Analysis of Factors Influencing the Effectiveness of Outsourcing

Abstract

Outsourcing has become an effective way to reduce costs and improve innovation capability. However, failed attempts still exist and have led to unfavorable results. The root of failure lies in wrongful decision-making. To maximize the value of outsourcing and mitigate its negative impacts, companies should scrutinize their specific condition and adopt a suitable strategy tailored to their needs. This article collects and summarizes previous research on outsourcing, presenting several prominent factors that affect the adoption and effectiveness of outsourcing. Both external and internal determinants are taken into consideration. This article reveals that: Changes in the macroeconomic environment affect outsourcing adoption. Financial constraints and decentralization stimulate outsourcing under certain conditions. Firm size has interrelationships with economies of scale, financial constraints, and corporate structure. Outsourcing has opposite effects on profitability in companies of different sizes. Furthermore, the article discusses appropriate outsourcing strategies under different circumstances based on previous studies. The comparative strength between manufacturers and suppliers determines the types of services to outsource.