How Outsourcing would impact the Pro-Forma Income StatementOutsourcing by definition is when a company sends a part of the business whether national or international and pays at a lesser salary for the same that they would have paid higher at a local level, basically assigning work to other supplier and distributors who will provide their services. Outsourced capacity includes increasing the production by giving or shifting the production to another country. We have already seen significant shares of goods manufactured are sourced in a lot of Asian countries, namely China; and similarly, there has been a significant market for outsourced software from other middle-eastern countries. Major automation suppliers like Honeywell, Emerson, Rockwell and General Electric are transferring software development to India and manufacturing to China. Others in line are the car manufacturing industries for auto parts. (Pinto, 2003)Pinto went on to explain the software development in India for example, has been booming in recent years.
India now sells $6 billion worth of software annually to the US, with sixty percent annual growth that is projected over the next decade (Pinto, 2003). Unique requirements and the services that each destination may offer and thus the benefit for outsourcing will be:- It will help in focusing on the core areas as the secondary work can be contracted outside.
- It will lead to optimum utilization of the resources- It can lead to economies of scale and specialization which will reduce costs and improve profitability.
- It has more flexibility.
Additionally looking at the core competence, the organization must also decide what activities of their supply chain should they decide to keep "in-house" and what parts to outsource. This will be decided on the basis of knowing the core capabilities of the organization. The core capabilities are the sources of competitive...