Outsourcing refers to that process through which a company gives the work which it was supposed to do to some other company or individual on a contract basis. In simple words, outsourcing is a cost-saving strategy where the company finds cheap ways or source for doing the work and hence saving a lot of costs. This strategy is mainly followed by companies situated in developed countries like USA, UK, Australia and so on where they outsource work to developing nations of Africa and Asia region. In order to understand more about this one should look at the advantages and disadvantages of outsourcing –
Advantages of Outsourcing
The biggest benefit of outsourcing is that it helps the company in saving a lot of operational costs. Hence for example, if some work is done for $50 for 1 hour in the USA than same work can be outsourced to developing nations at $5 to $10 for 1 hour. Hence due to outsourcing, a company is able to save almost 80 to 90 percent of its cost leading to more profits for the company.
Focus on Main Activities
Another pro of outsourcing is that company can outsource routine and not so important task and focus more on its core and main activities which will lead to the company focusing its effort more on growing business and profits rather than keeping itself busy in day to day activities of the business.
Increase in the Capacity of Work
Another benefit of outsourcing is that company can take benefit of different time zones and effectively run for 24 hours because if USA based company has outsourced work to developing country like India than effectively the company’s work will be continuing for 24 hours. Hence in simple words due to outsourcing a company can work for longer period of time resulting in more business and more profits for the company.
Disadvantages of Outsourcing
Lack of Confidentiality and Trust
The biggest disadvantage of outsourcing is that once company has outsourced the work there is always a danger that company’s sensitive information can be sacrificed as people who are doing the outsourcing work are not on company’s payroll and hence company does not have any idea about the background of such people which results in trust issues between the company and the people who are doing the outsource work.
Quality of Work
Another con of outsourcing is that quality of work may or may not be same as work done in the company and hence there is always a danger that company may be able to save cost but due to the poor quality of work its reputation may take a hit leading to damage to the brand of the company.
Dependency on the Outsourcing Organization
Another limitation of outsourcing is that company becomes dependent on the organization to which it has outsourced its work and since these organizations do outsourcing of many companies they may not give proper attention towards the company leading to the risk of breakdown of the company if the company has outsourced important functions and work of the company.
As one can see from the above that outsourcing has pros and cons and it is up to the company whether it can manage the cons of outsourcing and take benefit of pros of outsourcing to help the company in saving cost and thus increasing the profits for the company.