outsourcing

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

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 ?
Just as "global labor arbitrage" has been a mainstay of globalization, workers in developing countries are partaking of "local labor arbitrage" as they seek to maximize the return on their labor by changing employers.
"One survey respondent noted it has taken his company several years to discover the impact of labor arbitrage disappears in fewer than three years.
The in-region centers are typically less costly than on-site locations but the key driver is centralization and access to the local market and not purely labor arbitrage. Eastern Europe and Latin America are now fast-emerging as in-region destinations for EMEA and US buyers respectively.
Historically, organizations requiring 24/7 support have elected to leverage LPO providers' offshore capabilities to maximize the benefits of labor arbitrage. However, corporate legal departments are increasingly opting to use near-shore delivery models in an effort to mitigate quality and risk concerns while leveraging reduced cost resources.
Engagements are increasingly being driven by strategic objectives for business transformation, as opposed to pure-play cost savings through labor arbitrage. The FAO marketplace is steadily gaining traction and maturing.
We concluded that outsourcing was indeed "moving up the food chain." We also concluded that this was not simply a case of labor arbitrage but something different.
Through this partnership, Genpact will be one of the first leading business process services companies to adopt mass scale rapid automation, an emerging trend that will drive significant levels of efficiency beyond labor arbitrage for BPO providers and their clients.
Parikh stressed the opportunity for seeing value from outsourcing beyond labor arbitrage and cost reduction.
Evolution of Chinese Business Model: Labor arbitrage > Sourcing > Indigenous Market > Indigenous Capital
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.
“Where labor arbitrage was a key contributor to the financial impact of outsourcing in the late 90's and early 2000's, technology arbitrage will likely be a key differentiator in an organization's ability to impact financial performance of outsourcing relationships in the future,” said IAOP Chairman Michael Corbett.
Suppliers that fail to fully exploit the labor arbitrage of low-cost labor markets, as well as new technologies, will become the dinosaurs in this new era of high-value outsourcing," Bendor-Samuel added.