Offshoring 101: Impact of Outsourcing on Your Business

In an ever-increasing globalised market, outsourcing labour is crucial to remain competitive in the market, apart from cutting off overhead expenses to maximise profits. According to research, 70 percent of British businesses outsource key services to third parties, with IT, payroll, and accounting topping the list.

The History of Outsourcing

The concept of outsourcing is nothing new. It has been around since the 1950s.

However, its growth was largely driven by the business developments in the 70s, which focused on core competency strategies. In the 80s, it was the time when businesses saw it as an efficient strategy. Since then, outsourcing has proven to be extremely helpful for businesses to succeed and compete effectively.

Outsourcing or offshoring essentially refers to transferring a business activity or function to a third-party provider, either local or foreign. Commonly outsourced office tasks include logistics, human resources, sales and marketing, IT, finance, and accounting.

During the early stage in the evolution of outsourcing, non-core business tasks are typically farmed out to reduce costs and maximise profit. The focus was more on sourcing services or products from a third-party rather than conducting these tasks internally.

In the dawn of the 21st century, outsourcing evolved from the simpler farming out of non-core tasks to outsourcing strategic business processes. These include activities that have a direct effect on business performance. External expertise is sought to help enhance existing and future internal capabilities.

As of current, outsourcing has become more complex, involving the adoption of new technological advances to cater to the fast-changing business needs. Service providers are seen as cost-efficient mechanisms and enterprises that can provide innovation and improve operation.

Consequences of Outsourcing

Just like any other thing in life, outsourcing does have its share of advantages and disadvantages. While on a business aspect farming out can make an organisation more efficient and organised, outsourcing can harm the labour aspect.

Let us take a look at both sides.

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The Benefits

Perhaps the most evident advantage of outsourcing is the reduction of overhead costs. It is no rocket science to understand that labour is much cheaper when you have it farmed out than hiring a full-time staff. You no longer have to worry about salary, benefits, office space, and other perks and privileges.

Third-party providers have their own organisational structure, and they can fend for themselves. As long as they deliver what is expected of them and you pay on time, you’re all good. Furthermore, you have the option to terminate their services when your contract period ends or when they violate the agreement.

Another benefit of farming out is the perk of getting more experts to help your company. Though your team may be great in marketing and sales, you might not be good at handling your business expenses. Hiring a payroll accountant ensures that your finances are taken care of by someone expert in the field.

Outsourcing also brings in innovation. For example, the scientists and technicians you hire as contractors in your pharmaceutical business could bring new product ideas and new business processes. Beyond helping you with mundane tasks, outsourcing could catapult your business to success.

With non-core tasks handled by outsourced professionals, your organisation can give more time, energy, and focus on your business’s core process. Project management can be simplified, making work relationships more simple since you have lesser staff employed.

The Risks

For many first-world countries, the issue of outsourcing has been a hot debate. Though it is a good business strategy, domestic labour has greatly. It is even said to contribute to a country’s unemployment rate. The manufacturing industry is a prime example.

In the U.S, as repetitive manual labour has been farmed out either abroad or to technology, communities and towns which relied on factories and assembly lines as a source of income have become ghost towns. The domestic industrial sector in the Mid-Atlantic, Northeast, and Midwest of the country has seen a profound economic decline, urban decay, and shrinking population.

On an organisation’s side, farming out jobs abroad could lead to public backlash as there are plenty of consumers who have taken a moral stance against outsourcing. Your business may also suffer a delay in receiving outputs. Since freelancers or partner agencies might be in a different time zone, there is an expected delay in task submissions.

Lastly, outsourcing is said to erode company loyalty. Workers may lose their trust and confidence if they figure out that your company plans to replace them with cheaper labour abroad. It discourages employees from being more productive and giving out their best efforts.

Nowadays, no position in an organisation is safe from being outsourced. Even those jobs in the managerial and administrative level can be farmed out as well.

In the right context and when used wisely, outsourcing can be an excellent way to improve your organisation’s efficiency and increase the bottom line. Nonetheless, as to morality, there is still a large grey area that needs to be discussed further.

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