Monday, February 20, 2012

Resource Access as a reason for outsourcing

In the last blog, we attempted to understand the rationale of outsourcing from the dimension of cost minimization. In today's blog we look at the second dimension of the logic of companies outsourcing - Resource Access.

To understand this aspect of resource access, let’s assume a product company is intending to enter a new market territory. When a company makes at attempt to enter this new territory it has 2 primary tasks to take care of 
  • creating the brand awareness
  • having a good support of the distribution network

If the company is to be really successful in the new market, both these aspects have to be dealt along well. What the company would always aim to do is to enter the market quickly - its focus would be a very short time to market - and it is this that would be the key to its success. If the company attempts to do both the tasks in-house, it is extremely possible that the business could be slower to enter into the market! So it is seen that companies find logic to outsource one of these 2 tasks from its kitty. 

In outsourcing of such a nature discussed above, it is also that the company is able to access the resources that their partner company would have already created. This could potentially give rise to a win-win situation to both the parties involved in the outsourcing agreement.

There is also another dimension, if we have a careful look at the possible reason for outsourcing. Though might not be the case with all outsourcing of the nature of resource access - in some cases it could be seen that the resource these companies would need to use for the specific task is only transient in nature. It would definitely be efficient to outsource a sporadic or one-off activity given that the recovery of the overhead expenses could be difficult when conducted in-house

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