The 10 Pros and Cons of Outsourcing you need to know
Outsourcing is a controversial subject. Some people love it, others hate it, but many companies rely on it.
It means assigning some of your business processes to an outside company or an individual, quite often in another country.
It has become big business in the last few decades all over the world, but as with most things, you need to consider what the outsourcing pros and cons are before you launch yourself into the market.
Outsourcing started in India and now the majority of outsourced workers reside in India and China. However, countries such as the Philippines have emerged as great contenders.
It can be appealing to companies to outsource and pay less than minimum wage without dealing with withholding and medical benefits.
But doesn’t that create unemployment in your own country? You must look at all the issues surrounding a decision to Outsource your business processes based upon what is best for your company.
The IT Sector leads the way when it comes to outsourcing, followed closely by research and development, distribution, and call centers.
To help you make the decision I’m going to give you some food for thought.
The Top 10 Pros of Outsourcing Jobs
A large number of outsourcing companies are based in what we would consider Third World countries. However, this doesn’t mean that the people aren’t well educated.
In fact, the Philippines produces over 500,000 graduates each year and India about 5 million.
There is plenty of talent available to fulfil your needs. Graduates in these countries have a lower cost of living allowing certain employees to upgrade their lifestyle.
In fact they can easily purchase luxury items and live to a higher standard than the average citizen.
You won’t have to feel guilty or worry that you are exploiting your outsourced staff.
2.Higher Returns on Investments
As I’ve said, outsourcing can mean reduced costs for your company when it comes to employing staff. However, it’s so much more than this.
If you outsource to the Philippines for example your opportunity for affordable labor and competitive quality will give you the ability to distribute your savings to other areas of your business like expanding your company.
Alternatively, you can transfer the savings to the consumers. Lower prices combined with quality services can lead to higher sales.
Considering the cost of labor in the US or any industrial nation, the cost for quality employees may weaken your ability to compete.
3.Ease of Recruiting Staff
It is easier to hire outsource workers, whether it’s a whole team or an individual. You don’t have to go through rigorous interviews which could last for weeks, followed by training.
At the same time, it is also much easier to let go of staff in an outsourcing team than it is in-house.
Letting someone go from your own company can involve labor disputes and possibly redundancy payments, but you won’t have this problem with outsourced staff.
You have no obligation to them except to pay them for the work they do.
While your in-house team has the right to sick pay and holiday pay, you won’t have to worry about this with your outsourced workers.
You don’t even have to give them paid notice when you terminate their employment.
While this might seem harsh, outsourced staff have signed up for this type of work and are probably earning more than they would in a comparable job in their home country.
4. Improved Efficiency
If you need to get a specific job done and your own staff can’t deliver on this task, outsourcing could easily be the answer for you.
You’ll be able to have a choice of companies or individuals who specialize in the skills you need.
Perhaps you want medical or legal advice?
Chances are, there may not be an individual in your company who is qualified or on the other hand, your qualified individual may share the exact same skill set as someone that you can delegate the task to at a lower cost to your company, so as a viable business tool, outsourcing to an expert in the field can provide you with a competitive edge.
The same applies to something like manufacturing. Your own staff probably won’t have the skills, but a manufacturing firm will have the tools, knowledge, and ability to complete the tasks.
There’s no point getting someone from your own company who knows a thing or two about the assignment, even if they are willing to learn, it can eventually cause conflicts with their daily operational tasks.
It’s more efficient to get somebody who is trained and can complete your assignment efficiently and quickly. Outsourcing also gives you the opportunity to tap into a completely new knowledge base.
It makes sense to focus your efforts on what you are competent at and let someone else do the rest. However, be careful that you don’t take this too far.
You need to understand the goals of your business and then see how outsourcing will help you to achieve them.
Don’t outsource just for the sake of saving money.
Some tasks don’t even need to be outsourced to a company in another country. Perhaps you need a receptionist in-house on a contract basis.
The ideal and efficient way to handle these situations would be to turn to a temp agency.
They will send you qualified individuals who have been interviewed with your company’s goals and requirements in mind.
They are likely to be experienced and you only have to pay them for what they do. If they don’t work out, you can just send out for a different temp.
It is also important to remember that if the time comes and you are short on cash, it is easier to cut back on outsourced staff than it is on in-house staff.
It would be more than unpleasant if you had to tell a full-time employee that you only need him/her part-time, particularly if they rely on the job to support themselves or their families.
