**Abstract**

In the present era of globalization, outsourcing proves to be one of the prominent and emerging business practices widely adopted by the firms around the world in order to stay competitive. The academic literature on outsourcing in the Indian context mostly deals with the outsourcing of information technology/information systems (IT/IS) and business process outsourcing (BPO) that are outsourced to Indian IT firms by the multinational companies (MNCs) located abroad. However, studies on outsourcing practices followed by the Indian firms may be inadequate in the extant literature. It was observed that the decision of outsourcing is often taken in an aggressive manner with an emphasis on short-term cost advantage rather than giving due consideration in realizing the significant contribution of such decisions over the long-term competitiveness of the organization. The present study provides a structured approach to analyze the suitability of outsourcing in line with the organizational strategy for performance improvement for the coal mining organization in India.

**Keywords:** outsourcing, India, coal mining industry, decision model

#### **1. Introduction**

In the present era of globalization, outsourcing proves to be one of the prominent and emerging business practices widely adopted by the firms around the world in order to stay competitive [1]. There are various definitions and explanations of outsourcing in the literature, all mostly conveying a similar meaning. Outsourcing is an abbreviation for "outside resource using" which essentially means using external parties in the value chain of a firm [2]. Outsourcing is defined as a management approach in which an enterprise delegates its operational responsibilities to an external party which was prior performed in-house [3]. Tadelis [4] defines outsourcing as "the transfer of a business activity or function to an external provider (or vendor) who takes control of the activity's inputs, and then performs that function off the company's balance sheet and sells the activity/function back to the company". Outsourcing to third-party firms when based within the same continent or substantially in the similar cultural environment is termed as near shore outsourcing whereas third-party vendors when based on a different continent or substantially in a different cultural environment is termed as offshore outsourcing [5, 6].

#### *Outsourcing and Offshoring*

Hätönen and Eriksson [7] and Zhu et al. [8] define outsourcing as one of the strategies that are being recently practised among most of the manufacturing and service industries so as to gain competitive advantage. Considering the potential benefits of such a business practice in terms of catering to the customer requirements in reduced time and cost, a wide application of outsourcing has been noticed by industries all over the globe. Though originated in the eighteenth-century, such business endeavour has gained prominence during the 1980s. Since then there has been a massive paradigm shift in such a business outlook [9, 10]. Traditionally, outsourcing practices were confined to peripheral jobs like cleaning, catering, and security that has shifted to potential core jobs like design, research and development, manufacturing, mining, human resource, sales and marketing [11–15]. A large number of firms view outsourcing as a value-addition process and a means to achieve business transformation [16, 17]. Thus, the motivation of outsourcing that was solely based on cost criteria has gradually transformed into a strategy-based approach more likely to be known as transformational outsourcing. In this reference certain concepts like vested outsourcing, crowdsourcing, white collar outsourcing has emerged in the era of 21st century.

Outsourcing has offered several benefits to the organizations that have enabled managers to use it as a strategic tool to be ahead in the competitive race [18]. The motivation for outsourcing differs from one organization to the other and accordingly a wide spectrum of possible benefits is witnessed in the existing literature. Outsourcing has been a proven mechanism in offering a plethora of strategic benefits including skilled workforce, state-of-the-art technology, cost reduction, greater flexibility are to name a few [19, 20]. Organizations have experienced several other benefits of outsourcing, some of them are mentioned below [21]:


**25**

*Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry*

specialized knowledge, and expertise workforce [2, 32, 33].

• Outsourcing enables firms to deliver products/services at a much-reduced time. Reduced cycle time leads to better responsiveness in catering to the everchanging customer needs through the utilization of state-of-the-art technology,

• Outsourcing brings in greater flexibility. Outsourcing is beneficial at times when sudden necessity arises for a certain resource that may be either human

• Outsourcing is helpful at times in terms of sharing risks when conditions like market fluctuations, volatile financial conditions, and change in government

Though outsourcing has been considered as a strategic tool in providing organizations with a competitive advantage, there are quite a few drawbacks which adversely affects the firm in form of cost escalation and inherent risks [30, 36].

• Outsourcing may lead to loss of core competencies of the firm. It has been witnessed that firms often indulge in an aggressive outsourcing in view of the short-term cost advantage failing to realize the significance of such an activity in contributing to the long-run competitiveness of the firm [32]. Delegating a potential activity may be vulnerable in terms of the service provider becoming

• Dependency on the service provider sometimes leads to opportunism demonstrated by the service provider which is another risk factor in an outsourcing relationship. Opportunism occurs when individuals act deceitfully and in a self-seeking manner as and when need arises [37, 38]. Such negative behaviour influences an outsourcing relationship by increasing cost and decreasing

• Client organization investing in specialized assets and resources (tangible and intangible) that are specific to that relationship often encounter difficulties in switching providers known as lock-in situation. Interruption of supply, delivery of inferior quality of products, unexpected cost escalations, and nonperformance of the service provider are some of the complications encoun-

• One of the primary motives behind outsourcing is to gain cost advantage. However, there are several unexpected costs associated with outsourcing such as, cost of monitoring, implementing, negotiating, coordinating, enforcing and terminating the existing exchange agreements that goes unnoticed and

• Possession of proprietary knowledge and methods, customer specific data, organizational know-how are examples of intellectual capital that need to be identified and protected through contract clauses when engaging a third party as they can be easily copied and thereby prone to risks and leakages [40, 41].

