What is Outsourcing? Advantages & Disadvantages of Outsourcing

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Outsourcing is the process by which a firm identifies a portion of its business process that could be performed more efficiently and / or more effectively by another corporation, which is contracted to develop that portion of the business. This frees the first organization to focus on the central function of its business.

That is to say, the outsourcing consists in that a company contracts, to an agency or specialized external signature, to do something in which it does not specialize.

Almost every process or department can be outsourced, the most famous ones are business accounting, online marketing, Data entry & Customer Service.

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The rule is to compare the costs of what is going to be contracted with the costs of doing it ourselves, in many cases it is better to contract, but in many others it is not. Before doing outsourcing, several aspects should be well analyzed, among them:

• The costs.
• The background, references and experience of the firm that will be hired.
• To know, as far as possible, the concept of another company that has outsourced in the area we intend to hire.
• Establish the importance of the area or function that we want to hire, if it is considered of vital importance for our company we should not give it outsourcing.

 

The causes of outsourcing may be supported in:

Increase the capacity of the company to develop certain activities in which it is not specialized, allowing to delegate such development in specialized organizations.
Reduce investment to acquire assets that can become a drag on the organization.
• Reduce the time and costs of implementing new development

 

Outsourcing, is a process that can have two independent aspects, although not exclusive:

The deactivation, partial or total, of productive sectors (such as the cutting of cloth in the garment factory). The company that outsources stops “producing” and goes on to “buy” products from other companies;

The hiring of one or more “third” companies that locate workers for the execution of a service within the client company. Or from another angle, they go on to perform services that were previously performed by workers of the outsourcing company. The most common cases are with Accounting Deparment(Mostly data entry), Online Marketing (PPC, Classified postings, Social media marketing, SEO etc) , Data Entry Tasks, Customer Service departmant (Phone answering service, Live Chat Support or email handlying type of services) and other services.

Advantages of Outsourcing:

• Manufacturing / Service costs decline and investment in plant and equipment is reduced.
• It allows the company to respond quickly to changes in the environment.
• A raise in the company’s strong points.
• Help to build a shared value.
• It helps define the company.
• Build a long sustained competitive advantage through a change of rules and a greater scope of the organization
• It increases the commitment towards a specific type of technology that allows to improve the delivery time and the quality of the information for critical decisions.
• It allows the company to possess the best of technology without the need to train personnel of the organization to manage it.
• It allows to have information services in a fast way considering the competitive pressures.
• Application of talent and resources of the organization to the key areas.
• It helps to face changes in business conditions.
Increase the flexibility of the organization and decrease its fixed costs.

Disadvantages of Outsourcing:

• Stagnation in relation to innovation by the external supplier.
• The company loses contact with new technologies that offer opportunities to innovate products and processes.
• To the external supplier to learn and have knowledge of the product in question, there is the possibility that he will use them to start his own industry and become a supplier to a competitor.
• Rates increase the difficulty of re-implementing activities that represent a competitive advantage for the company.
• High cost in the change of supplier in case the selected one is not satisfactory.
• Reduction of benefits
• Loss of control over production.

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