In addition you could lose a valued member of staff who is unwilling to occupy a part-time position due to his/her personal circumstances.
5.Increased Speed of Delivery
In most cases delegating rudimentary tasks to your in-house staff takes precious time and resources that can hinder the organization from growth and development.
In comparison outsourcing those task and assignments to a team or individuals keep your in-house team focused on the more important tasks.
Your outsourcing team will be able to concentrate on the minor task full-time unlike your in-house team which probably have their own workload to deal with.
With this in mind, you will get the results when you need them.
Chances are your outsourcing team is in another time zone. This can be a good thing as you can then operate your business 24 hours a day.
Your small business might be closed for a holiday, but if your outsourcing team doesn’t celebrate the same holiday they will carry on working which will do nothing but keep your company running seamlessly.
In addition, a lot of outsourcing companies work 24/7 which can be a real asset to your business.
7.More Management Time
If you outsource jobs you will have more time to concentrate on running your company.
Outsourcing jobs which are routine, like data entry or customer service will give you piece of mind when handling other tasks in the organization.
You can let them get on with the day-to-day business while you carry on expanding your company and customers.
The same goes for specialized jobs in the KPO industry.
8.Cuts Operating Costs
Although you have to pay your outsourced company or individual, wages is not the only place you’ll notice substantial savings.
If you, for example, had a call center in your business headquarters, you would have to pay for computers, electricity to run them, and obviously a premium internet service provider.
You don’t have this problem if you outsource. Training staff is also expensive.
It could take a couple of weeks to train them for a job, whereas if you outsource you can get ready-trained staff prepared to handle tasks in a fraction of the time.
In addition, you have to remember that you would have to take away members of your staff from their jobs to train them.
9.Access to Better Technology
Particularly if you are a small business, you won’t be able to have the latest technology for each employee.
The cost of outfitting a small office with the latest computers and tools for your employees to handle daily operational task can be staggering.
An outsourcing team, especially outsourcing agencies will probably have all of the tools you need and take the problem off your hands.
10.Relieves the Strain
Perhaps you’re just starting your business and you’re a sole proprietor or a small company.
It can be overwhelming and you can find yourself swamped with too much work. Perhaps you haven’t immediately got the cash to hire an in-house team.
This is when you should take advantage of outsourcing. You could outsource the mundane jobs giving you more time to try and build your business.
A great advantage is that your costs will be reduced, meaning that there is more money to ingrain into your company.
In addition, if you are a small company but are in competition with much larger companies, outsourcing can make you feel as if you are as big as them giving you the confidence and optimism to push forward.
The Top 10 Cons of Outsourcing
Of course, where there are pros, there are usually cons as well, and here I have identified cons that you may encounter when it comes to outsourcing. Some may contradict the pros, but this is because the situations vary from industry to industry.
1.Training your Outsource Team
Training Your Outsource Team
There could be time at the beginning of the business relationship that you will need to train your new outsourced workers, which of course will be time-consuming.
Generally the team or individual you hire will probably be trained in the basic requirements to handle specific task related to your organization, but this might not be in line with how your company gets things done. Your outsourcing staff will need to get used to the way you expect them to work and this obviously will take a little time.
In the outsourcing industry there’s always the chance that you will run into a problem with availability. Of course you might get a team of outsource workers who are completely dedicated to your job.
However, there are some especially freelancers who may have commitments to other clients. This is particularly important if you just offer part-time work or assignments that have a contract period.
It probably won’t be enough for them to make a living and they will have to take on other assignments. It goes without saying that terms must be met at the beginning of the contract.
If they do have other clients they may not be able to drop everything at a moments notice to do a job for you.
Let’s face it, when it comes to remote workers and freelancers juggling multiple assignments, an outsourced worker will choose the job that pays the most with the least amount of pressure.
In reality you have to be flexible or decide that outsourcing is not for you.
3.Loss of Control Over your Business
Loss of Control over Your Business
If you have people working for you in-house, you can check on them and see if they are doing the job correctly.
This can be done on a daily basis. With outsourced staff you don’t have this luxury, even if there are apps and programs that you can use, you won’t know if the outsourced employees are doing the job properly until you get the results.
Until then you have no idea if you’re getting what you’ve paid for.
There is also the question of miscommunication. It is easier to relate what you want done with the person sitting opposite you rather than having to communicate over the internet.
