Outsourcing is a normal part of today’s modern economy. Companies and organizations hire services of other companies to do specific works. Not just that, there are a lot of books, articles, literatures and seminars with outsourcing as the topic.

Outsourcing garners both positive and negative feedbacks. It has its own advantages and disadvantages. However, most of the time, the advantages or disadvantages depend on the situation.

Pros Of Outsourcing

Outsourcing has been the source of many debates and discussions by both workers and the media especially in developed countries. These kinds of discussions however may only be temporary and may die down in the near future as the perspective of people mature.

One way of looking positively at outsourcing is the mere fact that it can help companies and organizations cut cost as well as it can give them the edge over other competing companies. Outsourcing also provides opportunities for other people to showcase their skills and talents in producing high quality products.

Basically, the main advantage of outsourcing is in the facet of finance. By outsourcing several functions of a company, operational costs can be cut down. In fact, operational costs can be cut down to as high as fifty percent when outsourcing. Why? First, companies can avail of cheaper but nonetheless very efficient labor. Second, since the company does not need to provide training anymore for a specific function, they can remove the budget for training.

Another pro of outsourcing is getting better results or output. Remember, you are hiring a person or an organization that specializes in a specific task. These organizations have the knowledge as well as the tools to efficiently do a specific task or job.

Focus is also another pro of outsourcing. Instead of the company focusing on non-core functions, they can put all their efforts on the core - the more important aspects of the business. This is because all the non-core functions are already outsourced to other companies.

Cons Of Outsourcing

There are some people who see outsourcing as a disadvantage rather as an advantage but this probably because this idea is quite new especially in newly developed countries. But the truth of the matter is, there are actually several cons in outsourcing.

One of the most controversial aspects of outsourcing is trust. When hiring a certain company for their services, you need to be able to trust them that they will do the job as ordered or that they will provide you with very good results. Trust is also needed especially when it comes to confidentiality. A certain hired company may stab you in the back and sell information to some of your company’s competitors. Though these are rare circumstances, they do and can happen.

To Outsource Or Not To Outsource

To outsource or not to outsource: that is the question. Given the facts – the pros and cons of outsourcing, should your company outsource or not. As have been said, this all depends on the situation. If a company has the ability to stand alone by itself since it has all the tasks covered, then there may not be a need to outsource tasks.

However, if you think that the company needs to put more effort on the core competencies of the company rather than the non-core aspects, then you may opt to go for outsourcing.

Nowadays it is not unusual for people to hear the term outsourcing. This is true especially when it comes to businesses. However, as common as the term may seem, only a few people know what outsourcing really means and the clockwork behind it.

What is Outsourcing

Basically, outsourcing is getting into an agreement with other companies or a person to do a specific job or function. Today, most organizations, especially big ones, are outsourcing in some way or another. Most jobs that are being outsourced are those that are not considered as part of the core of their business. For example, a bank may outsource its landscaping and janitorial operations to people or companies that specialize in those areas given that they are not related to banking. The companies or people who provide these outsourcing jobs are what is known as third-party providers, more commonly called as service providers.

Outsourcing has been existent ever since specializations in different fields of works arose. Before, companies made use of the outsourcing model to do narrow functions an example of which is the payroll or billing. It has been observed that outsourcing these processes to a company that specializes in a specific area, having the right facilities, tools and personnel, gets the job done efficiently at the least amount of cost.

Different Forms of Outsourcing

There are several forms of outsourcing. Companies and other organizations employ the help of service providers to take care of different business process one of which is benefits management. There are some organizations however who outsource whole operations. The most common forms of outsourcing that handles this are IT Outsourcing (ITO) and Business Process Outsourcing (BPO).

BPO covers outsourcing such as human resources outsourcing (HRO), call center outsourcing, claims processing outsourcing and finance and accounting outsourcing. These kinds of outsourcing usually involve contracts that span to a number of years and backed up with millions of dollars in financing. People performing the jobs internally for the client company will then be transferred to the service provider and eventually become their employees.

How Outsourcing Works

There are 4 stages that cover the process of outsourcing. First stage is strategic thinking. In this stage, the philosophy of the organization when it comes to outsourcing activities is developed. Second stage is evaluation and selection. In this stage, the company decides on what projects are to be outsourced or not. Possible locations and the service providers to do the job are also discussed.

