Outsourcing (sometimes referred to as “contracting out”) is a business practice used by all enterprises, small or large regardless, to help reduce costs or improve efficiency by shifting tasks, operations or jobs to someone outside your company for a specified period of time. The functions that are ported over can be performed by the third party either on-site or off-site the business.
Examples of Outsourcing
Outsourcing is a cost-saving measure all companies consider nowadays, and the practice can have an amazing impact in different kinds of sectors.
For example, in the U.S., manufacturers have considered hiring Philippine outsourcers to do some of their jobs in countries overseas like China, India, Philippines or in Bangladesh. This practice is also referred to as “offshoring”, which involves outsourcing to an outsourcing firm in a country aside from the one in which the firm is based in order to save on costs, especially labor costs.
In addition, outsourcing can also involve the buying of components from another source, for instance, components for computer equipment. These components can be bought for a cheaper cost than it would be for the company to make themselves, and the component bought outside may be of a higher quality.
IT services is also another job that can be outsourced., For instance, cloud computing and software-as-a-service (SaaS) offer enterprises access to computer services and tools that were once managed in-house by a company’s own IT department.
The Benefits of Outsourcing
Some of the most common benefits if outsourcing is that it can free up cash, personnel, facilities and time resources for a company who considers to outsource.
It can also result in cost savings from lowered labor costs, taxes, energy costs and reductions in the cost of production. In addition to that, an enterprise may also employ an outsourcing strategy in order to focus more on its core business competencies. This will allow the company to devote more of its resources to what it does well, which can help improve both efficiency and increase its competitive edge. Also, production can be streamlined and production time reduced while lowering cost on operations.
All non-core functions of the business that’s being outsourced will usually go to outside organizations for whom that function is a core business competency, thus further benefiting the business through the improvement on management of those functions.
Lastly, a company can also have a choice to outsource in order to avoid government rules and regulations or mandates, examples of which are environmental regulations or safety regulations and requirements.
Disadvantages of Outsourcing
Although outsourcing has a ton of great benefits, it can also present some disadvantages as well. The relationship with the third part that takes on the outsourced functions must be managed. This includes negotiating and signing of contracts, which would require a great deal of time and the involvement of a company’s legal counsel, as well as the everyday communication with and oversight of the outsourced function.
Lastly, security is also an important matter in outsourcing web development or any non-core job you have on hand. The relationship will inevitably involve the third part organization’s access to sensitive data, trade secrets and other confidential information that’s needed to perform its contracted function.