This is also where time differences play a factor. You might realize that a person has done something wrong, but if it’s the middle of the night where they are and they’re not working, you have to wait.
Although there might be a 24/7 workforce in your outsourced business, the member of staff you want to speak to won’t be available 24 hours a day and you’ll have to wait until their shift starts.
Internal data and sensitive information should always be handled with care, especially when you outsource.
While in-house employees follow a set of rules and regulations, outsourcing jobs and tasks to some agencies or freelance workers comes with its own set of risks.
Non-disclosure agreements (NDA) create a confidential relationship between employer and employee where sensitive information and or trade secrets are kept within the company.
Not all outsourcing agencies or freelance workers follow these types of legally binding contracts. Somebody could in effect steal your ideas and could cost you money in the long run.
For example, some overseas call centers work directly with major international banks. Outsourced workers will have the ability to see into the bank accounts of customers which could be dangerous.
Unless the country you are outsourcing to has similar laws to your own, think twice about outsourcing jobs with sensitive data.
Quality is always a contributing factor to the success in any business model regardless if it’s the service industry or retail industry.
When you outsource, you can’t without a doubt tell what the quality of the end result will be until you’ve either inspected or reviewed it, particularly if you’re outsourcing manufactured goods.
Your country may have strict rules and regulations as to the standard of your product or service in contrast to other countries that might not have said regulations in place.
In the end, the dissatisfaction falls to your customers which then impacts the image of your business, and nothing is worse than a dissatisfied customer.
Outsourcing jobs to other countries can lead to job loss in your own country.
When you outsource jobs it could make members of your staff redundant and that may pin them to the unemployment queue.
Jobs you could have given to people in your own country can end up going to people in another country who’ll work for much less with the same end result in quality.
Perhaps you won’t find this ethical? In the end, a balance needs to be found that doesn’t deprive people of jobs in their home country and also helps the people of outsourcing companies to get work.
7.Sluggish Response Time
Sluggish Response Time
The problem with not being able to see your employees face to face is that you miss opportunities to keep them motivated and on track with their tasks.
Without a doubt no one likes to micromanage but when employees know that there is a watchful eye in the workplace, staying focused on the work at hand becomes instinctual.
When it comes to outsourcing, you could get the work delivered much later than you want it.
You’re not there to push people to get the job done on time and if they’re not organized enough, they may get side tracked and the probability of work being completed in a timely fashion can fall by the wayside.
From an outside perspective it may seem like a good idea to hire people from a different time zone and have your business operating 24 hours a day.
On the other hand it can make real-time communication difficult especially with time sensitive tasks.
Perhaps you need something done urgently in your time zone, but it’s the middle of the night where your outsourced employee is.
Another question to ask yourself is does your outsourced staff have a reliable internet connection where they are?
While most outsourcing agencies opt for reliable high speed internet many freelancers take a more affordable route for their internet provider which in most cases tend to be fast and stable.
When it isn’t and there are times when it isn’t for example electrical brownouts or service interrupted maintenance, that could be a major problem for your business.
9.Impact on Company Culture
Impact on Company Culture
It is easy to focus on outsourcing when things are going well, but how will your in-house employees feel about it?
Perhaps they’ll think that they can be replaced or become confused and concerned about the direction of the organization when you decide to outsource particular areas of the business.
What you really need to do is be open and transparent with your in-house staff. T
hey’re probably valued employees, so you don’t want them to leave and find another job with a company because you decided to outsource specific tasks.
However, if they stay and you don’t discuss your motives for outsourcing, that can lead to low employee morale which can have a harmful impact on your business.
10.Loss of Customers
Loss of Customers
Your customers may not be happy that you are outsourcing jobs to another country.
This could be particularly important in something like the customer service sector of your business.
Your customers may not want to talk to someone outside their home country or whose native language is not english.
If you outsource something which requires knowledge of the culture, area, or similar circumstances that your outsourced representative may not be familiar with, your customers may feel disconnected from your company and reach out to a different competitor altogether.
As you can see, there are many pros and cons of outsourcing, all of which you should consider before deciding whether to outsource or not.
If you are spending all of your time focusing on the smaller tasks and providing your direct input before assignments can be finalized then outsourcing probably isn’t for you.
However, if you are confident in delegating your tasks to skilled individuals outside of your company and in most cases outside of your country then outsourcing could be well worth looking into.