The third stage is the contract development. Everything is put into black and white so as to legalize the whole process. This includes service level agreement and pricing terms. Fourth stage is outsourcing governance or management. This stage is for ensuring the refinement of the relationship between the client company and the outsourcing service providers.

The success of an outsourcing project depends on three factors: good and constant communication to concerned employees, executive-level support in the client company for the outsourcing mission, the ability of the client to manage the hired service providers. An outsourcing professional responsible for the client company and the service providers should be equipped with skills in different areas.

Such as project management, communication, negotiation, flexible to changes when the situation calls for it, ability to understand the contract’s terms and conditions and also the SLA or service level agreements.

Offshore outsourcing is simply defined as outsourcing to outside countries. Some people may think that the process of offshore outsourcing is a walk in the park producing large sums of profits. This notion however is erroneous. It takes a lot of work and initiative to make offshore outsourcing work and produce desirable results. It involves choosing the right model of offshore outsourcing that would fit a particular business need or situation.

Choosing the right model of offshore outsourcing is a very critical phase that companies undergo. Any decision made can either make or break their business options offshore. Making the decision on what model to choose involves aspect of selecting which country, economic conditions of a country, international business strategy, and outsourcing strategy.

There are currently three models of offshore outsourcing that are popular among businesses. These three are outsourcing to a service provider, joint ventures and subsidiaries.

Outsourcing To A Service Provider

Outsourcing to a service provider is the most evident offshore outsourcing model. It has a lot of coverage that range from small projects to multi-year contracts that amount to millions of dollars.

The simplest form of outsourcing to a service provider is onsite subcontracting. In this form, a company assigns its skilled personnel directly at the client’s site. The people assigned will then become part of the client’s team. This form of offshore outsourcing is perhaps the simplest and is commonly used by small organizations that are tied with the client company.

Another form of outsourcing a service provider is pure offshore projects. In this form, the scope of the functions is properly defined and work can be done remotely that requires little to no supervision. A good example of this is assigning work to small organizations or even to individuals, freelancers as they are commonly called. With the help of online tools, projects can easily be sent and received by hired firms or individuals all over the world.

Offshore outsourcing individual projects is another form wherein a certain function is subdivided into smaller chunks to be outsourced to vendor companies. This is usually assigned to vendors with whom the company has close ties with.

Joint Venture Offshore Model

In this model of offshore outsourcing, one organization establishes a relationship with a local company wherein both companies contribute to their resources. The main purpose of this goal is “I lend you my strength and you lend me yours.” This creates a win-win situation wherein both companies can gain something from the tie up. With this kind of setup, the client organization will be able to minimize the risks of offshore outsourcing while on the other hand the local firm is given the opportunity to work with a large company scaling up their value chain.

The joint venture offshore model is sometimes considered as the stepping stone of the client organization to move on to the next offshore outsourcing model which is the subsidiary offshore model.

Subsidiary Offshore Model

From the joint venture model, a company may transcend to the subsidiary offshore model. However, it is also possible for the client company to move directly with the subsidiary offshore model without passing through the joint venture model given that they have enough confidence and are comfortable with tackling the local market. The most challenging part in this kind of offshore outsourcing model is the general management of the onsite units especially the staff.

Conclusion

Offshore outsourcing is not as easy as some people may think it is. It needs thorough planning as well as making the right decisions. This includes choosing the right offshore outsourcing model that your company needs. It is even possible that a hybridization of the models is needed just to suit the needs of your organization. So plan well and choose well.

When applying for jobs online or even when just simply browsing, a word seems to jump out a lot these days – “outsourcing”. It is one of the most popular terms today, especially in the world of business. Basically, it is subcontracting a set (or sets) of services to a third party. Call centers, automobile companies, and other enterprises are now joining the outsourcing, as well as off shoring bandwagon.

Why Businesses Opt for Outsourcing

Generally, companies go for outsourcing to be more cost-effective, or to gain access to skills that are not readily available within the confines of their enterprise. Summing it up, some companies seem to have the opinion that outsourcing could provide the needed resources they lack, and immediately, and that it would hurt less in the labor and manufacturing costs area. Actually, a lot of the reasons why outsourcing is gaining popularity go parallel with the various advantages that it provides.

