The Pros And Cons Of Outsourcing For Your Business
by Matt Everard, managing director of Barrington Freight
The growth of developing nation’s economies – India is a fine example – has led to a surge in the amount of outsourcing contracts from developed nations. In 2013 there were 2,637,239 jobs outsourced offshore from the US alone, according to Sourcing Line Computer Economics. Outsourcing is not just a cost reduction tactic; it can also enable your business to access specialized services. You may well yearn for a new computer programmer, but cannot justify portioning some of your budget towards an in-house salary, or perhaps you simply want to avoid the strenuous hiring process.
Outsourcing may be the answer, on the other hand there are a myriad of potential pitfalls that may await you.
Offshore – Communication and Time-zone Differences.
Non-core services provided by someone in a different continent can prove to be a real issue. Cultural and linguistic barriers should not be overlooked. Although your new employee’s capability and professionalism might be clearly evident, will they be able to deliver according to your specific requirements and on schedule? If your business relationship requires regular and prompt communication, then the time-zone difference is also an important factor. Many companies partake in ‘nearshoring’, as opposed to ‘offshoring’, to help overcome these barriers. Western and Central European businesses outsourcing to Eastern Europe is an example of ‘nearshoring’. If cost reduction is your main motivation, then consider ‘offshoring’. However, if you simply want to acquire new expertise then you might want to consider a more local option.
Loss of Control.
It is important to remember that, although you are still in charge, you are sacrificing a portion of your managerial control. You may struggle to implement your company’s ethos into the work carried out by an auxiliary agency. An outside company will be driven by their own profits, not yours, even if you come into the equation. If you have outsourced to a specialised and highly skilled partner, then this might not be such an issue. In contrast the loss of control could actually prove to be a benefit, it can free up management time allowing you to focus on more important areas. Can you justify forgoing this control, when considering the potential benefits? This careful balance will be the crux in your decision making process. Manufacturing, ahead of IT services, has been the most outsourced service for some time now (53% in 2013, Sourcing Line Computer Economics). If you forget the obvious labour cost benefits, there are other reasons for this; it is a service of which the quality and output can be easily measured. Moving manufacturing to a new business partner can also prove to be a considerably easier process, when compared to other areas of business.
Is Outsourcing a Long Term Solution?
Many employers opt for outsourcing as it allows them to take advantage of recent changes in the market. The quick delivery time offered is certainly a distinct benefit. Although it is fairly simple to cease your contract, you may have invested a lot of time with your outside agency. It is not your company that has developed your business in a particular area, with the end of a contract you may lose some of the knowledge built up over time. As your company grows, what was once deemed as a non-core service might evolve into a core service. Your productivity in this particular area might stall as you shift towards an in-house team. You have to determine whether investing in an in-house team, at an earlier stage, might be a more sensible long term option. Equate your predicted long term growth with the value of the service that you desire, this will help you come to a conclusion.
Summary – Equate all the Factors Carefully.
Rushing into a decision about outsourcing will only come back to damage your business at a later date. There are a plethora of considerations that should come into your decision making. The service you require, how much control you are willing to sacrifice, and how this service will develop alongside your predicted growth are the principle factors to consider.
Matt Everard is the Managing Director of Barrington Freight, a team of freight professionals with decades of experience in the shipping industry. Overseeing the business, he is particularly active within the marketing and business development sectors of his company. He has grown the business into an established force within the shipping industry, with high profile clients across the globe.
This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.