Why Do Companies Choose to Outsource Work?

Businesses use outsourcing to reduce costs, improve efficiency, and access new markets. They can outsource various services, such as software development, accounting, customer service, human resource management, IT support, legal advice, manufacturing, marketing, and more.

Business Outsourcing Process

In the past, outsourcing was used primarily by large companies with complex processes. Today, however, small businesses are increasingly using outsourcing as a cost-effective strategy to improve efficiency and reduce costs. There are many types of outsourcing, but the two main types are: offshoring and nearshoring. 

Differences Between Offshoring and Nearshoring

• Offshoring refers to when a company moves its operations to a different country from where the main business is located. A well-known example of offshoring is the “Made in China” label you see on most of the products you use daily!
• Nearshoring is when a company moves its operation to neighboring countries. Nearshoring can bring less miscommunication amongst the business and the third-party, because neighboring countries usually have closer language or work culture to one another.

Outsourcing Company Examples

Some examples of companies that are outsourcing are: Apple, Skype, WhatsApp, Amazon, Slack, and even Google. 

Google not only provides excellent benefits to their employees in California, it has also been outsourcing to remote employees for years. Google has been outsourcing for many years in various fields such as IT work, development, email support, and more. In 2011 - more than 10 years ago - Google had over one thousand reps from 60 different countries, which handled more than 10,000 calls per week.

“2018 marked the first year Google’s contract workers outnumbered their direct employees”

Which is the Best Example of Outsourcing?

Outsourcing is a very widely-used practice in business that it isn’t seen as a separate category anymore. There are some certain classifications that help put outsourcing companies into certain categories. Here, we will go through some of them.

1. Development

An example of development outsourcing is software engineer outsourcing, which is when an organization chooses a third-party to develop custom software solutions for them. Development outsourcing is also done by financial institutes such as banks to maintain cybersecurity.

2. Human Resource Management

Outsourcing HRM or human resource management is done by hiring an external enterprise to handle human resource needs instead of having an internal HR employee or department. Hiring an HRM from a specialist company ensures they have excellent knowledge, since they are trained in this specific field.

3. Project Management

Since project management is a complex assemblage of tools, planning, and resources, many businesses outsource project management. Instead of spending time and money to get project management certification for your employees, you can outsource the job to someone who already has the certificate.

4. Marketing

The main benefit of marketing outsourcing is you can outsource to marketing agencies who always have an eye on trends and new technologies, and can offer an outside perspective of your services and create specialized strategies for your business.

Outsourcing Advantages and Disadvantages

There are various pros and cons to business outsourcing. On one hand, outsourcing allows businesses to save money by cutting overhead expenses and increasing productivity. It also gives them access to new markets and technologies. Other advantages of outsourcing are:

• Expense reduction
• Easier access to specialized skills 
• Ability to focus on core activities
• Simplification of project management
• Faster task execution

There are also risks involved with outsourcing. If the outsourced work isn’t done well, it can negatively impact the business's reputation. Some other disadvantages of outsourcing are:

• Loss of control to some extent
• Possible translation issues
• Shifting between timeframes

Is Outsourcing Good or Bad?

Outsourcing is vastly done in business - from million dollar corporations to small startups. It reduces costs, speeds up development, provides efficiency, and allows the parent company to focus on the main activities.