Outsourcing — common mistakes

In an exam, avoid simply listing pros and cons. To evaluate, you must make a justified judgement. For example, argue that 'while outsourcing manufacturing can reduce costs for a fashion brand, the risk of losing control over quality could damage its premium brand image, making it an unwise decision unless strict quality control measures are contractually enforced'.

Not necessarily. While outsourcing can offer cost savings through economies of scale, there are often 'hidden costs'. These can include contract negotiation fees, managing the relationship with the supplier, and potential costs if the supplier underperforms. A full cost-benefit analysis is required to determine the true financial impact.

No, they are related but distinct. Outsourcing means contracting a function to any external company, which could be in the same city. Offshoring specifically means relocating a business function to another country. A business can offshore a function to its own subsidiary (not outsourcing) or outsource it to a foreign company (offshoring and outsourcing).

No, businesses of all sizes can benefit from outsourcing. A small start-up, for example, might outsource its accounting and payroll functions because it lacks the in-house expertise and cannot afford a full-time accountant. This allows the owner to focus on core activities like product development and sales.