(Solved Homework): A large proportion of major corporations outsource their IT functions to specialist suppliers of…

A large proportion of major corporations outsource their IT functions to specialist suppliers of IT services such as IBM, EDS (now owned by Hewlett-Packard), Accenture, and Cap Gemini. What transaction costs are incurred by these outsourcing arrangements and why do they arise? What are the offsetting benefits from IT outsourcing?


Expert Answer

The various transactions costs are specified as below:-

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Cost of production which will include the cost of raw materials and goods?

Cost of transaction which is mainly the cost associated with the economic transactions.

Cost of selection and it mainly includes the cost incurred in looking for various alternatives and options and then shortlisting some vendors

Maintenance cost:- This is mainly made of the continuous cost resulted from supports, up gradation and so on.

Cost of Bargaining is mainly the cost of negotiation in mutually acceptable contracts and agreements.

Cost of enforcement and changes is mainly the cost resulting from enforcing the terms of contracts and different cost associated with the change.

He various benefits obtained from IT outsourcing are as below:-

Control over It costs,

Reduction of labor costing,

Better trained, experienced, qualified, certified employee,

Manifold increased efficiency and competitiveness,

Implementing quick new technology,

Better focusing on the business line,

Reduction of risk to higher extents,

Better compliance and security, etc.

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