Outsourcing Effects

Information on Labor Outsourcing

Outsourcing Effects - Positive or Negative?

Outsourcing is a controversial new mode of doing business. While it offers considerable benefits to companies who choose to outsource from a cost and efficiency standpoint, there are corresponding negative effects especially on the level of relocating jobs that could have benefited local communities. It is important to understand the whole plethora of outsourcing effects so business owners can weigh between positive and negative impacts to be able to logically determine the most preferred way of conducting the business operations.

First, the positive effects of outsourcing business operations or functions.

Cost - The most obvious benefit to a company planning to outsource a function is cost reduction. This is achieved on several fronts; instead of having to hire your own workers complete with benefits, you only pay for services rendered by a third party contractor; without workers to directly employ, you will not have to spend on infrastructure costs, including operations, maintenance, equipment capital expense, software fees, licensing fees, training fees – the list is endless. The whole concept rests on the idea of competitive advantage: if a certain company is offering lower labor costs, there is no reason not to take advantage of that benefit by transferring business operations where the labor costs are cheapest. This is the most positive of the many outsourcing effects and is the primary reason why companies decide to outsource several in-house functions.

Expertise - Companies willing to explore outsourcing as a business model gain access to expertise provided by companies who specialize in specific services. Telemarketing skills, for example, are not easily taught to new hires in a company that focuses on selling, say, laser printers. You can entrust the training to technical support providers who constantly expose their employees to new techniques in marketing. You can also outsource brand position and brand management tasks to the same company with a dedicated core of professionals who are experts in many facets of marketing. In the end, the company can focus on its core business of making excellent quality printers. The responsibilities are divided without compromising any single function allowing companies to grow where their core expertise lies.

With expertise outsourced, companies gain access to complementary positive outsourcing effects like better results, faster turnarounds, improved resource utilization, and shared business risks. All of this boils down to one key facet of business operations: efficiency! With outsourcing taking care of “side” functions, companies can focus on running the business with a streamlined workforce that only works on the most essential projects that grows the company’s bottom line. All other administrative functions like technical support, outbound sales, and even payroll processing can be outsourced at minimal cost but maximum business impact.

Incidentally, outsourcing also carries negative effects. Even as it grows businesses by streamlining operations and tapping expert knowledge from specialized organizations, there are also negative outsourcing effects that are felt elsewhere, not necessarily by the business itself.

1 - Job Migration. As third-world countries with cheaper labor costs flourish in the growth of outsourcing, first-world countries suffer. Work is transferred from local economies to global markets because of competitive advantage. This can harm local communities by stripping them of job opportunities which can lead to degradation in the quality of living due to limited employment opportunities.

2 - Outsourcing complexities always leave room for error. No matter how specialized a company is, the complexity of outsourcing demands raises negative outsourcing effects that cannot be foreseen despite thorough and exhaustive planning. As a basic example, a company in the business of making printers cannot always hope to transfer technical knowledge to a group of business courses graduates in a country far away. The best that can be done, in most cases, is a “canned” response to standard questions and more complex cases often remain unanswered or detailed responses are delayed. Some companies are already starting to see this effect in their businesses as customers complain of poor customer service by third-party outsourcing providers.

The job of properly vetting out the positive and negative outsourcing effects falls squarely on the business owner’s shoulders. Negative effects can always be managed by employing proper mitigation plans; conversely, positive effects are not assured for all companies who enter into an outsourcing deal. In the end, vigilance is necessary to ensure maximum benefit with minimum disadvantages. Outsourcing is not a magic pill to cure all the world’s ills but with proper implementation, it can mean the difference between business growth and failure.