Managerial Economics 07/15

●       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 Business Week 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 outsource your human resources department. 

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

○       Please explain from a purely business standpoint, any issues that might arise from contracting with an international-based versus U.S.-based BPO service firm? (Chapter 6, page 199)