Outsourcing is becoming an increasingly popular practice for both small and large businesses of today. In the United Kingdom, it is reported that over 50% of businesses are currently outsourcing. Most businesses in the United States are also currently outsourcing to different countries.
Outsourcing is defined as delegating of a specific process in business to a service provider which is not of the company. This external service provider will then be responsible for running and maintaining the delegated process in a day-to-day basis. Outsourcing is considered by businesses to be both a short-term and long-term solutions to achieve efficiency in their business operations. Any business process can be outsourced to external service providers. Processes such as marketing, web design and maintenance, web hosting, IT maintenance, accounts management, recruitment, logistics, distribution, editing and switch board operations can be outsourced to external service providers.
There are many reasons why businesses have resulted to outsourcing. These are a few of the reasons; (1) the lack of existing skills to complete a process, (2) to replace poor internal service, (3) unavailable internal resources to complete a business process, (4) difficulty in managing the process due to business growth, (5) process can be performed better and cheaper by external providers, and (6) doing the business process internally may not contribute to competitive advantages.
Businesses, whether small or large, should analyze their outsourcing options first before venturing into outsourcing. Outsourcing has its pros and cons. Businesses should make sure that they are going to outsource the right business process to the right external service provider.
Advantages of Outsourcing
Mainly, the advantage of outsourcing lies in the fact that it helps businesses cut costs and expenditures and to stay ahead in the competition. Outsourcing also benefits the citizens in develop countries as it gives high quality products at a cheaper rate with better customer service. One specific advantage of outsourcing is that it lowers the capital expenditure of the company by letting the external service provider be responsible for buying the expensive hardware and software needed to complete the business process. The external service provider will also be the one responsible for the maintenance of these hardware and software. These external service providers in order to entice more businesses would regularly upgrade their technology. This in turn would be an advantage to businesses who outsource since they do not have to shoulder the costs of upgrades.
Another specific advantage of outsourcing is that it lessens the management worries. By letting the external service providers hire and manage personnel who will be responsible for completing the business processes, companies will lessen their management worries. Outsourcing also gives businesses the ability to access skilled and trained labor and man-power at extremely reasonable prices which would lead to increase productivity and increase savings coming from less expenditure in terms of salary and wages. Businesses save in the costs of recruiting, training and other human resources’ costs when they outsource man power to external providers.
Outsourcing will also lead to increased productivity because businesses would be able to afford large numbers of skilled man power to increase productivity. Also, businesses that outsource would be able to beat their competition since they can provide customers with high quality products and services at relatively cheaper prices. Outsourcing gives businesses with better market position because businesses can maintain lower rates with better service. Outsourcing to countries with lesser taxes would also enable businesses to have increased savings due to tax benefits.
Another outsourcing pro is that it enables business to concentrate on their core competencies and to streamline their business operations. When businesses concentrate in their core competencies, this will lead to a more efficient management of the company.
The market for outsourcing is estimated to increase rapidly in the coming years with more and more businesses planning to outsource jobs and business processes to offshore destinations. The number of external service providers has also increased which resulted to a larger variety of providers to choose from. The competition among the external service providers is also an advantage to outsourcing since these providers are becoming more and more efficient and competitive in order to get more outsourced jobs.
Although there are a lot of advantages in outsourcing, businesses should also look at the risks and disadvantages that outsourcing may provide.
One disadvantage of outsourcing is that the business that outsourced the process would not have the managerial control over that process. The external service provider will have all the managerial control over the jobs or processes that are being outsourced to them.
Another disadvantage or risk of outsourcing is when the external service provider becomes bankrupt or goes out of business. This will cause the business that outsourced to go to a new service provider or to bring the process back to internal operations in order not to lose precious resources or time and to cut back on the loses caused by the bankruptcy of the external service provider.
Another disadvantage to outsourcing is the loss of flexibility in reacting to the change in business conditions and the lack of internal and external customer focus. Outsourcing may also put the security and the confidentiality of the business at risk. When businesses outsource their accounting, payroll and medical transcriptions to offshore destinations, confidential information will be known to the external service provider.
Long Term Impact of Outsourcing in Business
Outsourcing has created a debate in the developed countries as to its long-term impact on business and in the economy. Businesses will always look for the lowest-cost situations in order to become more competitive and efficient. It is inevitable for businesses not to result to outsourcing. Less-skilled jobs are being outsourced to other countries with developing economies. This will help these countries’ economies since outsourcing will increase their standards of living by being provided with jobs from the U.S. and the U.K. for their own workers. A long-term impact of outsourcing is the development of the economies of developing countries due to the influx of jobs for their skilled workers.
Another long-term impact of outsourcing is that consumers from developed countries would be able to buy high quality products at a much cheaper price due to outsourcing. Outsourced production of products makes it cheaper in the market than those that are made in their country.
However, outsourcing has been seen by a lot of Americans as an ‘evil’ that takes jobs away from Americans and giving it to people of foreign countries. Outsourcing is said to contribute to the increasing unemployment rate of Americans since more and more jobs are being shifted to other countries due to cheap labor costs there. One long-term impact of outsourcing is that more and more jobs are being outsourced to different countries. Before, only the low-end jobs are being outsourced, now, even the mid-level professional jobs are being outsourced and this is what worries the American workers.
Summary
Outsourcing has its pros and cons. Outsourcing has more pros than cons and therefore more and more businesses will result to outsourcing to become more efficient. Outsourcing helps the economies of developing countries by providing more and more jobs to the countries’ workers. However, the American workforce is worried because more and more jobs are being given offshore. America should think of this as an opportunity to develop more educated workers and develop new job descriptions in the future.
REFERENCES:
Outsourcing in Small Business
http://www.bizhelp24.com/small-business-portal/outsourcing-in-small-business-2.html
William Raynoc. (2003). Outsourcing Jobs Off-Shore: Short and Long-Term Consequences. State University of New York.
http://www.newwork.com/Pages/Opinion/Raynor/Outsourcing%20Consequences.html
Michael J. Mandel. (August 25, 2003). Outsourcing Jobs: Is It Bad? Business Week On Line.
http://www.businessweek.com/@@fwJQB4QQnbYv*BIA/magazine/content/03_34/b3846027.htm
