What is outsourcing When would it make sense based on quant

What is outsourcing?

- When would it make sense based on quantitative factors only for companies like Toyota and Boeing to outsource?

- What are 3 qualitative factors that companies like Toyota and Boeing should consider before outsourcing?

Solution

Outsourcing is when one company hires anther company to perform some of its functions on a contract basis.The main motive is to save costs and increase profits.For eg. A call centre.

It would not make sense for companies like Toyota and Boeing to outsource based only on quantitative factors

such as costs.

Qualitaive factors they should consider before outsourcing:

1) Employee Morale : outsourcing leads to lay offs , which may have an adverse effect on the remaining employees

who may fear that they may be the next to be laid off.

2)Quality :The quality of the goods or services supplied by the external company should be good , other

wise the reputation of these companies is at stake.

3) Stability of the external company: The company should be financially stable , because if it shuts down,

it will interrupt the activities of the outsoucing company ( ie Boeing and Toyota)