Outsourcing is the complete process of utilizing important services from the companies outside the country which are performed within a firm and which is a common concept to entrepreneurs too. There are many companies which works for outsourcing of their payroll, distribution, accounting and many other significant functions, mostly because they don’t have any other option left. There are many large companies or organizations which outsource business functions for cutting extra costs. There is an increased trend of outsourcing these days which is the reason why most of the companies are evolving for the fulfillment of the outsourcing business needs.
Outsourcing has completely revolutionized the business processes these days for cutting additional expenses. In the beginning, outsourcing was only limited to functions that are low risk such as data entry and payroll processing. Later on customer operations were started out getting outsourced on larger scale.
There are many global companies who wanted to utilize the cost benefits of outsourcing and all high-end functions related to it like healthcare BPO, IT services and also research services for reliable companies for which they outsource business process. It has become a significant part for both the large and small business companies who devote them to outsourcing and business operations to some of the specialized vendors.
Reasons of outsourcing business processes
Major factors which causes increase in the growing trend of outsourcing include following:
- Easy availability of cheaper labor, which does not compromise on output quality.
- Feasibility and ability for concentrating on the business processes.
- Absence of skilled labor in some parts of the business processes.
All of the above mentioned factors contributes to the outsourced partners across various locations in world. The expertise in communication capabilities, technical expertise and effective financial packages in different locations in the world.
Advantages of outsourcing
Not every business understands the advantages of outsourcing. Outsourcing can save lot of money, but it is helpful in also many other aspects. Due to the flat economy in many countries, they outsource business solutions and huge layoffs were kept in-house. Outsourcing can provide countless advantages to businesses:
Controlling capital costs
Companies that do everything independently conduct lot of research on various aspects such as distribution and marketing expenses which passes in to their customers in future. Competitive advantage can be gained with the help of economy of scale and cost structure which supports the business operations of your firm.
Decreases labor costs
It can be quite expensive to hire and train staff for peripheral projects or short-term and temporary employees also don’t work so hard and never live up to the expectations. Outsourcing helps in focusing on your current human resources when you need them most.
New projects quickly
A reliable firm has all the resources for starting a new project immediately. Handling similar project in-house requires months or week for recruiting and hiring right people, training them and providing them all the support that is required by them. If a project requires significant capital investments, the startup process can become extremely difficult.
Focus on core business
Each and every business has some limited resources and every manager has limited amount of attention and time to outsource business solutions. Outsourcing helps your business in shifting its main emphasis from peripheral activities to some significant work that is helpful for serving customers. It also helps managers in setting out their goals.
There are many firms which cannot afford to match in accordance with the support services provided by in house team that is further maintained by larger organizations. Outsourcing is also helpful for the smaller firms which act big by providing them access to similar economies of efficiency, scale and expertise that is enjoyed by the larger organizations.
It is understood that business investments require larger amount of risk. Competition, markets, financial conditions, government regulations and technologies transform quickly. The outsourcing providers manage and assume this risk for you because they are at good at making decisions regarding business risks in special expertise area.
Disadvantages of outsourcing
Loss of confidentiality
If an organization outsources HR services, it carries the risk of the loss of confidentiality. Thus, it is important to keep a check in its place for avoiding loss of confidential data.
Managing business control
Losing the management control of business functions means you don’t have any control over business activities that are outsourced. Sometimes it is easy to conduct these processes inside an organization rather than with any other outsourced partner.
Many important issues can arise if the providers of outsourcings do not have proper processes and you are not experienced for working in an outsourcing relationship.
There are many hidden costs linked with outsourcing processes that are involved in signing a contract and in a similar manner outsourcing from outside the countries can pose a serious threat.
Lack of customer emphasis
The outsourcing vendor always caters to the need of many different organizations at time. During these situations vendors lack complete emphasis on organization tasks.
Future trends for outsourcing
- Outsourcing relationships have become more standardized and they have become more people and process driven rather than rates and prices.
- The increasing cost pressures will also create ways for the outsourcing contract which act in a flexible manner.
- Newly established businesses will observe higher outsourcing adoption for the reduction of operational in efficiencies and increasing their time to market.
- The increasing costs of raw material, oil and transportation costs will make it very important for most of the companies to have a look at outsourcing for keeping their costs at extremely low level.
- More high-end critical business functions are expected to be outsourced in the upcoming time.
Outsourcing will continue to survive in upcoming time as well as it provides complete access to the specialized skills and saves on effort and time, which can be further utilized into business ventures.