Globally, employment is the same. In general, outsourcing leads to lower prices , because the work generally moves to those who earn less. However, some costs may increase. Independent contractors doing specialized work may charge more than an employee would because they are not receiving benefits. Transportation costs and supply-chain disruption may lead to higher prices from offshore manufacturing over time.
Eventually, skilled workers even in lower-cost countries will demand higher wages as the demand for their labor grows. On a net basis, outsourcing is good for the economy. It lets more people concentrate on what they do best and lowers prices for consumers. However, some people benefit from it more than others. Outsourcing is the process of turning business functions over to an outside organization. If the organization is in another country, then it is known as offshoring.
Businesses have long hired outside contractors for certain functions. Outsourcing was first identified as a distinct strategy in , and it grew in popularity as the internet made it easier to do work remotely. Small Business Administration. Institute for Research on Labor and Unemployment. Accessed Nov. Census Bureau. Domestic Manufacturers. Economic Policy Institute. McKinsey Global Institute. On the other hand, loss of control over the outsourced function is often a potential business risk.
You should consider carefully the pros and cons of outsourcing before deciding to contract out any activities or business operations. There are many reasons why a business may choose to outsource a particular task, job or a process.
For example, some of the recognised benefits of outsourcing include:. Outsourcing can also help to make your business more flexible and agile, able to adapt to changing market conditions and challenges, while providing cost savings and service level improvements. Outsourcing involves handing over direct control over a business function or process to a third party.
As such, it comes with certain risks. Some companies do outsource to foreign countries, though. For example, a U. The manufacture of those parts was outsourced to a Mexican company. But when a company offshores, it moves some of its own operations to another country.
So, if the same U. If a company opened call centers in other countries it would be offshoring, too. In most U. Companies generally decide to outsource the production of goods and services if they think it can save them money and, by doing so, increase company profits.
The most frequently cited example of this has to do with labor costs. While some might see the local job loss as a negative effect of outsourcing, the increased profits that can result are hard for companies to resist. Outsourcing allows operations or departments that have cyclical demands to bring in additional resources when they're necessary.
The outsourcing company can then be released when things slow down again, maintaining a company's flexibility. Outsourcing functions, such as when your accounting department is short-handed during tax season and auditing periods, provides the additional resources you need for a fixed period of time at a consistent cost.
Working with the same accounting firm or contractor each time provides consistency in addition to flexibility. Periods of high employee turnover can add uncertainty and inconsistency to a business.
Outsourcing provides a level of continuity to the company while reducing the risk that a substandard level of operation could bring, even over a short period of time. For instance, your HR manager is on extended medical leave and her administrative assistant is leaving for a new job. Outsourcing the human resource function reduces risk and allows the company to keep operating while the manager is unavailable. It also gives you time to hire a new assistant without rushing the decision because the office is understaffed.
A large project can require skills that your staff does not possess. Let's say your company needs to upgrade custom-built equipment, but your engineers don't have the skills required to design the new and upgraded equipment.
Outsourcing this project and bringing the outsourced engineers to work on-site allows your employees to learn from the contractors while ensuring that the job is done with the necessary level of skill. Businesses often think about outsourcing purely in terms of cost savings, but outsourcing can do more than just lower expenses.
As your business grows, outsourcing can be a way to promote innovation, disrupt your industry, and access new skill sets that reposition your company in the market. When considering how outsourcing can help you grow, don't limit yourself to looking at the cost of hiring outside contractors versus handling a task with your current staff.
Focus on the value a contractor's expertise adds to your company. Whether through expanding production, marketing your company more extensively, or disrupting the way your industry does business, outsourcing can provide an opportunity for you to innovate, grow, and rise above the competition. Small Business Administration. Knowledge Wharton.
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