ANALYSIS OF OUTSOURCING

PRACTICES IN E-COMMERCE
INDUSTRIES
GROUP 7
UM16290|UM16300|UM16301|UM16360|UM16361
INTRODUCTION
The strategic use of outside resources to perform activities traditionally handled by
internal staff and resources .

Why outsourcing ?

Provide services that are

scalable , secure, and efficient,
while improving overall service
and reducing costs
 When outsourcing ?
Outsourcing intensifying
Outsourcing Decision Matrix
 ADVANTAGES OF OUTSOURCING
Strategic • Reduce the level of asset investment in manufacturing and other areas with more focus on the core competencies.
focus/
reduction
of assets

Lower • Outsourcing non-core activities will improve production cost levels and avoid spending on high cost new technologies
productio
n costs

• Flexibility in changing suppliers, response time to external events will decrease reducing high restructuring costs
Strategic
Flexibility

Avoiding • Lack of price mechanism and economic incentives inside a firm will make its efficiency suffer
bureaucra
tic costs

• Building valuable relations with suppliers, firms will be able to innovate, learn and reduce transaction costs
Relational
rent
 DISADVANTAGES OF OUTSOURCING
• Important interfaces between activities, decoupling into separate
Economies of scope suppliers will generate less than optimal results and potential
integration problems.

• Firms may lose their bargaining power compared to suppliers

Hollowing out because of increase in the capabilities of the supplier.

• Supplier extracting more from the firms by supplying a lower than

Opportunistic behavior agreed on products quality

• Firms with large external suppliers incur huge transactional and

Rising transactions and coordination costs coordination costs due to high investment in time and attention

• Both parties will try to get private benefits which will affect the
Limited learning and innovation buyer-supplier relationship and difficult to innovate due to lack of
interface between the firms
GLOBAL MARKET SIZE OF OUTSOURCED SERVICES FROM
2000 TO 2017
The revenue of the global outsourced
services industry has been unsteady over
the last few years
The largest share of revenue for this
industry came from Europe, the Middle
East and Africa, followed by the
Americas. A much smaller share of global
revenue came from the Asia Pacific
region.
In 2016, business process outsourcing
contributed a much smaller proportion of
the industry’s global revenue than
information technology outsourcing,
generating 24 billion and 52.9 billion U.S.
dollars respectively
The leading drivers for outsourcing was
cutting costs. Others being focus on core
business and solving capacity issues
 GLOBAL E-COMMERCE INDUSTRY TRENDS

246.15% increase in worldwide ecommerce sales, from $1.3

trillion in 2014 to $4.5 trillion in 2021
Top-tier markets

•Large and developed ecommerce

presence
•Smaller markets with strong physical
infrastructures
•Ripe product markets within smaller
overall markets

Second wave

•Early-stage ecommerce development

•Complex domestic regulations
•Digitally advanced countries but small
market sizes

