The outsourcing industry is getting bigger every year, with more business owners use this approach to manage their business and help hasten growth.
While it seems like a good idea to use for practically any type of business, it is important to understand some of its most common advantages and disadvantages and how does it fit into a business.
Outsourcing is a lucrative option for growing businesses, providing several benefits. On the other hand, getting into outsourcing also has its pitfalls.
Some of its advantages include the following:
- Increase in business ROI
- More time for business management
- Easier employee management
- Access to a wider pool of talents
- Improved efficiency
Here are some of outsourcing’s most common disadvantages:
- Conflict in labour standards
- Differences in work ethic
- Privacy concerns
- Task monitoring issues
- Compromise in quality
Increase in business return on investment (ROI)
One of the main reasons why businesses choose to outsource is to maximise business funds, ultimately increasing the business’ total profit.
Businesses can hit two birds with one stone: relatively cheap labour costs in countries where they choose to outsource added with the savings earned from it that can instead be spent on improving the business’ services translates to higher sales and increase in ROI.
Outsourcing also gives additional job opportunities, especially for developing nations. While some might say that this isn’t beneficial to the home country since it leads to lesser job opportunities, outsourcing paves the way for higher employee wages and better benefits in the countries where businesses outsource.
Eventually, this bridges the gap between developed and developing nations.
More time for business management
One of the more obvious advantages of outsourcing is that it creates more time for businesses to focus on developing and implementing strategies for business growth.
If a business decides to outsource its IT operations to a specialised team of IT experts, for example, the business will have more time to focus on tasks that are essential to improving the business.
Easier employee management
Although it might be hard for businesses to have direct interactions with outsourced employees, particularly for businesses who offshore, this lack of interaction between businesses and outsourced employees is actually an advantage as far as businesses are concerned.
This barrier allows business owners to have an objective view of their employees performance and how they accomplish their tasks without any hint of personal bias.
Ultimately, outsourcing allows businesses to better gauge if an employee is working for the best interests of the business or if it’s time to let go of an employee who underperforms.
Access to a wider pool of talents
Businesses who choose to venture in outsourcing can easily have access to a bigger talent pool—especially for offshoring businesses.
Business owners have the opportunity to introduce foreign talent and inject their skill set into their business, bringing diversity into the business and giving it more avenues for growth as compared to hiring employees locally.
With outsourcing, business processes become more efficient since tasks are carried out by a specialised team composed of experts in a particular field.
For example, if a business chooses to outsource its HR services to a subcontractor which specialises in human resources management, the business will be able to operate more efficiently without having to lose focus on building the business.
Conflict in labour standards
While it may be beneficial for businesses to outsource some of their internal tasks, business owners might have to deal with conflicts in labour standards especially when choosing to offshore.
Business owners might find it hard to adjust accordingly to these different labour standards without risking the quality of the accomplished tasks.
It is important for business owners to have a good understanding of all the relevant laws and standards in a country where they plan to outsource before actually venturing into outsourcing. This prevents business owners from encountering any labour-related mishaps.
Differences in work ethic
Different countries have different cultures. While diversity has its advantages, business owners also have to deal with the reality that these differences can carry over to the employee work ethics., Any negative facets of these cultural differences might take a toll on the business as far as production is concerned.
Businesses must then strive to create a positive work environment for their outsourced employees in order to make up for any challenges that these work ethic differences might bring. If business owners succeed in implementing a positive environment, this will have a positive effect on the employees’ productivity levels—which means better output for the business.
Employers that outsource their labour to foreign countries might have to deal with intellectual property (IP) and privacy issues. Countries have different rules and regulations when it comes to IP protection: if the country where a business chooses to outsource have IP laws that are somewhat lax, this might be a problem for tech-heavy businesses.
In the event of compromises in intellectual property, businesses can’t exactly take legal action. It’s best for businesses to enter into legal agreements with employees so that all kinds of possible breaches are avoided.
Task monitoring issues
Since outsourcing involves remote workers from around the world, problems in monitoring employee performance and the accomplishment of deliverables can arise.
While certain technology such as video calls and direct messaging allows employers to be regularly updated with their employees’ performance, nothing beats a personal interaction. This is one advantage that in-house employees have against remote employees.
Compromise in quality
Aside from limitations when it comes to monitoring, ensuring the quality of output produced by remote employees is a major concern. Companies which outsource manufacturing tasks can expect a lower quality of products coming from another country since the performance and quality made by third-party outsourcing companies might not be able to meet the standards of the home company—taking a toll on the business’ overall output.
Business owners also have to be prepared to face the fact that delivery of products and other output might take considerably longer with outsourced employees as compared to those employed in-house.
Take note of the “4x rule”, which simply states that businesses must make an effort to eliminate the time gap between remote workers and the home business by creating a schedule which will hasten the delivery of products.