Advantages of Outsourcing

Outsourcing seems to offer benefits that could mean success to businesses, not to mention their survival, in this cutthroat world. The most pronounced advantage to this method would be the cost-cutting effect it would render. Assembling companies, say automobile or other machinery ones, simply import already-manufactured parts and just put them together. It lessens their costs of production, and also, perhaps the accumulated interest when purchasing raw materials.

If they simply buy a large amount of components in one go, then store them in their warehouses, there will only be one percentage of interest to pay for. Along with this, outsourcing also results to cost re-structuring when it changes variable costs to variable fixed costs. Moreover, labor obtained from outsourcing also tends to be cheaper.

Together with enjoying reduced costs when simply bringing in finished parts and assembling them, doing so would also mean a speedier production. Compare having to make lines on a clean, blank sheet of paper to make graphs to already having graphing paper ready and merely inputting points and lines and bars. Clearly, having ready-made components stowed away then accessing them, and simply putting them together would be faster. Manufactured goods could be sent to the market immediately, and this means instant profit (providing it sells well).

Speaking of time, outsourcing also enables a seamlessly twenty-four hours a day, seven days a week kind of service. Since outsourcing is availing of a service from a different location, this could mean different time zones as well. For example, when a Group A’s work hours are over, a certain Group B from across the globe can hop in and take it from there.

Now, outsourcing is a good way to ensure the quality of work output. Outsourcing not only provides a company a way to legally (and easily) access intellectual property, it also enables enterprises to tap into expertise pools. As already mentioned, outsourcing is a way for companies to gain skills that can be too taxing, not to mention resource- and time-consuming if they were to develop them inside the organization.

It is also part of the procedure to have contracts that ensure quality service and products. Monetary penalties or some other form of punishment are usually provided for when failure to comply occurs. This provides a constant pressure of doing a job well.

Looking at these aforementioned reasons, it is no wonder now why outsourcing is very popular these days.

Outsourcing is an arrangement wherein a company subcontracts services to another company. The aim of this is, if not to cut costs, to employ skills that are not available in-house. Today, the increase in the number of outsourcing companies has put outsourcing in the spotlight, and debates on whether it is undesirable or desirable have been many. Summing it up, a lot of commercial companies are all for it, while employee unions are often against it.

Business enterprises usually opt to go for outsourcing for the following benefits:

(1) Cost savings, including cost re-structuring. Businesses become successful when they are able to minimize costs, and outsourcing provides this advantage. For example, an automobile company can cut on their expenditures if they buy the parts they need, and simply put them together.

(2) Quality control. By outsourcing, companies are able to tap better into pools of expertise and gain access to intellectual property, as well as sustainable sources of skills. Moreover, this method avoids the time-consuming process of training to develop the particular services in-house. Also, by providing new service-level agreements in their contracts, enterprises are able to make sure that the quality of the outputs or products isn’t lost. These contracts usually contain penalties or legal redress for transgressions.

(3) Time-related advantages. It is possible that services are made available everyday, at any time of the week. This is achievable because the services can be done in different locations with time zones. When the organization from Country A goes off-duty, the organization from Country B can take over. Not only that, a product can also be speedily developed and marketed because of outsourcing.

Going back the automobile company example, they can stock up on the different parts of cars in their warehouses, and just assemble. There is no time needed to manufacture the parts, and they are always at hand in their depots.

Unions, on the other hand, argue that outsourcing harms a local labor force. Outsourcing results in fewer jobs, and this can be observed everywhere. This happens because services that can be done in home organizations are now shifted to other locations, especially to countries that work for cheaper labor.

Consequently, the labor rates will decline, especially since there will be competition for jobs. Unemployment will definitely affect a country’s economy. There are also some complaints that the true business value of services aren’t realized and so aren’t paid enough for. Some take it further and call it exploitation of lower-paid employees.

In another angle, language barriers are eyed as being detrimental to the quality of service. When the services are drawn from places with different culture or when the first language is dissimilar, it could do more harm than help.

Furthermore, it is possible that since data is moved around, leakages or even misuse of information can happen. There was a case before of bank accounts being tampered with when call center workers were able to get a hold of customer accounts.

There also exist claims that outsourcing is actually counter-productive, and that instead of purchasing actual technology to improve the company, enterprises are instead, resorting to outsourcing. This could lead to dependency.

In conclusion, there are two sides to a coin. To outsource or not is up to the company. Whatever methods they choose have both good and bad effects, although the good part will mostly be enjoyed by the business enterprise.