Question

PQR Ltd., an Indian software company, assigned its customer support operations to an external agency based in Philippines. The arrangement proved successful, and PQR Ltd. is planning to outsource its Research and Development (R&D) wing to the same agency.

1. Identify the type of outsourcing used by PQR Ltd. in assigning its customer service operations. (1)
2. Specify any one benefit of the above type of outsourcing to the firm in Philippines. (1)
3. Give any one reason to explain why PQR Ltd. would choose to outsource a critical function like R&D. (1)
4. Briefly explain any one potential risk the company might face if they outsource their R&D wing. (1)

Answer 1

a. BPO/Business Process Outsourcing

b. Benefits to the outsourced:

• It helps the vendor grow their client base.
• It is a source of income from contracts.
• It increases the efficiency and skill of the outsourced party.

c. Reasons for outsourcing critical functions:

• It gives access to highly skilled professionals with specialised knowledge.
• It reduces costs related to hiring, training, etc., of own employees.
• The Outsourcer can focus on core competencies.
• Compliance risk can be transferred to KPO, reducing the burden on the outsourcer.

d. Risk in outsourcing critical functions:

• The payment of high fees.
• There is a risk of leakage of business secrets.
• Companies may become too dependent on KPOs.