Is Outsourcing Good or Bad for Your Business?

Is Outsourcing Good or Bad for Your Business?

Is Outsourcing Good or Bad for Your Business?

Is Outsourcing Good or Bad for Your Business?

Outsourcing is a great tool that can be used to improve the workflow. If you want to discover how to use it to your benefit, you’re at the right place. 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 using the outsourcing services to lower your costs. If you spend less and make more, you will gain a higher profit. Just calculate how much money and time you will have to spend on starting a new team, their training, etc. You will get the profit only in a few months.

Outsourcing is good for small companies as using the outsourced services from outside the U.S. will decrease the expenses. You can provide people from the developing countries with a job 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 and attract more and more clients increasing your profit in such a way.

One of the positive effects 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.

Here are 5 top reasons why outsourcing is good:

  • It lowers your costs
  • You can hire specialists from another country
  • You can use it in any niche of the market
  • You avoid all bureaucratic aspects
  • You can hire one person or a group of experts

Are there negative effects of outsourcing?

There’s hardly a thing in this world that can be only good with no negative sides. Is outsourcing good or bad for your business? The answer may seem to be obvious. However, you will never know until you try it. Of course, we’ll warn you about some aspects.

Here are some negative effects of outsourcing:

  • You cannot affect the mood and moral state of the employees
  • Your cooperation won’t be so flexible as with the staff in your office
  • You may feel uncomfortable during the first few days

These items are not always true for all business spheres. To avoid any negative effects, it’s better to predict them and find the solutions to solve any problems in advance. Just provide the job for one or several employees outside your office and see the result. You’re likely to save about 30% of your costs during the first three months.

Take the first step and define a monthly budget for the first team that you will outsource. Just try using this method of cooperation to evaluate its best sides. It’s a good chance to make your business more profitable. You lose nothing. You don’t have to hire or fire anyone. Just provide the instruction and see the first 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 more job openings in less-developed countries to which companies outsource. 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, and US organizations often choose China to establish their manufacturing centers because of the number of reasons. First of all, labor costs in China are much lower compared to the US or European rates. Also, it is easier to enter the market of the country where the manufacturing is operated. Moreover, by having access to the Chinese market, it’s possible to enter other Asian markets, as well.

Another reason is that raw materials in China cost lower, while supply and logistics chains are easier to operate compared to the US, and this allows 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 US but in China. The company outsources manufacturing 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 is 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 daily. 

Many factories in China don’t offer adequate working conditions and don’t comply with US labor standards, especially at manufactures. Also, regulatory methods regarding employees’ health safety are also different from US ones because of different labor laws. So, in many cases, even if outsourced employees in China work for the US company, they don’t have the same rights as American workers.

How Outsourcing Jobs Affects the U.S. Economy

The main advantage of outsourcing jobs to less developed countries is that companies are able to 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 US 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 unemployed US citizens. If these jobs were returned to the US, 4.3 million workers who nowadays work part-time could acquire 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 the best and can be paid lower rates. If the same jobs were taken by US citizens, it would inevitably lead to higher prices on the produced goods and services of the company.

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 organizations, it can be damaging to 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 in China or India, people can do the same job for much lower prices compared to US citizens, businesses will outsource such jobs without hesitation.

This business strategy proved to be working and 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 because the world is nowadays 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 comparative manufacturing advantage because of high wages and strong currency, and 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 openings shortage in the US, 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.

Economies of the less developed countries are, in a result, boosted by the demand for manufactured products by American consumers, and the US engages in international trade processes and receives required goods at lower costs. This results in higher ROI and better-priced products for US citizens.

Outsourced googs and their components are then incorporated into the larger products in the US and translate into the creation of job positions for high-skilled US citizens. However, these benefits are often disregarded when outsourcing is discussed. Undoubtedly, products manufactured overseas thanks to outsourced services are then available to the US customers at more affordable costs, thus, developing the economies both of the US and foreign countries.

Maya Momotok

Written by Maya Momotok
CEO and cofounder of Wow24-7

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