Wait and see

•Uncertain political climates

•Emerging ecommerce markets with
long-term potential
•Challenging infrastructures
OUTSOURCING PRACTICES IN LEADING E-
COMMERCE COMPANIES
• Logistics and supply chain outsourcing-
Replicating e-commerce giant Alibaba
• Launched in August 2010
• Parent company – One97 Communications
• “Payment Through Mobile”
• Technology outsourcing – core-banking,
security and fraud detection
• Includes core-banking solutions and system
integration solutions
• Partner driven logistics model
• Do not manage their delivery staff capacity
• Market place model system – does not have
inventory control
• launched 16 partner owned fulfilment centres
where merchants can keep their inventory,
and orders can be processed faster
• This has reduced the turn around time (TAT)
from 7-10 days to 2-5 days
• With logiNext – software based logistics,
route optimisation and supply chain
management start-up.
• Help Paytm tap remotest part of the country
• Scale its logistics in Tier 3 and 4 towns, which
account for 50% of its orders
• Help in reduce cost and increase sales via
daily sales process automation, real time
tracking and enhanced visibility.
• Force and Miles (product) - help manage
small SEED Centres, and first- and last-mile
small courier partners get online and
administer their daily activities in a more
optimised way.
• Collaborate with small and local
unorganised courier services and improve
their business
• Amazon enjoys a cult following. It is a
favorite choice for customers due to
one crucial reason: quick and efficient
supply chain management
• The combination of sophisticated
information technology, an extensive
network of warehouses, multi-tier
inventory management and excellent
transportation makes Amazon’s supply
chain the most efficient among all the
major companies in the world.
Why outsource?
• Amazon inventory management has proven its
mettle in earning the title of “great customer
service” and an invaluable trust from its customers
• Amazon inventory management is enhanced by the
use of Appath software
• When Bezos launched the company in 1995, his
sole aim was to earn money without much ado.
• He wanted to concentrate more on earning
heavily, satisfying his customers also. What
Bezos aimed was to spend his time and
money on more important things rather
than on dealing with the inventory
• He wanted to offer a wide collection of
books but did not want to get stuck in
opening store and warehouses and running
them smoothly
• However, he soon realized that the only
solution to satisfy his customers and enable
Amazon to enjoy the benefits of time and
cost-efficiency was to build and maintain its
own warehouse
• Amazon’s Inventory Management costed
him about $50 million and in order to get
the money, Amazon issued $2 billion as
bonds.
 These points were considered while deciding a
strategy:
Outsourcin
g Inventory
Manageme
nt and
Insourcing Reduce redundant inventory
Logistics
Amazon’s Delivery
Supply Options To
Chain Cost Customers
Blockage of working capital

Push/Pull
Warehouse Strategy for Low inventory turnover
Automation Supply
Chain
Success
Amazon’s
Warehouse Inventory goals – right products in the right quantity to
Classes the right place at the right time.
and Zones

Cost of holding > cost of outsourcing.

 Ebay’s first global outsourcing partner- Precision Response Corporation (PRC),
Florida
 Offshored to Bangalore after 6 months – Service quality and Email
Productivity at par with ebay after 3 months
 In less than a year the offshore office surpassed the home office
 Costs were nearly half in India
 This in 2002 ensured that outsourcing would be a part of the customer support
strategy
 In 2004 , 3 tier strategy was devised to support customer support service

Advantages
 Focus on core competence
 Reduce cost

Disadvantages
 Language barriers and accent
 Losing control of operations
 Short-sighted
E-COMMERCE OUTSOURCING – DIFFERENTIATING
FACTOR
Extensive use of IT (Information
Technology)
Reduction in transaction cost
associated with market operations
Reduced communication cost due
to IT permits suppliers to extend
geographical market boundaries
Due to lower transaction cost,
revenue derived from markets
increases
Thus, increasing use of IT leads to
more outsourcing
Due to e-commerce, outsourcing levels
go up
Firms will increasingly engage in
partnership relationship with suppliers
E-commerce enables the transfer of
relatively more complex and made-to-
order components & services to more
external suppliers
Indirect effect of outsourcing, which
implies that e-commerce creates more
challenges in terms of managing supplier
network
Derives a clear link between the
introduction of e-commerce, increase in
outsourcing, more partner & supplier
relationship
 CONCLUSION – FINDING THE OPTIMAL POINT
• A feasible range of outsourcing exists where firms can uphold reasonable performance. If, they implement
higher level of insourcing or higher level of outsourcing, their competitive position & performance will suffer
deeply.
• Combining these 2 perspectives, we expect an inverted-U shape relationship, since the extremes produce the
worst possible outcome & some optimum is present somewhere in the middle.
• Each firm has its own optimal level, depending on factors of country, industry, firm and transaction level.

• Moving towards optimum, it becomes less and

less clear why outsourcing is the best solution.

Firm Profitability 
• Beyond the optimum, integration is a better
choice by not by a big margin. Will be produced
by firm itself, but with inputs from suppliers. Ex-
Open R&D Innovation.
• Moving closer to right-hand extreme, it is found
that insourcing is an obvious choice where cost of
outsourcing is very high

Degree of Outsourcing 
REFERENCES

• https://www.thehindubusinessline.com/info-tech/paytm-to-replicate-alibabas-
logistics-strategy-with-loginext/article9272248.ece
• http://www.financialexpress.com/industry/we-can-check-cost-by-ensuring-
that-a-shipment-travels-less-sudhanshu-gupta-paytm/233935/