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Top 10 Reasons to Outsource

Supply Chain Digital breaks down the Top 10 reasons that companies choose to outsource

10.) Flexibility

With uncertainty surrounding today’s global economy, companies need the ability to expand or downsize quickly. Unfortunately, that’s not always possible with today’s labor laws, as employee lawsuits are at an all-time high. By outsourcing, companies take that risk away, allowing businesses to adapt more quickly to rising or slowing demand.

9.) Efficiency

Odds are, your company isn’t an expert in IT management, HR services or accounting functions. Companies can spend weeks, sometimes months, just finding people for a particular in-house department. From there, you’re forced to train people and really adjust on the fly. At the end of the day, businesses can be left with a hefty bill with little to show for their money. By simply outsourcing basic business services, companies are able to jump right to the finish line when building a department.

8.) Peace of Mind

While the uncertainty surrounding outsourcing contract negotiations can be unsettling, companies often feel a sense of relief once people start signing on the dotted line. Contractual agreements offer protection for both parties, and remove any nasty human interactions that can take place when in-house workers are dismissed. Outsourcing companies can also be held responsible for negligence and poor performance in legally binding contracts, further aiding the outsourcing drive.

THE BENEFITS OF OUTSOURCING

7.) Freeing Up Internal Resources

Why waste people in areas that don’t focus on core business functions? Capital and people are becoming higher commodities in a difficult financial environment, and companies need as many good people as possible to focus on what really matters with a business. By outsourcing lesser services, companies free up time and capital to move their business forward.

6.) Risk Management

Going along with No. 10 on this list, risk management is another top reason why companies choose to outsource. If a business is launching a new product or offering something new, having employees in developed nations offers little in terms of risk management should the product not do well on the open market. With offshore workers, operations can quickly be fine-tuned to meet a skyrocketing demand or a demand that never comes into fruition.

5.) Improved Service

Believe it or not, outsourcing can actually help improve service. Why waste time and valuable resources training an in-house customer service team when there are professionals to be hired that can usually do the same task for less money? IT performance, HR functions and financial services are some of the most commonly outsourced jobs, and companies all over the world have been working in those specific fields for years. Having an offshore company handle non-core business activities usually leads to better service.

4.) Tax Breaks

Check out our piece on the Top 5 Tax Efficient Outsourcing Locations, and you’ll get a clearer picture on why companies choose to outsource some of their operations. By handling business overseas, businesses are able to take advantage of lower corporate tax rates. Countries like Ireland, Hong Kong, Singapore and Taiwan have very low corporate tax rates, which can have a dramatic impact on a company’s bottom line should they outsource certain services there.

3.) Lower Regulatory Costs

Not only can companies pay offshore workers less, but significantly lowering regulatory costs also drive down the outsourcing price tag. Programs like Social Security, Medicare and unemployment insurance don’t exist in many developing countries, which drive down outsourcing costs further. Even if an outsourced worker makes the same as his/her American or European counterpart, lower regulatory costs mean that it’s usually much cheaper for the business to go with the overseas employee.

THE PROS AND CONS OF OUTSOURCING

2.) Focusing on Core Business

The second biggest reason companies choose to outsource is to free up time to focus on core business processes. Without having to run an accounting department or an IT operation, companies are able to direct their scope to work on what really matters inside their business, increasing work flow and allowing managers to finish projects faster.

1.) Lower Wages

As the old saying goes, it’s all about the money. The fact of the matter is that most companies wouldn’t be sending jobs overseas if they weren’t saving money. According to a 2010 study, India’s per capita income is $1,371, good for 133rd in the world. By comparison, the United States placed tenth, with a per capita income of $46,860. Lower wages are a huge factor when outsourcing, and the top reason companies choose to send parts of their operation overseas.

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