What is Outsourcing?
You may be asking yourself “What is outsourcing?” The answer is simple. By definition, outsourcing is the act of having an individual or company handle part of your business or complete some of the functions of your job from outside of your workforce. Where global market size is concerned, outsourced services reached as high as $76.9billion in 2016 and is well on a path to keep growing over the span of 2017. But now we’ve answered ‘what is outsourcing?’ we’re faced with two other questions: Why are outsourced services so high? And why do companies outsource in the first place?
Periods of high demand aren’t uncommon in any business. Whether it’s through seasonal demand or just through natural business growth, outsourcing services can give businesses a more cost-effective solution to high demand than taking on new staff for short periods of time. Similarly, outsourcing can provide a temporary workforce for any skill demands that your business may face. By outsourcing, you’ll have a wider range of skilled individuals available to you, all without the full cost of hiring and training a new employee. Outsourcing is most common when a business has temporary needs. Short-term tasks or the need for a piece of equipment can be far more cost effective when outsourced than when paying out for something that your business may not benefit from beyond the duration of the task at hand.
What impact does outsourcing have on businesses?
The global market is a competitive place to be, and outsourcing companies can have the extra edge that they need. The lower cost of hiring staff in emerging markets is not only helping businesses to keep their expenditure low, but hiring and outsourcing can also give businesses access to foreign markets through overseas branches. But how is this effecting specific markets?
In Law, 19.3% of firms in the U.S alone are outsourcing non-lawyer functions. From finance, through to administration, call centres and other back office functions, outsourcing isn’t an uncommon thing in the world of law. 6.6% of law firms are even going as far as to outsource actual legal work where demand may be high or internal resources may be low. IT and Technology Jobs in particular are a heavily outsourced function. Despite the jobs and skills needed being similar to those in the UK, the wages are much lower abroad. A company can save on expenditure by outsourcing, with workers in China getting paid only around £5,306 a year, and only £6,443 in India. Even Human Resources are being outsources, with companies hiring other businesses to manage personnel functions, health benefit plans, retirement plans, compensation insurance and more.
But call centres are changing. Where the past two decades have been filled with businesses outsourcing their call centres to China, India and the Philippines, the wages only have a 15% difference and so businesses are starting to move back to the UK!
The advantages and disadvantages of outsourcing.
There are advantages and disadvantages of outsourcing, as there is with any business plan or process. While both are important to think about, let’s start with the positives outsourcing companies can face! The advantages of outsourcing are widespread, with the process allowing businesses to focus on the important core processes and aims by having the time consuming back office and administrative functions completed out of house. Businesses can also make expenditure savings through outsourcing. Sending labour and operations overseas can reduce wage costs, and give your company more budget to work with within your business, which makes outsourcing an attractive option for businesses that may be on a tight budget or strapped for cash. The advantages of outsourcing are many, and whatever the nature of your business, outsourcing can help you regain control over your company. Every business can find themselves overwhelmed, and outsourcing some of your business can help you put your resources back into the core, vital functions of your business and regain control over your assets – whether that’s through gaining expertise you may need or simply by having back-office functions catered for.
However, the disadvantages of outsourcing are just as important to consider. Losing control over certain aspects of your business can be difficult, and can pose risk. Similarly, quality problems are an issue when you don’t have the same level of control over those doing the work. It can take longer to have a task done, even if it does work out to be cheaper. Another of the disadvantages of outsourcing is that confidentiality and security of sensitive documents or information can also be put at risk when outsourcing your business, especially where administrative duties are concerned. A contract drawn up through a lawyer can help this, but the legal fees it will take to do this can be a hidden cost that most companies may not have even considered. While the disadvantages of outsourcing are important to consider, it’s up to you and your business as to whether the advantages of outsourcing outweigh them.
The most common services that outsourcing companies choose.
Over 4% of the world’s population work in call centres providing telemarketing services, and this job in particular is one that is heavily outsourced. Overseas call centres prove to be beneficial when it comes to businesses, particularly international firms and with multi-language speaking operators and more variation of office hours, it’s easy to see why this particular service is so commonly outsourced. Accounting is another commonly outsourced service, especially in the way of businesses that may not have the staff on hand to manage their accounts. Outsourcing to ensure that accounts are in check and financial services are within regulations can save companies around 20-40% of costs, and even 77% of retail banks are outsourcing some of their business to service providers.
Creative processes are also commonly outsourced. Writing in particular is one of the easiest markets to outsource. 30% of B2B marketers believe that external agencies are a top resource for content creation, with only 25% of marketers not outsourcing any form of content creation. Graphic design is the second most outsourced form of content marketing, with 41% of companies outsourcing rather than hiring in house.
Countries commonly outsourced to.
When it comes to outsourcing, trends in the countries that are outsourced to are easily found. In the Philippines, for example, their global market share of Business Process Outsourcing rose from 4% in 2004 to 12.3% by 2014, with predictions saying that this could rise to 19% as early as 2020. Thailand is another popular outsourcing location, and perhaps the most popular currently. Ranking 6th in the A.T Kearney Global Services Location Index, it is estimated that around 100,000 people are currently working in Thailand in software and computer services, with the workforce being mostly under 30.
China has always been a common country to outsource to, and this is no different today. The ‘made in china’ stickers we see are still as common as ever, even after the dip in individuals who believed it made for cheap and efficient outsourcing. China has become a hub for Global Supply Chains. Malaysia is a very safe business environment, making it compete with the other three countries mentioned easily. The good quality human capital has low cost but high benefits for outsourcing. The talent pool is huge, and shared-service centres make for a productive ecosystem.
Whether you’re looking to outsource overseas or just need a little extra help during peak times, the advantages and disadvantages of outsourcing are important factors to consider but for relief during high-demand or access to skills for short time periods when they’re needed, outsourcing really can hold its own as the ideal solution.