What Is Outsourcing?
Outsourcing is a business practice where a company hires an outside party to create goods and perform services that can be done by the company's own employees.3 min read
Outsourcing is a business practice whereby a company hires an outside party to create goods and perform services that traditionally might have been performed by the company's own employees and staff in-house.
How Does Outsourcing Work
Outsourcing has been used by many businesses since the early 1990s. Most freelancers or outsourcing providers fall into one of the following categories:
- Inbound Customer Service
- Outbound Telemarketing
- Web Design & Development
- Online Marketing
- Back Office / Admin Support
- Virtual Assistant Services
- Accounting and HR Management
- Marketing & Sales Support
The most commonly outsourced service currently is telephone customer service, which major corporations outsource to countries where the cost is a fraction of what American companies charge. India, China, and Malaysia are the top three countries to which companies outsource.
Cloud services account for as much as one-third of the outsourcing market, and that number is growing. These services are offered by traditional outsourcing providers and others.
12 Benefits of Outsourcing
- Telemarketing is often the best way to spread the word about a new product or service you are launching, but your company may not have the skills and resources needed to do this effectively.
- Outsourcing is commonly used in industries where there is a shortage of labor or where the cost of labor is too high. Given the rapid growth of the technology sector, outsourcing has become a major way for companies to acquire development talent and teams that are unavailable domestically.
- Outsourcing allows small and medium-sized businesses to gain services and skills which are difficult for them to develop.
- The biggest advantages gained through outsourcing are time and cost savings.
- By outsourcing, companies can focus on their strengths and have some detailed operations taken care of by outside experts.
- There can be many reasons why companies adopt outsourcing, but the biggest advantage seems to be saving money. Companies may avoid expenses in overhead, equipment and technology by adopting outsourcing.
- By outsourcing non-core activities, they will be handled more efficiently by specialists. This can lead to faster turnaround times and an improvement in competitiveness and operational costs.
- A specialized outsourcing company will often have world-class capabilities and use the latest technology that is too costly for a growing company.
- Outsourcing provides greater flexibility to meet changing business and commercial conditions.
- With domestic outsourcing, employees may well have the opportunity to keep their jobs and transfer to the outsourcer. With offshoring, there may well be layoffs.
- Supporters of outsourcing suggest that companies will allocate resources where they are most effective and that it helps support free-market economies on a global scale.
- If a company is looking to expand through outsourcing, foundations can be established in other countries in a cost-effective way.
8 Disadvantages of Outsourcing
- Outsourcing can be helpful to a company's profit margins but may have either benefits or drawbacks when it comes to its productivity and performance.
- Some of the risks associated with outsourcing include: lack of business knowledge, language and cultural barriers, time zone differences, lack of control
- If the outsourcing service company has problems, this may have a catastrophic effect on your production.
- A successful outsourcing arrangement can only occur when there are benefits for both the company and its service provider. Outsourcing does have certain disadvantages since contracts with obligations must be signed, and this requires extra effort from the legal department. To avoid risks, there must be a clear contract between the outsourcing company and its service provider.
- Outsourcing contracts should not be of too long a duration unless there is a good deal of flexibility to handle uncertain situations.
- Security threats can occur when another party has access to a company's confidential information.
- Offshoring is one example of outsourcing where a company outsources services to a third party in another country. This is done typically to take advantage of lower labor costs. One negative effect of outsourcing offshore is that it increases US unemployment.
- When online retailers outsource technical support to non-English-speaking countries, their customers may have difficulty communicating with the phone operators. This creates customer dissatisfaction. In some cases, such operations have been shifted back to the US even though this is costlier.
If you need help with an Outsourcing arrangement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.