Advantages And Disadvantages Of Outsourcing

With the advent of globalization, more and more jobs are being outsourced. The outsourcing trend has brought with it huge economic benefits to many countries and their populations. Outsourcing is now more about high quality rather than cost. Companies are fast scaling up to match or surpass international quality standards and are ensuring that they stay ahead through stable quality systems and continuous quality improvement.

Top Outsourcing Countries

Top outsourcing countries include Brazil, Bulgaria, Chile, China, India, Indonesia, Malaysia, Mexico, Philippines, Singapore, Thailand, and Vietnam.

Global Outsourcing Market

According to McKinsey, the global “addressable” Business Procurement Outsourcing or BPO market is worth US$122 – US$154 billion, of which: 35-40 retail banking, 25-35 insurance, 10-12 travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma, 10-15 others and 20-25 is finance, accounting, and HR.

While most of the multinational corporations are in support of outsourcing, the local unions are often against it. Let us take a look at the advantages and disadvantages of outsourcing :

Advantages of Outsourcing

1. Cost Savings – Cost savings, including cost re-structuring. Businesses become successful when they are able to minimize costs, and outsourcing provides this advantage. For example, an automobile company can cut on their expenditures if they buy the parts they need, and simply put them together.

2. Greater Expertise – By outsourcing, companies are able to tap better into pools of expertise and gain access to intellectual property, as well as sustainable sources of skills. Moreover, this method avoids the time-consuming process of training to develop particular services in-house. Also, by providing new service-level agreements in their contracts, enterprises are able to make sure that the quality of the outputs or products isn’t lost. These contracts usually contain penalties or legal redress for transgressions.

3. Improve Productivity – It is possible that services are made available every day, at any time of the week. This is achievable because the services can be done in different locations with time zones. When the organization from Country A goes off-duty, the organization from Country B can take over. Not only that, but a product can also be speedily developed and marketed because of outsourcing, thereby improving productivity significantly.

4. Improve Efficiency – Going back to the automobile company example, they can stock up on the different parts of cars in their warehouses, and just assemble. There is no time needed to manufacture the parts, and they are always at hand in their depots, thereby improving efficiency.

Disadvantages of Outsourcing

1. Unemployment – Unions, on the other hand, argue that outsourcing harms a local labor force. Outsourcing results in fewer jobs and unemployment and this can be observed everywhere. This happens because services that can be done in-home organizations are now shifted to other locations, especially to countries that work for cheaper labor.

2. The decline in Income – Consequently, the labor rates will decline, especially since there will be competition for jobs. Unemployment will definitely affect a country’s economy. There are also some complaints that the true business value of services isn’t realized and so aren’t paid enough for. Some take it further and call it exploitation of lower-paid employees.

3. Decline In Quality – Language barriers are also eyed as being detrimental to the quality of service. When the services are drawn from places with different cultures or when the first language is dissimilar, it could do more harm than help.

4. Security Leak – Furthermore, it is possible that since data is moved around, leakages or even misuse of information can happen especially in sensitive industries such as those in the technology sectors.

In conclusion, there are two sides to a coin. To outsource or not is up to the company. Whatever methods they choose have both good and bad effects, although the good part will mostly be enjoyed by the business enterprise.