Pros and Cons of Outsourcing Businesses

📖 Learning

Rishita Jain

Oct 28, 2020 — 6 min read

Globalization has transformed the whole business scenario, and the way of doing business has changed a lot. There are no more limitations that were earlier imposed by geographical borders. This has increased the scope of global outsourcing. Outsourcing has its own pros and cons.

What is Outsourcing?

Outsourcing is the process of obtaining goods or services or both, on commercial terms, from third-party suppliers. Outsourcing is a form of partnership or rather a practice by which companies prefer to transfer portions of their services to the outside suppliers instead of completing the work internally. In simple words, outsourcing means sourcing goods and services from outside vendors.

When small business owners talk about outsourcing, they’re usually thinking of farming out content work to freelance writers, hiring an accountancy firm to take on the bookkeeping, or relying on an employment agency to track down and deploy hired help.

What can be Outsourced?

Broadly speaking, any job can be outsourced. However, most companies that opt for outsourcing choose to outsource those roles that are meant to support the central role of the companies and to help it in the accomplishment of its strategic vision. Companies also outsource the day-to-day, mundane, repetitive works to other companies to de-clutter their schedule and focus on more important work.

The job sectors that are commonly benefited by outsourcing are manufacturing, distribution, research & development, IT services, and call center support.

Top Factors Influencing Decision to Outsource

Advantages of Outsourcing

In the right context and deployed shrewdly, outsourcing can be a fantastic way for small business owners to improve efficiencies and bolster their company’s bottom line.

1) Time-saving: One of the top reasons small businesses tend to outsource work is because it will get done quicker. Outsourcing will help you and your company to spend more time working on the core business. The time that you could spend on the non-core business will be enough to concentrate on expanding service productivity in the field of interest.

2) Reduced operational costs: As one might imagine, outsourcing piecemeal work is almost always going to be cheaper than hiring permanent full-time staff. Once you contract out some of the services to an outside supplier or company, you are surely going to save on an extra amount you could invest in setting up the technology to support the outsourced services. Here you also cut off the operational cost in infrastructure.

3) Access to expertise: Your core team might be fantastic at a few things, but nobody is perfect at everything. By outsourcing particular tasks, companies are often able to substantially improve performance by drawing on the niche skills of experts in certain fields.

4) Sharing Risks: One of the most important factors in any project is risk assessment and analysis. By outsourcing certain campaigns or processes to experts in their respective fields, you will benefit from their enhanced ability to plan and mitigate potential risks.

5) Simplified project management: If you choose to outsource work via a wide range of specialist freelance websites and online services, you’re often provided dynamic and intuitive platforms that will help you to effectively manage what’s being done, when it’s due for submission and how it will be paid. Most of this can be automated, freeing up your time for more important work.

6) Flexibility and more comfortable: You can streamline your company’s operation and have closer control in running the business. Outsourcing will also lead to the sharing of business risk, this makes it comfortable for one to invest more without having that great fear of failure.

Outsourcing importance

Disadvantages of Outsourcing

Outsourcing doesn't come without its disadvantages. Outsourcing isn’t right for every situation, and so you’ve got to think long and hard before investing time and energy in farming out work. These are the following cons of outsourcing-

1) Security risks: In this age of data protection, you must exercise caution whenever using customer data. If you plan to outsource processes that require personal data, you could be placing the privacy of others or the security of your business at risk by passing that data on to other people.

2) Hidden costs incurred may be high: Though outsourcing is cost-effective to the company itself, some legal costs exist while validating a contract. Much of the time and money may get their way out before legalizing the partnership. Also, outsourcing companies or big agencies will typically ask small business owners to sign lengthy contractual agreements, and they’ll include plenty of fine print. If you don’t read the terms carefully, you could get hit with unexpected costs.

3) Potential redundancies and communication difficulties: Lack of interest in employees may develop adverse offshoring. The developed reluctance in work may lead to low-quality services and a lack of customer focus transforming to a lower market in the products and services affecting the business negatively.

4) Losing Control: As you might expect, when you farm works out to external agencies or freelancers, you’re losing control of how those tasks are being monitored and performed. So long as you know and trust who you’ve hired, that shouldn’t be a huge issue – but you’ve got to tread carefully.

5) Sharing financial burdens: Although it can be nice to bring in expert agencies to share in risks, it can be pretty dangerous to tie your business to the financial well-being of another company. Again, you’ve got to spell out all terms and conditions in contractual arrangements plainly – because you don’t want to take a financial hit if they fail to deliver.

6) Chance of losing focus: Because many outsourcing agencies or freelancers tend to service multiple clients at any given time, the work you’re sending out may not be receiving the focus it deserves. Depending on the processes you’re outsourcing, that lack of focus could be detrimental to your small business.

Outsourcing advantages and disadvantages.

Choosing the right and competent service provider to outsource your products and services is the solution to all these possible drawbacks. If your company has a good taste in outsourcing which is far much pocket-friendly with promising results, you are surely heading for a better experience in your business set-up.