Outsourcing – knowing pros and cons may help the business to grow

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Outsourcing – knowing pros and cons may help the business to grow When a particular business process is allocated to a specialist service provider the process is said to be outsourced. The company purchases products and services from a third party in order to improve the cost effectiveness of the process. The terminology dates back to early 1960s and today the ideology has gained immense popularity. Many companies big and small, national and international are implementing subcontracting as a critical strategy that would help them achieve their goals and maintain their competitive advantage. IT, legal, content development, manufacturing and web designing are few common business streams that are being outsourced.

When is outsourcing needed?

Primarily businesses outsource when they experience lack of expertise in a business process or specific part of the process. Cost is another major determinant that makes entrepreneurs and managers to incorporate outsourcing. Any business can become efficient when it can compete with its competitors on minimum production cost and best quality.

Benefits: Cost savings: Contracting-out reduces operation costs, labor costs and overhead costs as well.

Cost reduction is the fundamental reason of outsourcing for many businesses who are struggling with costs and revenue generation.

Concentration on core processes and expertise: Since businesses owners are subcontracting part of their business process because they lack expertise, helps them to focus on their core processes and expertise that are their strengths. This enables them to make qualitative products and service to satisfy customers.

Expertise: When outsourced to a vendor the task can be completed more efficiently and effectively. These vendors are specialized in their area and are equipped with required equipments, facilities and have all the related technical expertise.

Staffing flexibility: Flexibility in staffing and manpower management is benefit of outsourcing.

Labor costs are saved as the vendor will be responsible of getting the task done. This saves recruitment costs and time for the management who can work to improve the developing areas of the employees and improve management system.

Disadvantages: The major disadvantage that causes businesses to consider and evaluate subcontracting decision is the loss of control over business processes. Poor quality control may affect the 1|Page

production or service which may influence the sales or revenue. The setback of outsourcing can also cause trouble with high risk of losing sensitive information and data especially if outsourcing HR, payroll and recruitment services. If terms and conditions are not clearly defined, it may raise legal problems. Moreover, if business processes are outsourced internationally then linguistic barriers may hinder effective communication.

Globalization has paved way for outsourcing. Contracting out has its own cons that a business needs to consider according to the task that is outsourced. Weighing both pros and cons will help the managers to reach best decision to outsource. When a company makes its final outsource decision it then comes to the next stage of outsourcing where it considers a number of factors and form partnership with the vendor.

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