Challenges

Outsourcing is a fast-growing aspect of the world economy with a worldwide

spending of about US$3.7 trillion in 2001. Outsourcing might also face a lot of challenges.
One of them might be the lacking of capable service providers as according to (Kadar and
Huang, 2002), it is the major problem of outsourcing identified, which includes inability to
provide effective transportation networks, poor transportation tools, old-designed
warehousing facilities, lack of qualified staff, and lack of IT capability due to not many
logistics providers are considered reliable, high-quality providers with the scope and scale to
fully meet customers requirements.

Another challenges that a company might face in outsourcing is loss of control over
the outsourced activity, which is also considered one of the most commonly cited inhibitors
to outsourcing as according to (Kwok Hung Lau Jianmei Zhang, 2006).

Next, the poor transportation and IT infrastructure in a particular country also lead to
problems towards the mother company as according to (Kerr, 2005). It caused the logistics
costs to be increase as the poor transportation and IT infrastructure lead to the increase in
logistics cost and damage rate, thus reduce company profit margins.

Besides that, local protection regulations are also regarded as major obstacles to
outsourcing, which are not viewed as critical problems in Western developed countries. When
a Western company wanted to outsource from developing countries, the limit to the choices
of companies in selecting their desired suppliers increase, the company might has lesser
options if the outsourcing country is lacking of emphasize on legal protection law and
regulation. (Hertzell, 2001).

Moreover, as according to (Mary C. Lacity Leslie P. Willcocks Joseph W. Rottman,

2008) outsourcing failures and disappointments will continue to be a high-risk practice with
significant hidden costs in organizations where learning is sometimes painfully slow. As the
research suggest that it can happen through where suppliers do not make reasonable margins,
and when client organizations do not strategize, configure, contract for, monitor, and manage
their deals effectively and there will also be those suppliers who over-promise and under-
deliver.

Lastly, the last challenge towards outsourcing is how can clients retain enough
knowledge when engaging in large-scale outsourcing? After the first few years of a large
outsourcing contract, the clients knowledge retention can dramatically erode through
attrition. While all organizations deal with turnover, clients that extensively outsource have a
smaller pool of talent to retain and develop. This might be a future challenge that current
organizations might not have any solution.

Mary C. Lacity Leslie P. Willcocks Joseph W. Rottman, (2008),"Global outsourcing

of back office services: lessons, trends, and enduring challenges", Strategic
Outsourcing: An International Journal, Vol. 1 Iss 1 pp. 13 - 34

Kwok Hung Lau Jianmei Zhang, (2006),"Drivers and obstacles of outsourcing

practices in China", International Journal of Physical Distribution & Logistics
Management, Vol. 36 Iss 10 pp. 776 792

Kadar, M. and Huang, D. (2002), The third party logistics market in China,
opportunities and challenges, paper presented at CLM 2002 Conference, San
Francisco, September 30, and October 2, Mercer Management Consulting,
available at: www.mercermc.com/ defaultFLASH.asp?section
Perspectives&path Specialty/transport.htm&tier (accessed April 8 2005).

Kerr, J. (2005), 10 keys challenges for the Chinese logistics industry, Logistics
Management, Vol. 44 No. 2, pp. 64-7

Hertzell, S. (2001), Chinas evolving logistics landscape, available at:

www.mckinsey.com/
practices/operationsstrategyeffectiveness/supplychainmanagement/globalnetwor
ks/pdf/ China_Logistics.pdf (accessed April 9).