outsourcing

(redirected from Labor arbitrage)
Also found in: Dictionary, Medical, Legal, Encyclopedia, Wikipedia.

Outsourcing

Purchasing a significant percentage of intermediate components from outside suppliers.

Outsourcing

The practice of a company hiring a different company to supplement its services at a lower cost. For example, a company may outsource its accounting to another firm, which would then prepare and provide appropriate statements for the company. Likewise, an automobile manufacturer may buy auto parts from another company and use them to make its own cars. Companies outsource in order to reduce their costs and thereby reduce the prices they charge for their goods and services. The practice is somewhat controversial, especially as some companies in the developed world outsource to firms in other, often developing nations. Critics contend that this drives jobs out of the home country, while proponents argue that this benefits consumers.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self supply from within a firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10 year outsourcing agreement with IBM which involves IBM taking over the Bank of Scotland's computer systems and operating them. The deal will enable the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own. On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. See SOURCING, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION, VIRTUAL CORPORATION.

outsourcing

the buying-in of components, finished products and services from outside the firm rather than self-supply from within the firm. In some cases this is done because it is more cost-effective to use outside suppliers or because outside suppliers are more technically competent or can supply a greater range of items. For example, in 2000 the Bank of Scotland signed a 10-year outsourcing agreement with IBM that involved IBM taking over the Bank of Scotland's computer systems and operating them. The deal enabled the Bank of Scotland to ‘save’ up to £150 million on its information technology (IT) costs as well as being able to draw on IBM's expertise to create a more technically advanced IT infrastructure than it could have achieved on its own.

On the debit side, however, reliance on outside suppliers may make the firm vulnerable to disruptions in supplies, particularly missed delivery dates, problems with the quality of bought-in components, and ‘unreasonable’ terms and conditions imposed by powerful suppliers. The decision to produce internally or outsource will depend upon the combined production costs and TRANSACTION COSTS of the alternative supply source. See TRANSACTION, INTERNALIZATION, MAKE OR BUY, VERTICAL INTEGRATION.

References in periodicals archive ?
At this stage, one can start thinking about revenue enhancements rather than pure labor arbitrage.
This global labor arbitrage has produced some stunning wins for United States manufacturing companies.
More often than not, the business case for business-process outsourcing is built almost exclusively on expense reduction through labor arbitrage.
Service providers must bring value beyond solely low-cost labor arbitrage to their payor relationships
Outsourcing activity increased in the Asia Pacific region, where clients have less opportunity to gain from labor arbitrage than their western peers.
Many client firms are outsourcing their back-office functions that require a stable infrastructure, capital investment, and human resources; thus, enabling them to improve their operational efficiency and cut costs through labor arbitrage.
On the whole, you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation, and so forth.
Parikh stressed the opportunity for seeing value from outsourcing beyond labor arbitrage and cost reduction.
Engagements are increasingly being driven by strategic objectives for business transformation, as opposed to pure-play cost savings through labor arbitrage.
Neoris has brought nearshore outsourcing to a new level, from mere labor arbitrage - which barely generates added value to the business, the communities and the people involved- to a model where leading Latin American professionals join counterparts in the US and Europe to deliver key projects around the world via remote intelligent workgroup technology.
Over the next five years, providers that differentiate and compete on multichannel capabilities and value-add technology solutions will have an edge over providers that largely compete on cost, location, and labor arbitrage.

Full browser ?