What is outsourcing? Meaning, Advantages and Disadvantages

Table of Contents:-

  • Outsourcing Meaning
  • Global Outsourcing
  • Advantages of Outsourcing
  • Disadvantages of Outsourcing

Outsourcing Meaning

Outsourcing or mis-servicing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider. The client organisation and the supplier enter into a contractual agreement that defines the transferred services. The agreement involves, the supplier acquiring the means of production by transferring people, assets, and other resources from the client. The Customer agrees to receive the services from the supplier for the duration of the agreement. Outsourcing usually refers to the process of awarding a contract to a third party. Organizations commonly see outsourcing as the practice of contracting out a business function, previously performed in-house, to an external provider. In this sense, two organisations may enter into a contractual agreement involving an exchange of services and payments.

Global Outsourcing

Global outsourcing is revolutionizing the way businesses operate in an increasingly interconnected world, by eliminating the barriers of geographic boundaries. As enterprises think globally, their outsourcing models have changed to follow suit. Outsourcing is no longer just a short-term quick fix to reduce costs, it has moved from a temporary solution to a long-term strategic approach. Global outsourcing uses a blend of offshore, onsite, and nearshore outsourcing solutions to achieve strategic business objectives for the outsourcing company. The complexity of global cross-border business management presents new challenges as companies try to stay profitable, agile, and innovative. To respond swiftly and effectively to evolving business needs, business processes need to cultivate adaptability and flexibility. Organizations should align service outsourcing with their business objectives instead of viewing it solely as a means to enhance operational efficiencies.

Global outsourcing takes a comprehensive, long-term holistic approach to the client enterprise. By adopting this professional strategy, organizations ensure that the outsourced service offerings are in line with their business goals. It allows efficient and effective utilization of resources, ultimately leading to enhanced productivity and profitability. This approach differs from short-term, segmented contracts that focus only on individual components of the business and take a project-by-project or simple “out-tasking” approach.

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Global outsourcing minimizes risks for the customer and provides many benefits to them, it eliminates country-specific risks, as it is not dependent on country geographic boundaries. By adopting this approach, businesses can gain much freedom and flexibility in decision making and operational processes during the outsourcing journey. It empowers businesses to learn, adapt, grow and evolve while ensuring predictability in the quality and on-time delivery of their business processes. This strategic use of global outsourcing enhances operational efficiency and even fosters a competitive edge in today’s dynamic business environment.

Advantages of Outsourcing

There are several advantages of outsourcing business processes to destinations across the globe. Some of them are given as follows:

  1. Cost Advantages
  2. Increased Efficiency
  3. Focus on Core Areas
  4. Access to Skilled Resources
  5. Time Zone Advantage
  6. Faster and Better Services

1) Cost Advantages

The most visible benefit of outsourcing is that it helps to save money. At a lower cost and with better quality, people can accomplish their job. Because of the wage difference between Western countries and Asia, India can perform the same kind of work at a fraction of the cost. Outsourcing work to India can result in remarkable cost savings of approximately 60%. Moreover, the cost reduction does not compromise the quality of services provided. On the contrary, the services provided maintain a high standard, ensuring that low cost does not equate to low quality.

2) Increased Efficiency

When people outsource their business needs to a trusted partner such as Flatworld Solutions, they benefit from their years of experience in business practices and expertise in handling complex outsourcing projects. Thus, they can do the job better with their understanding and knowledge of the domain. This leads to increased productivity and efficiency in the process resulting in increased overall profitability of the company.

3) Focus on Core Areas

Outsourcing business processes would free a person’s energy and enable them to focus on building their brand, invest in research and development and move on to providing higher value-added services. Save on infrastructure and technology. Outsourcing reduces the need for investing in infrastructure, as the trusted partner takes responsibility for the business processes and consequently develops the essential infrastructure. This lets the companies focus on their core competencies and allocate resources more efficiently.

4) Access to Skilled Resources

Businesses no longer need to invest in recruiting and training expensive resources for their business. Providers take care of the recurring needs with their pool of highly skilled resources. The individuals engaged by highly educated HRD professionals in the respective fields possess extensive expertise in addressing the specific operational requirements of organizations seeking to delegate their tasks to external partners.

5) Time Zone Advantage

In addition to cost savings, another significant advantage is the time zone difference between the home country and the outsourcing location. During the person’s absence, this enables the completion of work, with the delivery of results the next morning. This unique advantage gives the benefit of  24/7 (round-the-clock) business operations.

6) Faster and Better Services

It makes the service offerings better with high-quality deliverables and decreases the lead time that it takes for the product to reach the market. Thus, the company would expedite the conversion of ideas into products and excel in delivering the value-added proposition.

Disadvantages of Outsourcing

The downside of global outsourcing can be specified as follows:

  1. Losing Control
  2. Hidden Costs
  3. Threat to Privacy and Intellectual Property
  4. Problems in Quality Control
  5. Chance to Nurture In-House Talent is Lost
  6. Political and Cultural Problems

1) Losing Control

If a company is planning to outsource business processes, the company is pretty much aware that there is going to be new management that will event this certain part of the contract but the vendor is not going to be following the mission and of the are working to bring profit to their business, not yours. They are working to bring profit to other businesses, not yours.

2) Hidden Costs

When it comes to business, dealing with money is inevitable. When the business signs the contract, anything that is not included in it will have to be a burden. It can include legal fees for the contract signing. Remember that the other party is going to be writing the contract signing. Remember that the other party is going to be writing the contract.

3) Threat to Privacy and Intellectual Property

Information is what makes a business unique against each other. They know something that others do not and vice versa. If a company is going to be outsourcing has to make sure that the vendor is professional and has worked with other companies similar to its miche. The contract should also contain information about data protection in case something unexpected happens.

4) Problems in Quality Control

All offshore outsourcing companies have the drive to increase their profit. As long as the results are met as indicated in the contract, the company will have to pay despite the quality of work life. Since the contract is going to be detailed enough, it would have to pay for any changes applied.

5) Chance to Nurture In-House Talent is Lost

The employees of the outsourcer are deprived of the opportunity to develop skills and experiences concerning the task that is being outsourced.

6) Political and Cultural Problems

With offshore outsourcing, there is an increased risk of getting caught up in the politics of the outsourcer’s seller country, or at least affected by the prevailing political instability in the region. Thus, smooth functioning could be hindered. Cultural differences are also greater in the case of offshore outsourcing, leading to potential misunderstandings arising from language disparities.

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