Outsourcing or subcontracting is a business practice that took several years in the market to take hold. The essence of outsourcing is pure; one company outsources to another a specific series of products and services. There are multiple examples of companies that outsource in the world market. For example, computer companies commission the development of part of their products or telephone companies to outsource equipment and wiring installation.
The advantages of outsourcing for companies, professionals, and the end customer are many. Still, before deciding to implement it in your organization, you must look at both the advantages and disadvantages. Here are some pros and cons of outsourcing to help you make a sensible decision on whether to outsource.
Advantages of outsourcing
- Outsourcing allows the company to focus its technological and human resources on the key products or services it commercializes. Subcontracting some responsibilities or production to other qualified companies will make this focus possible.
- Outsourcing products or services frees the contracting company from a multitude of organizational and management tasks, training costs, and direct costs in labor.
- Subcontracting products and services allow the company to convert an important series of fixed costs into variable costs. From an accounting perspective, outsourcing can be cost efficient and profitable.
- The outsourcing process allows companies to grow more quickly in their specific economic sector. If a company does not have enough staff to fulfill production and other company needs, subcontracting can be key to continued growth.
- Outsourcing leaves time to react more quickly to the demands of a continuously changing globalized market. Giving production and other tasks to another company or individuals can improve overall time management and alleviate stress and missed deadlines.
Disadvantages of outsourcing
- Subcontractor services or products do not meet the expectations of your client. This will reflect on your company and could cause loss of business and poor reviews on social media. There is less control over the quality and training of staff which can be potentially harmful to your reputation.
- Offshore outsourcing to other countries with lower labor costs can lead to job losses in the local market of the contracting company. This con has been one of the most hotly debated issues of outsourcing to other countries. Many who are qualified in the local market of the contracting company could be laid-off or have their hours affected.
- Offshore outsourcing to other countries can be a detriment to the quality of the product or service that eventually reaches the consumer. Quality standards in some countries are far lower than others, subcontracting to countries with less regulations on standards could potentially lower the standards of your products and services.
- Offshore outsourcing to other countries can lead to poor communication because of language barriers, differences in cultures, and work practices. Though these differences can be overcome through training and setting standards, since the contracting company is not responsible for the staff, standards of communication may not be met.
Deciding if outsourcing is right for you or your organization can be a difficult task. Researching the advantages and disadvantages will help you make an informed decision that is right for your company.
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