● Business-process outsourcing (BPO) is a type of outsourcing that consists of contracting

operations and responsibilities of a specific business process to a third-party service

provider. Such outsourcing generally began with manufacturing firms outsourcing their
supply chain but has grown into a much wider range of processes, including marketing,
finance, sales, and accounting. According to a recent Forbes article, the revenue of the
global outsourced services industry rose from $45 billion in 2000 to nearly $100 billion
in 2012.

● An article in BusinessWeek suggested that BPO can save end users anywhere from 15 to
85 percent. International BPO service providers are particularly attractive since offshore
labor offers an additional 25 to 30 percent cost savings. Furthermore, approximately 25
percent of the cost savings results from BPO firms’ proprietary products. The remaining
10 to 30 percent in cost reduction accrues from consolidated operations.

● Suppose you are the manager of a U.S.-based company and must decide whether to

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outsource your human resources department.

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○ Based on the above information and your study, please outline arguments supporting
and opposing a decision to outsource this function of your business.

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○ Please explain from a purely business standpoint, any issues that might arise from
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contracting with an international-based versus U.S.-based BPO service firm?
(Chapter 6, page 199)
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Solution:
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Business-process outsourcing in economic term is defined as the company is hiring a third party
outside of the company to perform services and create goods. Human resources department is an
important, but it is a complicated department that functional to any company, usually company
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will opt to source (Hamlin, 2019).

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According to the Forbes article, in recent year, the revenue of outsources service is on climb
from $45 million in 2000 to $100 billion in 2012. Most of the companies use outsourcing to cut
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off the labor costs and bring a beneficial to the companies such as focus on other strategies plan
and making profit (Bloomenthal, 2020). Most of the manager of a U.S – based company
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outsource the human resources department because of the cost reduction, time saving, and labor
cost. Companies can hire the human resources service from qualified contactor that can getting
the job done in quick and less money, and also less burden for the companies. In addition,
company doesn’t have to provide the benefit and payroll to outsource service. Sometimes, their
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work performances are not efficiency as outsourced services. For example, big manufacturing
company usually will outsource to avoid heavy workload and legal stuff, instead of focus on the
company’s roles and responsibilities.

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 The disadvantages to outsource the human resource department would increase direct cost
including the time they spent and the effort they put to progress the process of the company and
they called it as hidden cost (Caruth et al., 2013). Besides that, the disadvantages to outsource
including the quality of the service provided by the outsource is poor, lack of controlling, and
reduced employee morale (Caruth et al., 2013). Company outsources the service sometimes will
bring a negative impact to the employee and service is not satisfying especially if the contractor
and subcontractor has a negative relationship. Outsources services sometimes can be frustrated
especially the managers may loss control over an important activity and decision making based
on the solution that provided by them.

There is an advantages and disadvantages using the offshoring. According to the Business Week
article, international BPO can reduce cost significantly and from business standpoint it is a
beneficial company. However, it also has disadvantages to contract with international BPO with
the US based BPO. The first disadvantage is increased the unemployment. People in the US will
loss job because all the company outsources to the oversea company. Second, it is culture, social
and time zone. Due to the different time zone between two countries, it can slow down the

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production, delayed the shipment, and communication skill will be an issue. For example, if the
US outsource to China, it will have the language barrier as people in USA communicate by using

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English, while China’s mother language is Chinese. Unlike, outsourcing, there will not have a
language barrier and time zone problem. They work at the same zone and would not slow down

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the production. The last one is the security issues. It is always having a risk when doing the
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offshoring, because of sharing and transmitting data to another party (Antra et al., 2006).
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It is important to understand what is outsource for the company. From the business standpoint, it
will be a beneficial to outsource human resource department due to the cost reduction and bring a
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profit to the company. According to the Caruth et al (2017), it is important for a manger to
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understand why some of the task can be outsource and some tasks are not good to be outsource.
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Based on the information provided above, it is good to keep some of the task in house because it
is easy for the manager to have the control instead of letting other company to control the task.
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References:

Baye, M. R., & Prince, J. T. (2017). Managerial Economics and Business Strategy (9th ed.). New
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York, NY: McGraw-Hill Education.

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Bloomenthal, A. (September 23, 2020). Business Process Outsourcing (BPO). Investopedia

(Online). Retrieved on November 12, 2020, from
https://www.investopedia.com/terms/b/business-process-outsourcing.asp.
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Caruth, D. L., Haden, S. S. P., & Caruth, G. D. (2013). Critical Factors in Human Resource
Outsourcing. Journal of Management Research, 13(3), 1-9.
https://search.proquest.com/docview/1466137747?accountid=158986

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 Doellgast, V., & Gospel, H. (2013). Outsourcing and human resource management. Retrieved on
November 12, 2020, from Cornell University, ate], ILR School site:
http://digitalcommons.ilr.cornell.edu/ articles/1217

Hanlim, K. (March 12, 2019). The Advantages of Outsourcing HR Functions. Retrieved on

November 12, 2020, from https://smallbusiness.chron.com/types-hr-outsourcing-59555.html

Antras, P., Garicano, L., & Rossi-Hansberg, R. Offshoring in a Knowledge Economy. The
Quarterly Journal of Economics, Volume 121, Issue 1, February 2006, Pages 31–
77, https://doi.org/10.1093/qje/121.1.31

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