Outsourcing is a great tool that can be used to improve business workflow. If you want to discover how to use it for your benefit keep reading. We’ll tell you about both positive and negative sides of this tool and its influence on your business.
5 main reasons why outsourcing is good for your business
The best thing you can do with your business is to use outsourcing services to cut expenses. It’s pretty obvious that if you spend less than you make, you get a higher profit. Just calculate how much money and time you would have to spend on hiring a team, its training, providing a workspace for them, etc. With such expenses, It’ll be months before you could get a solid profit.
Outsourcing to nearshore or offshore agencies is especially good for small businesses as services cost much less than in the U.S. You can give people from developing countries jobs and get a profit from spending a little money on their work.
Why is outsourcing good for big businesses? You can lower the price of your products and services which would attract more clients and increase your business profit. Another positive effect of outsourcing is that you don’t have to pay taxes. So, you spend less money. Freelancers that will work for you will be hired by the agency and not by you so that you won’t deal with any bureaucratic aspects of your cooperation.
Scaling up your business output is another advantage of outsourcing. If there’s a surge in your product’s or service’s demand you can hire extra help using outsourcing resources. After the busy season is over you can either let the outsourcing team go or hire them on a permanent/contract basis.
Here are 5 top reasons why outsourcing is good:
Are there negative effects of outsourcing?
Nothing is perfect in this world. Although outsourcing is obviously a very beneficial practice for your business, there are some negative sides to it.
Here are some negative effects of outsourcing:
Take the first step and define a monthly budget for your first outsourcing team. Just try using this method of cooperation to evaluate its best sides. It’s a good chance to make your business more profitable. You don’t lose anything. You don’t have to hire or fire anyone. Just provide the instructions and monitor results during the first month.
Outsourcing Can Distribute Jobs from Developed Countries to Developing Countries
Some outsourcing defenders admit that by outsourcing and offshoring different services to foreign countries, businesses facilitate the gap between the number of available jobs in the US that decreases and the number of people in search of work that only rises. At the same time, less-developed countries benefit from outsourcing more than the home country.
US citizens may argue that outsourcing can lead to higher wages and fewer jobs in their country. However, many analysts see outsourcing processes as a global advantage that will decrease the gap between more and less developed countries with time in the future.
Is Outsourcing a Chance for Developing Countries?
Many global corporations are among the main providers of China’s high-end market. U.S. organizations often choose China to establish their manufacturing centers for a couple of reasons. First of all, labor costs in China are much lower compared to the U.S. or European rates. Also, it is easier to enter the market of the country where the manufacturing is operated. Moreover, having access to the Chinese market expands your chances to enter other Asian markets as well.
Also, raw materials in China cost lower, and supply and logistics chains are easier to operate compared to the US, which allows for cutting operational costs even more.
However, being a favorable destination for manufacturing operations, China experiences problems because of the high demand and decreasing wages with an increasing population. For example, Apple doesn’t manufacture most of its products in the U.S. but in China. The company outsources its production to Foxconn, a Chinese corporation that allows Apple to decrease manufacturing costs, especially those regarding labor. Also, in manufacturing its smartphones, tablets, and laptops, Apple utilizes a large amount of glass for displays that are much cheaper in China than in the US.
So by outsourcing some tasks and services, organizations can cut costs and increase their profits and the quality of products at the same time. However, many employees in outsourcing companies complain about poor working conditions. Often, they receive low salaries and work more than eight hours a day.
Many factories in China don’t offer adequate working conditions and don’t comply with US labor standards, especially among manufacturers. Also, regulatory methods regarding employees’ health safety are different from the U.S. ones because of different labor laws. So, in many cases, when outsourced employees in China work for a US company, they don’t necessarily have the same rights as American workers.
How Outsourcing Affects the US Economy
The main advantage of outsourcing jobs to less developed countries is that companies can stay competitive on the global market and access foreign markets more easily. Businesses can settle on lower labor costs by hiring workers from less developed countries and emerging markets with lower living standards. This also allows companies to ship produced goods from the manufacturing countries back to the U.S. at a relatively low price.
On the contrary, outsourcing jobs increases US unemployment rates, as currently, there are 14+ million outsourced jobs from the US that could be filled with its unemployed citizens. If these jobs were returned to the US, 4.3 million workers who nowadays work part-time could get full-time jobs.
It’s worth noting that many foreign specialists are recruited to help with local marketing, translation services, and business development. These job positions could also be filled with US workers, but businesses see an advantage in hiring local specialists that know their native language and market specifics and can be paid lower rates. If the same jobs were taken by US citizens, it would inevitably lead to higher prices of the company’s products and services.
4 Ways Outsourcing Damages Industry
As outsourcing to less developed countries proves to be cost-effective, more and more US companies tend to outsource their services. Each year, the number of outsourced jobs reaches 500,000. Although nowadays, the capital is held by national and multinational organisations, it can be damaging to the US industry in the long run. The shortage of job openings, as well as talent shortage in the US, can give other nations a tech leg up on America and suppress the US economy. It is the fourth major threat of outsourcing to the US industry.
The Unintended Consequences of Outsourcing
Outsourcing and offshoring are natural results of globalization of the markets all over the world and intend of the companies to cut operational costs and maximize revenues. If people in China or India can do the same job for a much lower price than US citizens, businesses will outsource such jobs without hesitation.
This business strategy proved to be beneficial and companies are eager to allocate labor to its most cost-efficient use. As a result, consumers also benefit from lower costs of the goods provided by companies that outsource their services, and stakeholders receive increased profit margins. To sum up, without outsourcing, the US wouldn’t be able to maintain its global economic superpower status in today’s world as it is an integrated global marketplace.
Is Outsourcing Good or Bad for America?
Although there are some pros and cons of outsourcing, many experts argue that the pitfalls are not that drastic. In many cases, companies do have to cut costs somehow to stay on the market, especially when in a recession period, and by outsourcing manufacturing and business operations, such businesses can strive and succeed in the long run.
If outsourcing allows cutting costs, manufacturing products at lower wages, optimizing business resources, and offer value to the end customers, is it bad to outsource some processes? It’s all about comparative advantage. Nowadays, the US can’t boast of a comparative manufacturing advantage because of high wages and strong currency. Outsourcing allows settling on the most cost-effective solution.
Outsourcing Overseas and Its Effect on the US Economy
Outsourcing is often blamed and politically manipulated to address the job shortage in the U.S., but no one points out the number of created jobs as a result of outsourcing services by US businesses. American companies that outsource some of their manufacturing and business processes bring benefits to both foreign countries and the economy of the United States.
Consequently, economies of the less developed countries are boosted by the demand for manufactured products by American consumers. As a result, the US engages in international trade processes and receives the required goods at lower costs. This results in higher ROI and better-priced products for US citizens.
Outsourced goods and their components are then incorporated into the larger products in the U.S. and linked to the creation of job positions for high-skilled US citizens. However, these benefits are often disregarded when outsourcing is discussed. Undoubtedly, outsourcing is developing the economies of the US and foreign countries as products are manufactured overseas and then delivered to US customers at more affordable costs.
Managing Outsourcing Risk
Now that we know all good and bad sides of outsourcing let’s talk about ways to manage risks of outsourcing.
Before choosing an outsourced vendor define a couple things: a problem which you want an outsourcing provider to solve; a purpose for collaboration; worries and risks associated with potential outsourcing partners. Identifying those aspects will help you set precise requirements for your prospective candidate which will serve you as a guide when monitoring the vendor’s performance.
Conduct due diligence
Choose your outsourcing provider carefully. A selection process should include conducting vendor’s due diligence, comparing proposals with your outlined