Outsourcing is a practice in which an individual or company performs tasks, provides services or manufactures products for another company. Basically outsourcing can be understood as an delegation of work form one organization to another organization with multiple objective. Sometimes the work is outsourced to increase the profit margin whereas many companies outsource their portion of work so that they can concentrate more on their primary product. The concept “outsourcing” came from the American Glossary ‘Outside Resourcing‘ and it dates back to at least 1981. There are many motives behind outsourcing work to other firm and it has been a common trend in western countries mostly in United States and United Kingdom to outsource their work to the countries where cheap labor is available. These countries have outsourced many customer service jobs as well as jobs in the information technology sectors like Data Entry Outsourcing, Data Processing, Computer Programming and Technical Support. The primary reason for outsourcing work by a firm is to increase it profit margin by reducing the cost of production, maintenance and support. A trend started in 1980 have not gained a monumental growth and now the outsourced workforce contribute nearly 10% of GDP in many countries.
The trend of outsourcing work was already present in companies when they used to outsource the smaller section of their work to other countries but with the onset of the internet the outsourcing industry bloomed and increased its share in world market. Initially companies used to outsource their work to a company located in the same area or country. The internet enabled these companies to get their work done from the third world countries. The internet is still inventing new ways to make the process of transferring the date and other important stuff in an easier and protected way thereby allowing the outsourcing industry to reach new height.
There are many type of work that can be outsourced by a firm and it totally depends on their requirement but there are some popular work that are widely outsourced are:
- Social Media Management Services
- Outsourcing Tech Support
- Tech Support for Startups
- In-App Support
- Smart Home Support Services
- Tech Support for IoT
- Inbound & Outbound Support Outsourcing
- Email & Chat Outsourcing
- Data Entry Services and Data Processing Services
The above list explains some of the popular services that ware widely outsourced across the globe. Now lets take a look at what are the advantage of outsourcing these jobs and why outsourcing is a good thing for your business.
- Cost-effective: The biggest advantage of outsourcing the work is that it is cost effective. During the last 10 years the outsourcing industry is consistently surprising those who work in Wall Street. Their are many firms in this field who went beyond the expected earning and surpasses many parameters. The biggest beneficiary of Outsourcing is the IT industry as it reduces the nature of the costs which is required to operate. The outsourced work is usually performed by the workers belonging from third world countries and they have necessary skills required to perform that task. The rate at which these workers complete their work is far less compared to the same work done by These outsourced employees usually cost less than their first-world counterparts, making them an interesting option to look into. Rates are usually paid by the hour or by the task, depending on the agreed conditions between your business and the outsourcing firm.
- Timeliness: With a high-speed internet and the number of programs and software available, telecommuting is easier than ever. The cheap communication methods like Hangout, Skype, Whatsapp has enabled the work to be outsourced in a transparent manner and communication to smooth. Now sometimes they host meetings with team performing the work, many incentives are given throughout the months to encourage employees. The outsourcing companies even work during at the same times as that of their client and they follow of all the timing protocols as done in respective time zones. For example most of the Indian company compiles with the day light saving of Western Countries. The workers working in the outsourcing company delivers the work within the delivery window and thereby enables the client to focus on the things that needs more concentration. Also by outsourcing your work you ensure that you don’t have to concentrate on the hassle full job of hiring the employees and then giving them required training. It is all taken care by the company who bags the outsourcing deal.
- Lessen risk. By outsourcing your job to a third company you reduce the risk of coping up with new technologies that are no much relevant to your business but you are required to do so as a small portion of organization requires them. For example you have a chain of clothing and apparels but to get the daily estimate of product shipped you need a dedicated IT team to take care. Then you should have proper backup of all the data as well as your website needs to be up to date in case there is an online customer. The this is a situation were many organization would like to concentrate on clothing department and outsource their IT department work to some other country. Now as the IT task is handled by some dedicated company the risk is reduced and is the perfect time for parent company to focus ion their main product.
- Get to resources not found internally. A major advantage of third world countries involved in Outsourcing Business is the availability of Skilled resource at low cost. There are many companies and start-ups who want to keep their cost of production as low as possible but they are not able to do so as the skilled labor cost in their respective country is very high. In case of India and China the same work is done by an Technical guy on a cost as low as 40% and with the same quality of work. This is very beneficial for the companies as they want to use the money provided by investors in an efficient way. Since the cost of hiring and training an employee is reduced by a huge margin the Outsourcing provides them with resources that they do not yet have and now they can use them in the most efficient way possible.
- Be able to hire top-notch skills. The World-class Outsourcing Companies have professionals trained and expert in different fields and technologies. They have the knowledge of latest technologies and how to implement them in required organization. Before implementation a case study is done to list all the pro and cons of implementation a specific technologies. The use of these newest technology always help the business to grow in exponential manner.
There has been numerous studies conducted and they all have indicated that outsourcing has had a minimal effect on job losses. Whether they adds up jobs or not is an matter of debate. The explanation varies form person to person as many think that the outsourcing is eating away their job. The current US Presidential Election debate also focused on the Outsourcing and Job. there are many reasons why a company chooses to manufacture its product outside United States. The corporate tax in United state us whooping 40% which makes it very difficult for companies to operate in United states. Now if company outsource its jobs they find it is less costly and better quality work is an advantage over it. The cost savings has a huge impact and often it is very significant. These factors allow the companies to outsource job outside and them sell the product in the same country where the company has its origin.
There are many assumptions that the cost-reduction and profit improvement often results in an increase in employment. For example a study conducted on Delta Airlines is a best example. In the year 2003 the Delta Airlines outsourced nearly 1,000 jobs to India. This step enabled the airlines to reduce the cost of operation by $25 million. The money saved by the airlines was used to fund 1,200 new reservation and sales positions in the United States. The overall move can be seen as a step to increase jobs. Also as mentioned earlier the outsourcing reduced the cost of production significantly if a mobile phone is manufactured in USA it would cost around $600 to $800. But if the same phone is manufactured in India and then sold in USA the cost of manufacturing in India would be somewhere $100. SO if the cost of production is less then the product is sold at cheaper price enabling more people to purchase them. But as not everything is ideal the companies use the outsourcing as a tool to fill their individual pockets. The reduce the cos of production still sell the phone or other product as if they were manufactured in USA. So for local residents of a particular company their job is gone and still they are purchasing the product at the same cost as if it was manufactured in their own country. The bottom line is that outsourcing results in lower costs for firms, greater profits for stockholders and lower prices for consumers.