leverage external skillsets and low-cost resources for your benefit. For example, high-end cell phones perform many functions that require careful integration of different technologies. Increasingly, such sophisticated phones are being used as computers, Internet access devices, pagers, software operating systems and e-mail devices. A decision to transfer cell phone hardware engineers to a semiconductor supplier allows the cell phone maker to concentrate on software, styling and customer interaction. By concentrating the right minds in the right environment, offsourcing is believed to cut cell phone maker's research and development costs. It also frees the customer to be closer to its customers, focusing on aligning the new product features with the customers' emerging needs and desires. Also, it allows the cell phone maker to buy more finished components and to assemble them into a proprietary product. In making the decision to "offsource" a department, the company should carefully study the competitive impact. If its hardware engineers are difficult to replace, then the transfer could make them available to service the competitors. This risk can be managed with effective planning techniques.
The offsourced work (activity, task or process) can be either tightly integrated with or independent of other work. Obviously, the less tightly integrated work is with others, it is easier to offsource. There are two reasons to drive offsourcing: primarily lower costs and specialized skills. Companies are choosing to offsource certain activities mainly because large savings can be made as a result of lower costs. These cost savings are becoming critical to maintaining competitive advantage in today's economic climate. Offsourcing activities additionally enable companies to focus on core business objectives, while also enhancing their bottom line. Industry sectors taking advantage of offsourcing range from large financial companies to technology services companies. Other sectors include banking, airlines, pharmaceuticals, healthcare, strategic consulting and telecommunications. Currently India is the most favored offsourcing location due to its lower operational costs, large numbers of English speakers, substantial labor pool, and high levels of quality and productivity.
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