The Effects of Outsourcing

Many businesses consider outsourcing as a cost-cutting measure. Whether you are considering outsourcing non-core business tasks such as payroll and tax accounting or moving part of your operations overseas, there are many aspects to consider. Outsourcing can save a business a considerable amount of money in reduced costs, but it cal also affect other less tangible measures of business success. Outsourcing can affect labor relations, overhead costs, customer opinion, data security, quality control, as well as financial costs.

Outsourcing some of the non-core parts aspects of your business such as payroll and accounting can be a great cost cutting measure. You can avoid the costs of hardware and software upgrades as well as the salaries for the qualified personnel to perform these tasks. Outsourcing the tasks can allow you to concentrate on the core aspects of your business and free up monetary resources for expansion. You can sometimes gain cheaper access to technology and expert services through outsourcing, than by trying allocate the money to perform these tasks in-house. Outsourcing, however, can also lead to data security problems. Many firms have found that they cannot protect sensitive customer and employee data when they rely on outside vendors for services. You may also be relying on a firm that does not necessarily put your company’s interests ahead of other clients. You may be left without services if you are a smaller client.

Moving part of your operations overseas or outsourcing manufacturing, likewise, can have both positive and negative outcomes. Manufacturing overseas can lead to huge cost savings because everything from labor to land to taxes to utilities can be much cheaper. In addition, the cost of labor benefits and training costs can also be drastically reduced. Along with cheaper labor costs, however, may also come poorly trained or under qualified workers. In addition, the employees you retain may become less productive because they fear the loss of their jobs. Customer sentiment may also be negatively affected by moving jobs overseas. In addition, your company may have less control over the quality of goods produced and may have to worry that environmental, political, or economical upheaval may slow down or halt production. The loss of customer trust due to outsourcing or the customer’s dissatisfaction for the quality of goods being produced can lead to a significant sales loss. A loss that may offset all the positive gains of cheaper labor and production costs.

Outsourcing, then, whether the shifting of non-core business tasks or the movement of operations overseas, requires a careful cost benefit analysis. Although, the financial savings may be attractive initially, factoring in hidden costs such as data security, loss of control, customer sentiment, quality control, and the uncertainty of foreign operations, may suggest that outsourcing is really not the right move for some companies. The financial savings must be carefully analyzed along with the more intangible gains and losses to determine whether outsourcing will help or hurt the company in the long run.