Outsourcing has become a common business strategy and is largely used by companies in developed countries to increase profitability by investing in developing countries where wages are relatively low, such as China, India, and Brazil, among others. Supporters of establishing subcontracting partnerships in other countries stress that the main reason is the savings that can be made since the same level of quality is obtained at a lower cost. This is due to a combination of elements, such as the high level of training and technical specialization possessed by those who perform the tasks delegated to subcontracting. In recent decades businesses have seen the fruits of both digitalization and globalization and are using the right tools. Businesses are now recruiting professional freelancers to collaborate with them from across the globe. More specialized technology, and consequently fewer manpower needs, is available to businesses than ever before.
According to a Deloitte 2016 Global Outsourcing Survey, more than 68% of companies are involved in outsourcing and are experiencing an improvement in productivity and quality as a result. Here’s why:
- 59% of businesses perceive outsourcing as a cost-effective method. 57% find it as a means of focusing on their best ROIs. A further 47% say it helps them solve issues with their efficiency.
- Outsourcing will soon become a common part of ordinary life, independent of whether or not the organizations that use it have office spaces. Indeed, in the past eight years, the global outsourcing industry has doubled and expects to grow exponentially in the coming years.
- In the end, 78% of industrial businesses in the world that use external service coverage are satisfied with the outcomes as well as all of their realistic advantages.
Outsourcing has become an enterprise of its own that provides both private and industrial services and goods. It's no secret that outsourcing has many advantages, with the main one being able to focus on the core concerns of your business. By saving time, operating costs, and salary costs, it gives managers time so that they can focus on the strategic aspects essential for the development of their business.
The company can become more reactive and flexible since its managers no longer have to manage time-consuming tasks that have little value.
Source: Deloitte Global outsourcing survey 2016
Outsourcing is a relevant decision for any company wishing to improve and increase its competitiveness in the market, and we see more and more adopting this strategy. There are many reasons:
- Providers have successfully managed to effectively help their customers develop their products in a productive and professional environment. To do this, the providers consistently work to master and develop a set of basic skills, thus enabling them to meet the many challenges while offering a wider range of services.
- Providers cannot afford their companies lagging behind technological progress and innovations! Whether it is materials, training methods, quality level, or good practices in general, companies specializing in outsourcing need to always be up to date.
- Specialized providers can make the necessary investments to be at the forefront of technological innovation, thereby reducing the time-to-market period and achieving ever shorter product life cycles. By outsourcing one or more services, a client’s company will benefit from these competitive advantages.
Why is outsourcing an ally of the company's competitiveness?
To guarantee the various advantages, each organization agrees to externalize according to its needs and objectives:
- Outsourcing offers companies a way to overcome competition in the market by hiring a service provider, but above all, a partner with the expertise and capabilities necessary to quickly market innovations;
- The presence of an experienced service provider will encourage companies to quickly enter new markets;
- By no longer having to invest funds in non-critical services, companies can grow thanks to a reduced financial burden, and consequently, react opportunistically in new markets;
- Finally, externalization allows businesses to concentrate on core capabilities and develop abilities that bring value to their consumers directly.
Why is it profitable?
Outsourcing can be profitable, but not all providers are able to measure up financially. Examining the good health of the financial statements of the suppliers to whom we intend to subcontract something is very important. It can help guarantee the future stability of the relationship that will be established between both parties while carefully avoiding those that do not offer a solid guarantee of stability and growth over time. Opting for an outsourcing policy in a process requires a detailed study to determine if owning one's own resources or going through a third party is more profitable. Nevertheless, the starting conditions can change over time, so it is very important to periodically check the costs associated with each situation and review the contract from time to time with the supplier.
When we begin to exam the issue more deeply, we see that the involved countries profit as well. The nation from which research is outsourced profits from the reality that many businesses/startups can succeed by exporting some of their company assets, enabling more companies to flourish and create more opportunities (as compared to the perception that outsourcing undermines employment opportunities). In addition, the government of the nation of the outsourcing company often profits from obtaining international revenues and from the creation of jobs.
Why is it popular?
During this dynamic and ever-changing era, outsourcing has modified business practices. Companies in developed countries such as the United States, the United Kingdom, Canada, and Australia, invest in outsourcing their peripheral business activities that are time-consuming. They instead use that saved energy in mastering the core aspects of their business. External suppliers are essential to start-ups, small-to-medium-sized businesses, and people in general.
Here are 5 reasons why is it so popular:
- Lower labor costs: It is one of the key reasons that employers want to outsource. If outsourcing is handled well, it has an immense effect on the income of the business and has the ability to greatly raise their earnings.
- Focus on core business tasks: Businesses can fully concentrate on their key business activities.
- Globalization: Outsourcing and offshoring have resulted in a vast number of developed nations, such as India, China, etc., earning global income and exposure to world-class capacities.
- Stress-free environment: Outsourcing frees up internal resources and lets the administrators concentrate on the main tasks which can be done efficiently.
- Reduce risk: Outsourcing also led to a reduction in risk for businesses, which is the key justification for outsourcing and raising profitability for companies.
Lower operational costs, refocusing on the core of the business, and flexibility remain the determining criteria in the choice to outsource certain activities of the company. However, these are traditional objectives alongside the objective of the vast majority of companies, which is to acquire new skills from service providers. It is important to note that an error caused by an outsourcing provider could have a negative impact on an organization. An error in this area can prove to be very costly, both financially and humanly, and it is very difficult to correct. Furthermore, the current popularity of outsourcing should not make us forget the existence of transaction costs between the two parties, even though they have dropped sharply in recent years. It's a strategy that is expected to last but will only benefit the stakeholders concerned if they know how to evolve with the market.