Leading large-scale manufacturing and service-oriented corporations have been scaling down costs and outsourcing low to no revenue-generating jobs to offshore countries. The outsourcing business strategy is not new but is often the source of controversy as there are plenty of American workers looking for employment at any given time. Outsourcing is seen to get cheap labor and is a widely adopted practice by large companies while not generally utilized by smaller companies. However, some will import products and materials from offshore sources.
Low revenue business units, such as customer service centers, software, design development, and assembling of electronics and consumer appliances, are a few of the commonly outsourced jobs. World-renowned corporations have also adopted outsourcing approaches as a best practice in their business model, including stitching, labeling, packaging, and finish work. Some of the leading and more well-known clothing manufacturers that outsource are Zaraman, Inditex, Ralph Lauren, and other leading stitched apparel.
The question is how outsourcing jobs or outsourcing business processing operational units can generate revenue in offshore countries instead of being an internal division of the company. The answer is simple, ever since Activity-Based Costing (ABC) was introduced, many large-scale and world-renowned corporations started to establish Cost Business Units and Revenue Business Units. These units include financial divisions, production divisions, customer relationship departments, human resource departments, customer service departments, printing departments, in-house software development, and advertising departments.
Since ABC was introduced, these units were established within the corporation, deemed essential to remain stateside. Those jobs or units which were labor-intensive and low in revenue generation were outsourced to countries like India, Pakistan, China, Bangladesh, China, and the Philippines.
For example, Apple has outsourced the assembly, packaging, and printing of its consumer items like iPhone, iPad, and iMac to China. Suppose someone from the Middle East, Far East Asia, South East Asia, and Oceania wants to purchase any of the Apple Products online. In that case, when the package arrives, the backside of the product will clearly state, “Made and Assembled in China.” This is because that the cost of production and labor is substantially lower in China.
In the end, when cost and revenue are collated, and the bottom line is derived. It essentially affects the EPS (Earning per Share) and the stock exchange value on the stock exchange. It is imperative, as these corporations are publicly traded and listed on the stock exchange. If there is any financial misrepresentation or negative trend in the income statement, it is bound to impact the share price, investor’s confidence, and overall share value.
Therefore, if the corporation outsources those units of the operations that are not generating any substantial revenue, it can be profitable. The monetary advantages can be brought to fruition in the least amount of time and provide you the leverage to concentrate more on producing sales and effective customer service, thus being evaluated efficiently.
The scope of outsourcing is wide. Entities provide both inbound and outbound customer services through IP telephones, accounting and bookkeeping services, CAD drafting services, photography, advertisements, marketing services, and other areas to bear in mind when considering how to amplify revenue stream.
In real-life scenarios, we encounter situations where many managers and executives spend a substantial amount of precious time dealing with after-sales service. It is frustrating for any management executive. When the person can finally make a sale or close a deal with the anticipation that the performance appraisal will bear fruits, the same person finds a flood of messages and issues related to after-sales. Therefore, customer service is of paramount importance. But, since they consume a lot of time and don’t generate revenue, these units are often outsourced to professional call centers and customer service organizations to retain the customers. On the other hand, the in-house or internal management executives can focus on bringing in more revenue by acquiring new customers.
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