The academic literature on outsourcing in the Indian context mostly deals with the outsourcing of information technology/information systems (IT/IS) and business process outsourcing (BPO) that are outsourced to Indian IT firms by the

tered by the client organization in such situation [37].

unreported while taking an outsourcing decision [32].

or equipment that are not required on a full-time basis [30, 34, 35].

*DOI: http://dx.doi.org/10.5772/intechopen.96420*

regulations occur [32, 35].

Some of the outsourcing risks are highlighted as follows:

a competitor in the near future [21].

revenue [39].

*Outsourcing: State-of-the-Art in India and an Insight to Coal Mining Industry DOI: http://dx.doi.org/10.5772/intechopen.96420*


Though outsourcing has been considered as a strategic tool in providing organizations with a competitive advantage, there are quite a few drawbacks which adversely affects the firm in form of cost escalation and inherent risks [30, 36]. Some of the outsourcing risks are highlighted as follows:


The academic literature on outsourcing in the Indian context mostly deals with the outsourcing of information technology/information systems (IT/IS) and business process outsourcing (BPO) that are outsourced to Indian IT firms by the

*Outsourcing and Offshoring*

has emerged in the era of 21st century.

below [21]:

Hätönen and Eriksson [7] and Zhu et al. [8] define outsourcing as one of the strategies that are being recently practised among most of the manufacturing and service industries so as to gain competitive advantage. Considering the potential benefits of such a business practice in terms of catering to the customer requirements in reduced time and cost, a wide application of outsourcing has been noticed by industries all over the globe. Though originated in the eighteenth-century, such business endeavour has gained prominence during the 1980s. Since then there has been a massive paradigm shift in such a business outlook [9, 10]. Traditionally, outsourcing practices were confined to peripheral jobs like cleaning, catering, and security that has shifted to potential core jobs like design, research and development, manufacturing, mining, human resource, sales and marketing [11–15]. A large number of firms view outsourcing as a value-addition process and a means to achieve business transformation [16, 17]. Thus, the motivation of outsourcing that was solely based on cost criteria has gradually transformed into a strategy-based approach more likely to be known as transformational outsourcing. In this reference certain concepts like vested outsourcing, crowdsourcing, white collar outsourcing

Outsourcing has offered several benefits to the organizations that have enabled managers to use it as a strategic tool to be ahead in the competitive race [18]. The motivation for outsourcing differs from one organization to the other and accordingly a wide spectrum of possible benefits is witnessed in the existing literature. Outsourcing has been a proven mechanism in offering a plethora of strategic benefits including skilled workforce, state-of-the-art technology, cost reduction, greater flexibility are to name a few [19, 20]. Organizations have experienced several other benefits of outsourcing, some of them are mentioned

• Outsourcing non-value-added activities to third-party service providers allow the companies to focus on their core activities. Outsourcing non-strategic activities allow the client firms to invest in capital, resources, and time to the

• Outsourcing allows the companies to achieve cost-savings in terms of reduced overheads and consequent training costs by delegating low-skilled and labour-

• Outsourcing enables organizations to achieve cost-savings by capitalizing on economies of scale gained through production efficiencies and specialized

• Outsourcing allows achievement of improved and quality services due to service provider's standardized and consistent service levels which ensures an improved and appropriate level of service through their specialized equipment

• Outsourcing enables organizations to convert fixed cost into variable cost. Components that are required occasionally are often selected as the candidates for outsourcing since maintaining capacity for such items may lead to cost

• Outsourcing enables organizations to gain access to the state-of-the-art and most effective technology, innovation, proven methodologies, and specialized

areas that contribute to the competitiveness of the firm [22–24].

intensive activities to low-cost locations [25, 26].

personnel of the outsourced firm [22, 27].

incurrence throughout the year [30, 31].

capabilities of the outsourced firm [10, 27, 29].

and expertise [28, 29].

**24**

multinational companies (MNCs) located abroad. However, studies on outsourcing practices followed by the Indian firms may be inadequate in the extant literature. It was observed that the decision of outsourcing is often taken in an aggressive manner with an emphasis on short-term cost advantage rather than giving due consideration in realizing the significant contribution of such decisions over the long-term competitiveness of the organization [42]. The present study provides a structured approach to investigate the appropriateness of outsourcing, as a strategic decision, in accord with the organizational strategy for performance improvement in the context of an Indian coal mining organization. Therefore, the objectives of the present study are to provide a general overview of outsourcing in the backdrop of the Indian outsourcing scenario focussing on the coal mining organization and manufacturing and service industries in general. The study then discusses the significant contribution of the coal mining organization in reference to the growing importance of coal in the country. Subsequently, the relevance of outsourcing in view of the improved organizational performances for the Indian coal mining organization has been elucidated. Finally, the study proposes an outsourcing decision model that may provide a comprehensive approach towards evaluating the appropriateness of such strategic decision as outsourcing in consistent with the organizational strategy for performance improvement for the coal mining organization in India.
