Outsourcing strategies. How to formalize and negotiate the outsourcing contract

In the globalized economy multinational firms have given rise to local firms able to produce at a low cost and at acceptable quality levels. A growing number of firms have outsourced production and manufacturing activities of all types to these firms, not only to reduce production costs but also to make their organizational structures more streamlined and flexible. Outsourcing decisions, which originally were limited to production which had a modest technological content and was of marginal importance for the business in question, is increasingly adopted for activities which, requiring core competencies or belonging to the core business, were considered inseparable from the organization and thus not outsourceable. Gradually an outsourcing strategy has developed which has found it convenient to outsource even core ompetencies and functions, such as specialized manufacturing, which require a particular technology, marketing, product design, and the search for know-how (Prahalad and Hamel 1990: 79-91). Such an outsourcing strategy has a number of advantages, among which quality improvement, a greater focus on managing other core competencies, a greater flexibility and leverage regarding resources, along with the possibility of entering new markets, even ones with a high rate of development. This article analyzes the fundamental stages for an outsourcing strategy. It will demonstrate how, in order to achieve an outsourcing strategy, it is necessary to include outsourcing in the general strategy, gather suitable information for choosing the outsourcer, negotiate the contract with the supplier, choose the type of relationship to have with the supplier, and, finally, plan the transfer of activities and functions from the outsourcee to one or more outsourcers or providers.