During the last years international companies dealt with the question of optimal division of labour in cooperation with suppliers; especially in the automotive and supply industry. This question and its solutions decide of the competitive position of many companies in several industrial sectors. Major points in regard to division of labour are the areas of manufacturing-, quality-, logistics- and development functions. Such procedures create qualitative relationships between the parties involved. Another question concentrates on the maintenance or the change of company internal services e. g. cleaning, car pool, human resources, canteen and accounting. Although the core services of the companies remain the same, in these areas total cost reductions as well as flexible processes can be achieved. The process of optimal division of labour to be achieved by giving away internal functions to an external service provider, in economic literature is called outsourcing.
Generally, corporations use outsourcing to target on cost-, flexibility-, time- and quality aspects.
Table of Contents
1. Introduction
1.1 The problem
1.2 Goal
1.3 Structure of the analysis
2. New institutional economics
2.1 The transaction cost theory
2.1.1 Definition of transactions
2.1.2 Types of transaction costs
2.1.3 Measurement of transaction costs
2.2 The property rights theory
2.3 The principal agent theory
2.4 Critical comments
3. Outsourcing
3.1 Definition of outsourcing
3.2 Types of outsourcing
3.3 Outsourcing contracts
3.4 International aspects of outsourcing
3.5 Chances and risks of outsourcing
3.5.1 Chances
3.5.2 Risks
3.6 Critical comments
4. Outsourcing of a warehouse at the company Fichtel & Sachs AG
4.1 The organisation
4.2 Definition of outsourced warehouse
4.3 Cause and goal of the outsourcing process
4.4 Realisation of the process
4.5 Critics and results
4.6 Similarities and differences in theory and practise
5. Conclusion
6. List of literature
Research Objectives and Themes
The primary objective of this paper is to examine the theoretical framework of outsourcing through the lens of New Institutional Economics and to bridge the gap between economic theory and practical business application by evaluating an international case study.
- Analysis of transaction cost theory, property rights, and principal-agent relationships.
- Evaluation of the definitions, types, and international aspects of outsourcing.
- Critical review of the chances and risks associated with externalizing internal functions.
- Case study analysis of Fichtel & Sachs AG regarding the outsourcing of warehouse operations.
- Comparison of theoretical concepts with practical implementation results and challenges.
Excerpt from the Book
3.3 Outsourcing contracts
To place outsourcing contracts successfully there needs to be a lot of trust between both parties. Therefore a detailed negotiation and an exact establishment of the outsourcing contract is deeply necessary. The contract should specify all essential elements of the cooperation between both parties. Thereto belong e. g. a detailed description of services and the legal general conditions but also the reflection of acting scenarios, the flexible adoption towards changing market conditions etc. So, the contract should not be a static document, but a working paper which reflects the cooperation between two parties.
Due to technical, organisational und last but not least contractual reasons it is very difficult to authorise another contractor to provide additional services. Moreover negotiations with several external providers always create higher coordination costs. Therefore it can be said, that the service provider enjoys more or less a monopolistic situation, because he offers services which are not exposed to open competition.
Summary of Chapters
1. Introduction: This chapter outlines the problem of optimal labor division and defines outsourcing as a strategic method to achieve cost reductions and process flexibility.
2. New institutional economics: The author presents the theoretical foundation of outsourcing, specifically focusing on transaction cost theory, property rights, and the principal-agent model.
3. Outsourcing: This section provides a detailed definition and classification of outsourcing types, while exploring the chances, risks, and international dimensions of the strategy.
4. Outsourcing of a warehouse at the company Fichtel & Sachs AG: This chapter offers a practical application of the previously discussed theories by analyzing a real-world logistics outsourcing project.
5. Conclusion: The paper concludes by summarizing that while outsourcing is a modern tool for competitiveness, its success depends heavily on professional planning and alignment of interests.
6. List of literature: Contains a comprehensive compilation of the books, articles, and internet resources cited throughout the analysis.
Keywords
Outsourcing, Transaction Cost Theory, Property Rights, Principal Agent Theory, Make or Buy, International Management, Fichtel & Sachs AG, Logistics, Supply Chain, Competitive Advantage, Cost Reduction, Outsourcing Contracts, Offshoring, Nearshoring, Business Process Outsourcing
Frequently Asked Questions
What is the fundamental purpose of this paper?
The paper examines whether outsourcing serves as a successful method to reduce costs in business processes for international companies by contrasting economic theories with practical experience.
What are the core thematic fields covered in the work?
The main themes include New Institutional Economics (specifically transaction cost, property rights, and principal-agent theories), the strategic nuances of outsourcing, and international logistics management.
What is the primary research goal?
The goal is to link theoretical economic frameworks with current practical examples of outsourcing to determine whether observed business results align with theoretical expectations.
Which scientific methodology is utilized?
The study employs a literature-based theoretical analysis of economic models followed by a descriptive case study method focused on the warehouse operations of Fichtel & Sachs AG.
What aspects does the main body explore?
The main body investigates the mechanisms of outsourcing contracts, the classification of risks (such as loss of know-how), and the practical outcomes of externalizing specific business functions.
Which keywords characterize this publication?
Key terms include outsourcing, transaction cost theory, property rights, make-or-buy decisions, and global supply chain management.
How does the author define the relationship between the principal and the agent in this context?
The author identifies the customer company as the principal and the service provider as the agent, noting that agency costs arise from goal incongruity and information asymmetry.
What is the main finding regarding the outsourcing case at Fichtel & Sachs AG?
The study finds that the outsourcing was successful because the company and the haulier managed to cement their cooperation through consignment contracts that met the cost and service expectations of both parties.
- Arbeit zitieren
- Alexander Merl (Autor:in), Manfred Husa (Autor:in), 2006, Make or Buy decision: Outsourcing - A successful method to reduce costs in business processes of international companies?, München, GRIN Verlag, https://www.hausarbeiten.de/document/59666
