When it comes to operating a business, the list of tasks that you have to complete within a short period of time is honestly limitless. For a business owner, 24 hours just isn’t enough to properly accomplish all of the jobs that are required to successfully operate the business. While proper time management and task delegation are vital to a company’s smooth operations, sometimes the tasks at hand are just too much for your department to handle.
Outsourcing is a common business practice of hiring a third-party company, usually overseas, to perform services and/or create and supply goods. While these can be performed in-house by the company with their own resources, companies decide to outsource instead as a way to minimize operating costs or to free up their staff from menial tasks.
Outsourcing is now a hot topic in the US, especially with the rising local unemployment rates per state and rampant poverty. The outsourcing industry is also expected to continually grow in the future as economies all over the world are crashing, forcing countless companies to downsize. With this in mind, it is now the best time to discuss outsourcing, its advantages and its disadvantages.
Definition Of Outsourcing
Before discussing the good and the bad aspects of Outsourcing, it is best to define it with clarity. Outsourcing is a business activity where companies, due to a multitude of reasons, hire other companies to perform some of their business functions. A startup or a small business without an HR department, for example, hiring a third-party to complete their HR functions is one example of outsourcing activity. A company launching its own online website and blog and hiring freelance writers to create content for them is also one of the most common practices of companies outsourcing.
Advantages Of Outsourcing
Outsourcing Increases Company Revenue
When companies decide to outsource, it is usually because they believe that they will be saving more money if other companies, especially overseas, take care of some of their operations. The production of specific goods and services is one costly affair if done locally as compared to when they are produced in other countries and shipped to the US.
Outsourcing to other countries such as India and China are also cheaper due to considerably lower labor costs. Because the cost of living in these countries are lower as compared to the US, it is understandable why the cost of labor would also be cheaper.
This is where outsourcing gets its bad rep. Local employment is affected every time a company gets sold to the idea of outsourcing. Unfortunately, the savings are just too big for organizations to ignore.
Outsourcing Lessens HR Woes
When hiring an employee, not only do companies have to worry about the salary of each employee, they also have to spend resources on training, space, insurance, and other company benefits. These are all expenditures that can be avoided by choosing to outsource instead.
Another way outsourcing can lessen HR woes is by letting a Global Professional Employer Organization (PEO) take on the hiring and back office management of foreign workers. For example, in a country such as China, which has stringent regulations for setting up foreign subsidiaries and numerous labor laws and regulations, partnering with a China PEO can streamline the hiring process and ease many HR demands.
Outsourcing Improves Productivity
A startup will not have enough employees to accomplish all its tasks. Each one is hired for a specific function and task. That means that everyone will have to shoulder all of the extra, and usually, menial tasks associated with keeping an office running. This, not only takes up way too much of everyone’s time but also exhausts everyone’s mental energies, leaving them with little to work with for their actual jobs.
Outsourcing provides an avenue where companies outsource menial and repetitive tasks to other people thereby freeing up their highly-skilled staff to perform the jobs they were hired at with 100%. Jobs are delegated to the people whose skill level are appropriate for their tasks. This extremely benefits the company’s productivity rates and in effect, the economy as well.
Outsourcing Supports Developing Countries
Outsourcing is usually done with the third party company located in a developing country with low labor costs. Outsourcing in the US may have a bad connotation but in developing countries, they are viewed as an economy booster that employs hundreds of thousands of citizens.
With the global outsourcing market amounting to over 85.6 billion US dollars, economists also predict that with outsourcing, the gap between rich countries and poor countries narrow.
Outsourcing Connects People
When outsourcing, it can’t be helped that companies interact with each other. This leads to the introduction of multiple cultures that strengthens international relations. Countries with both the company outsourcing and the outsourcing companies are also exerting more efforts to improve and strengthen their diplomatic relations in the sense that both their economies would take a hit should things between them turn sour. Outsourcing also provides an avenue where businesses are able to establish important connections with each other.
Outsourcing Produces A High Quality Of Products And Services
Companies that are outsourced by other companies now have years upon years of experience under their toolbelt resulting in them having a huge technical knowledge of everything related to their industry. For example, an accounting firm outsourced by a company can provide better and faster calculations of your company’s accounts and cash flows with less errors. These companies will also have the infrastructure and software needed to complete the tasks with much more efficiency and precision.
Disadvantages of Outsourcing
Outsourcing Brings Job Loss In The US
Perhaps the main disadvantage and the reason why it is frowned upon is because outsourcing results in the loss of jobs in the mainland. The job opportunities in the mainland is steadily decreasing as more and more companies are realizing the price disparity between hiring locals and outsourcing overseas.
Manufacturing companies, for example, have almost all decided to transfer out of the US and establish a Wholly Foreign-Owned Enterprise (WFOE) to countries where they can operate at a cheaper rate. This led to a massive laying off of factory workers flooding the market with hundreds of thousands of unemployed citizens. Currently, the unemployment rate in the US, according to the Bureau of Labor, is around 3.6 %.
However, outsourcing can also be done locally and this greatly helps the economy of the country. You are also assured of the quality, not to mention, a language barrier will not exist.
Outsourcing Blurs Lines
With outsourcing, the lines are blurred which for some consumers is unethical. For example, clothes with US brands are sold as such and yet, they were actually manufactured in Chinese sweatshops. Branding then becomes an issue. Another instance is an Indian clothing company where all the clothes are manufactured in India can parade itself as a US company which are known for high-quality products by selling them under a US company’s name.
Outsourcing Has Unethical Roots
Many are also bringing up the ethical concerns of outsourcing. It is not a secret that many companies in developing countries operate under unethical conditions – – – child labor, no benefits, below minimum wage, and unsafe environment. Many believe that outsourcing helps with the proliferation of these abusive businesses.
Labor laws in some developing countries are still at its early ages and thus it is quite easy for companies to exploit their workers. With outsourcing companies promising low costs, these companies must find ways on how to keep up with that promise, usually relying on child labor, overworking their employees, unpaid overtime, and giving below minimum wage.
This is why, despite the higher cost, many companies still choose to outsource locally. That way, they are assured that they are not taking part in any illegal or unethical practices.
Outsourcing Can Produce Subpar Goods And Services
While the majority of outsourced companies do good on their promise of providing high-quality goods and services, it cannot be helped that some companies produce goods and services that are subpar in quality. Miscommunication due to language barrier and distance could also occur resulting in negative effects in the company’s operations. Of course, the percentage of this happening if you outsource locally is considerably lower.
If you want to avoid miscommunication and a problem with the time difference, you can always look for American companies who are offering the same services. While more costly, you are assured of the quality.