Genpact Harvard Case Solution & Analysis

Difference between Off-shoring and Out-sourcing:

It is a general fact that most of companies use outsourcing and off-shoring simultaneously and think that the two concepts are more or less the same. However, there is a significant difference that exists between the two ideas.

Outsourcing:

When a business seeks to perform its specific operations outside the boundary of an organization, this act is known as outsourcing. Outsourcing is about getting service done by hiring services of some other company in order to increase the efficiency and effectiveness in daily operations along with the financial performance of an organization. It usually happens when a company completely eliminates one of its operations and makes it done from any other service company. For example, if a restaurant business hired another company for its International Cuisine then the restaurant is involved in outsourcing.

Initially, most of the managers view an organization as one unit and believe that all tasks should to be done within the organization but now; most of the managers have realized the importance of outsourcing to achieve a competitive advantage.

Off-shoring:

On the other hand, the term off-shoring relates to the activity that involves performing the task not only outside organizational boundaries but even outside the country. In off-shoring, the firm maintains control over the service company but still there exists significant autonomy that has been enjoyed by the service company. In addition to that, both inputs and outputs related to operations are managed by the company itself. Normally, the purpose of off-shoring involves gaining a cost advantage from another country. For example, Nike outsourced many of its operations from China because of the availability of cheap labor.

It is possible for a company to outsource some of their work but not offshore it like a company that is hiring an outside firm to audit its financial statements instead of getting it done by their own auditors.

In addition to that, the term off-shoring is often criticized that this shifted jobs to the other countries. Moreover, some risks that are involved in off-shoring include: language barriers, geo-political risk, communication problem, etc. In addition to that, benefits of out-sourcing involves better availability of cheap labor, lower cost of production and efficiency in the whole process because of the pool of global talent.

Integration of companies and drawbacks of out-sourcing:

The primary reason behind the integration of companies is to make accuracy in the overall value chain process and to gain some command on the value chain process of the business. The company does this to make sure about the proper production and delivery of goods in a specified time frame. With the help of integration, firms acquire a control over resources of other companies that are involved in the value chain process. In a more general view, it helps them to gain control over activities done by suppliers and buyers of the company.

The company can do integration in two ways:

  • Backward Integration
  • Forward Integration

Backward integration is a vertical integration that entails the purchase of suppliers. One of the major benefits of backward integration involves cost-savings and efficiency in the process. It helps the company to reduce its transportation cost to make it more competitive in the market. For example, if a sweet bakery business involves itself in the processing of raw materials like sugar and wheat, then it would be an example of backward integration.

Forward integration is a business strategy which is also known a vertical integration. It involves gaining control of the forward side of the value chain process. This integration involves getting power and control over the distribution side where final products are sold to consumers. An example of forward integration includes farmers. A farmer produces and sells its products (Crops) at the local market. Another example of forward integration involves an acquisition of Dell by Intel. It would be classified as forward integration because it involves an acquisition of a manufacturer by a supplier.

Another reason behind the integration of a company involves good co-ordination between internal resources of the firm. It often involves synergies to make better utilization of equipment, resources and technology. In addition to that, it also helps the company to get a continuous supply of goods required in terms of raw material so that the production process can run without any disturbance. This in turn reduces operational risks that are involved in the production and overall operation of the business. Further, it also helps the company to lower its operations costs and thus improve the utilization of company's resources.

On the other hand, some companies prefer the outsourcing activity because of its various benefits. It helps the company to take advantage of labor flexibility, cost related advantages and specialized skills. The basic reason behind outsourcing by companies is to gain value. If a company found activities that do not provide value to its business, they immediately disintegrate those activities to maintain its competitive advantage. A company can do outsourcing, for example, by farming accounting and financial services through different companies.............

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