What Are the Advantages and Disadvantages of Outsourcing and Offshoring?
Companies use outsourced solutions including back office outsourcing to improve their productivity. Here are the pros and cons of outsourcing/off-shoring.
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Outsourcing and offshoring have become major trends in almost all industries over the past decade. Many companies, large or small, are turning to business process outsourcing solutions including back office outsourcing to expand and improve their productivity while restraining payroll and overhead costs. Outsourcing is the strategy whereby a company contracts the service of another party, an external agency, to manage a set of business processes or a specific project whereas offshoring involves setting up physical infrastructure in another region or country -- in simple terms, it is the practice of basing some of a company’s processes or services overseas. These trends have significantly changed the way businesses work. Outsourcing or offshoring is implemented in almost all companies worldwide with the aim of reducing costs by assigning work to skilled workers of outside suppliers rather than in-housing, which is a much more expensive option and may not guarantee quality and accuracy. Although the principles of offshoring and outsourcing are similar, the execution and its repercussion on the economy are different. A Deloitte article says that 31% of IT services were outsourced in 2017 and is likely to grow in the coming years. The healthcare and finance sectors have seen growth of 36% and 30% respectively, while the HR sector has witnessed 32% growth. Outsourcing is a popular trend in the manufacturing sector as well, with 43% of industries outsourcing their work from time to time. A further increase in outsourcing trends is expected worldwide in 2018, with exponential growth to be seen in businesses and industries relating to technology, innovation, social responsibility and data security. On-shore or offshore, outsourcing has revolutionized business processes across all industry sectors. Now let us look at the advantages that make outsourcing or offshoring an attractive prospect. Outsourcing/off-shoring Advantages With good internet connection, apps and advanced websites, outsourcing and offshoring have become seamless and quick. It assures quality work with quick turnaround time at minimum cost. ✓ Outsourcing or offshoring allows working with a strong, skilled, and expert team. This helps to benefit from innovative ideas and enables the company to move forward. This also makes decision making easier and promotes the growth of the company. Businesses can expand their service offerings by focusing more on the
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core activities. The ideals of globalization and free trade have increased offshoring and outsourcing processes. ✓ Outsourcing to a good vendor lowers your capital cost and helps to save up to 60% reduction of total costs. It also eliminates the need for setting up an in-house system which can be expensive.You get to save on employee salaries and other labour related expenses since the cost of living in countries where you outsource or offshore tend to be much lower. It eliminates the need for recruitment cost as the vendor has access to expertise. This helps businesses to save money so that they have capital to invest elsewhere in the organization. It also assures that you don’t have to worry about obligatory national insurance contribution, sick pay, benefits or any other extra that pile on top of a normal employee’s salary. ✓ Off-shoring provides much more flexibility for businesses due to the time zone difference. This helps your company to expand more depending on your business needs. ✓ Outsourcing and offshoring strengthen and expand your control on operation and production by allowing you to upgrade your process and establish control on all aspects of your business. This ensures increased productivity and sense of accountability from each member. Outsourced solutions use the latest technology and techniques and deliver quality output with quick turnaround time. It helps in providing high quality service, manage business data in an efficient way and use your resources productively. ✓ It enables you to minimize the risk of work lags, insufficient customer engagement and communication and similar challenges. With the help of adjusted work shifts you can ensure that business needs are attended. Disadvantages, if You Don’t Choose the Right Vendor •
The risk of exposing confidential data to a third party is always a major concern in outsourcing as well as off-shoring. Be sure to only contract with a trusted third party and also be certain about the extent of company information you are willing to share.
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Ensure that you choose the most trustworthy and competent outsourcing provider. This is very important because if the third party doesn’t deliver, you will face delivery lag or delayed delivery schedule, poor quality output and inappropriate responsibility categorization.
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Make sure that you don’t choose a cheap provider because they may compromise on the quality of the output. Also, seek the help of your accountant to know if there are any hidden costs.
The main reasons why organizations outsource their business processes are lack of in-house expertise in some business processes, availability of outsourced labour at affordable rates, and the ability to concentrate on core business processes. Expertise in communication, capabilities, technical expertise and affordable packages are the most important advantages of outsourcing. It helps businesses to improve their productivity and efficiency. Providers of professional outsourced solutions can accurately and precisely process all the tasks in a timely manner. They ensure confidentiality of the data they handle, and take the necessary steps to avoid any data breach.
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