About nine out of ten companies across the world outsource their work to other countries or agencies. But what exactly is outsourcing? And why do businesses use them in their functions? Does the business benefit more or does it weigh high on the total expenditure? Let us find out more about why outsourcing or offshoring has seen exponential growth in recent times and the extent to which outsourcing can be used.
Outsourcing is the process where a business allocates specific business functions or processes to an expert service provider externally. A formal agreement is signed between the agency and the company, mentioning the service, the fee, course of time and the conditions involved. Most of the time, businesses find it strenuous to manage all functions internally. Often businesses encounter such processes that are temporary and don’t demand to hire an in-house professional.
In such instances, companies can contract out core business functions, like manufacturing, advertising, auditing, project management, risk analysis, etc. to non-core areas like sanitation, security, distribution, packaging etc. The substantial benefits businesses have gained from outsourcing are spiraling across industries. With the insertion of outsourcing, businesses can focus on decisions that lead to better profits, business growth and aim for a greater competitive advantage. Affility Consulting is a leading firm providing business consulting services in the UAE extending its expertise to businesses around the world.
Advantages of Outsourcing
Once the process is outsourced, the responsibility and burden of the completion are shifted from the company to the service provider.
Cost-effective: When a business outsources its functions, it eludes itself from the need to go through the tedious process of recruitment and training of individuals to perform the task in-house. So, businesses can benefit from reduced costs and the time spent on the staffing process.
Managerial efficiency: When outsourcing is used by a company, it usually involves allocating the task to the experts in the field. Rather than going through a time-consuming process of finding the right man for the job, businesses can directly gain access to experts providing high-quality services with less scope for misjudgment. The outsourced vendors have both equipment and expertise in the field, which gives you the advantage of faster and better quality output.
Business focus: When companies choose to outsource, they delegate their ancillary tasks to outside teams and place their expert focus on key result areas and core functions that need control. This decentralized structure in the organization can lead to increased efficiency, higher profits and improved quality of products. It allows businesses to refine their strengths and work on future strategies.
Allocation of funds: By involving an outside partner in important functions like technology installation, building infrastructure, software development, etc.; companies can save the need for investment. The outsourcing agencies can handle the infrastructure without the businesses having to overspend. This further aids in better risk management, as vendors are specialists in analyzing the risk and taking reasonable decisions.
Encourages employment: When a company outsources its business functions to other countries, it stimulates employment and provides economical support to the host country. Apparently, with the establishment of call centers, more small and medium scale outsourcing agencies have found their place in the market.
Cheap labor: Most countries have insufficient manpower and skilled workforce to handle specific business activities. This is exactly why some companies outsource their functions to other countries. These countries are equipped with a large skilled and educated workforce that is in need of employment. With an adequate supply of labor, businesses can benefit from ower cost and higher productivity.
Disadvantages of Outsourcing
There are many reasons why businesses prefer to contract out their processes to external parties. On the other side, businesses might also face a potential risk of losing control over the function that has been outsourced. So, before deciding to contract out any component or activities of your business, always consider the disadvantages your business might suffer from if you don’t choose the right vendor.
- Threat to confidentiality: Involving a third-party agency for your business activity calls for sharing data and business details. This poses a security threat as leakage of confidential information or trade secrets can cause huge losses to the business, might as well become an advantage to your competitors. Exposing sensitive information about your business processes can endanger your USPs.
- Lacks Quality constraints: While every organization directs its efforts to provide maximum quality in its services, an outside agency might not strive to achieve that benchmark. Dealing with multiple clients at the same time may result in a lack of focus on individual business needs. Subsequently, it might take a toll on the goodwill of the business. Although it is a cost-effective method, there are some hidden costs involved in outsourcing. There is also scope for misinterpretation of assigned tasks, resulting in friction and sub-standard quality output.
- Supply or service delay services: Allocating the business activities or processes to an agency might reduce the burden on management but doesn’t promise timely completion of tasks. Sometimes businesses suffer from compromised quality standards and delayed delivery of services. Even managing an offshore outsourcing agency can be difficult given the time zones, cultural preferences and language barriers.
- Ethical obligations: When a company outsources its functions to another country, it’s seizing the employment and growth opportunities of its home country. There are ethical issues in respect of the more-harm-than-good aspect of outsourcing to other countries and often depicts the company as non-patriotic towards its own land.
Your business can realize the full potential of its growth and revenues by making the right decisions of which tasks to outsource and which areas to retain internally. Outsourcing has both pros and cons that businesses can carefully evaluate and utilize. Choosing the wrong vendor might cost you poor quality service, delayed delivery and a bad reputation. An outsourcing expert like Affility Consulting that specializes in business advisory solutions can assure quality services, allowing you to control and focus more on your business growth. The right vendor can deliver on-time services and even accommodate the differences that social and geographical practices present.