Outsourcing occurs when a business secures (purchases) products and/or services from a third party, as opposed to producing them in-house. There are several advantages and disadvantages to outsourcing.
Advantages of Outsourcing
One of the biggest advantages can be lower personnel costs. By outsourcing job duties to non-employees, a business does not have to pay consistent wages or offer additional employee benefits. The company may pay lower taxes because independent contractors, the people who complete the outsourced projects, pay their own withholding, social security, and other taxes. This can add up to substantial savings.
Some businesses choose to take their outsourcing one step further by choosing a vendor, located in another part of the world. Doing so typically saves them more money because they end up paying a much lower wage than would be necessary in their home country. The disadvantage is that these vendors may not understand English and communication is more difficult.
Many times, outsourcing speeds up production time. Since the third-party vendor will only be concentrating on one specific task, instead of numerous office duties, actual production time can be greatly increased.
Outsourcing gives a business the flexibility to change third-party vendors whenever necessary. This process is not as time-consuming as the normal employee hiring process, because they are not screening individuals, they are considering established companies with proven track records.
An excellent example of this is customer service. When a business outsources its customer service department, it does not have to hire and oversee thirty individual operators. Instead, it can hire one call center, which will perform all needed tasks.
Recent studies show that information technology-related tasks are outsourced more than anything else. Other common department functions that are outsourced include: human relations, training, accounting and supply management.
Whether a business chooses to outsource on a temporary basis or permanently, the advantages are well worth the decision to do so. Most businesses, which set out to outsource temporarily end up making an ongoing commitment.
Disadvantages of Outsourcing
One of the biggest disadvantages of outsourcing is undesirable results. This is especially true when a company hires a third-party vendor to mass produce a product. In the event that the finished products do not meet quality standards, the manufacturing process must be repeated by a different vendor.
Not only is this a waste of time and materials, it can also be very costly for the company who outsourced the project. They are essentially paying twice for the same job. In addition there is always the possibility that the company may lose sales, during this same period because of the lack of available product.
Another disadvantage of outsourcing is a loss of jobs. Many times work is outsourced simply as a means to save money. Outsourcing to a foreign country typically saves a company a great deal in wages. So, the choice is made to reduce their local workforce, at the expense of the laid-off employees.
In turn, it can cause community uproar and even a decrease in business and profits. This happens when local consumers make the decision to shop elsewhere, as a way to voice their disdain.
Outsourcing customer service jobs, to foreign countries, is on the rise. Many large corporations including credit card companies, shopping networks and computer manufacturers are making this change.
The problem with this is a lack of communication. It can be very frustrating for a consumer who is calling in with a customer service issue. When this individual cannot understand the customer service representative they are speaking with, it just causes more frustration and does little to solve the problem.