Reboot: A More Nuanced Backsourcing Strategy for Today’s Business Leadership

Reboot: A More Nuanced Backsourcing Strategy for Today’s Business Leadership

Prepared for:

Dr. Jerry Haar

Florida International University

In partial fulfillment of the requirements of the course:

International Business- MAN6608

Prepared by:

Raul Cordova, Lina Darsa, David de Leon, Jennifer del Rio, & Sherry del Rosario

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Backsourcing by its definition is a business practice in which a firm takes back in-house assets, activities, and skills, which were previously outsourced. Backsourcing is an increasingly popular phenomenon in the business world as the pendulum is swinging back from an extreme in outsourcing. There is a wide gamut of business models engaging in initial outsourcing and now backsourcing, including energy, chemical, retailing, food, health-care, education, manufacturing, public administration, government and banking.

Outsourcing has become a common practice as companies hire other companies/agents to perform some of their peripheral activities thus reducing the pressure on their internal employees and ensure cost efficiency. The companies contracted for outsourcing are sometimes located in countries that have lower labor costs and less stringent business laws and regulations. While some companies have positive experiences with outsourcing, others have had adverse results as they have ignored the associated risks and costs. Firms are now increasingly re-internalizing their previously outsourced activities; often times bringing offshore activities back to their home country. “Though it has become prevalent, it has been noted that as much as 50% of all ongoing outsourcing contractors are discontinued in favor of either using a different vendor or bringing the work back in-house.” (Whitten).

A small cottage industry is popping up to help clients take work back from contracted third parties. “It used to be that outsourcing was all the rage. ‘Do what you do best and outsource the rest’, said one; we’ve been told to outsource everything, including ourselves’, said another, but now backsourcing appears to be gaining ground.” (Williams).

As the tendency for firms to outsource increased, many multinational firms started questioning the actual cost-effectiveness of their decisions for outsourcing services. Some firms have faced more challenges and issues than they had initially anticipated.  The increasing amount of the true costs related to the instability of the global economy and the unpredictability market uncertainty have pushed firms to hold back from engaging in long-term outsourcing contracts. Firms tend to choose smaller agreements and outsource less strategic activities in order reduce potential loss and the risk of failure.

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