Outsourcing is a term used to define the hiring of someone outside a company’s employee list to execute tasks at a usually low agreed fee without any other benefits attached. The individuals are not employed but hired and it is mostly on a contractual basis which means the employer is usually not liable to any other problems that might arise outside their contract, i.e sickness or accidents of such contract worker as he/she is not on any employment insurance contract covered by the company.
Outsourcing has been the norm since early 50’s with several countries assigning the production of non important products to organizations so they can keep focus on the wars and technological advancements. An idea Acer also used so they can focus more on marketing and branding, the idea paid off and gave them a large chunk of the market soon enough. Aside Acer, several other companies like Proctor and Gamble, Amazon, Intel, Google, Facebook, Adidas to mention a few all outsource their jobs to people outside their company. Whatsapp jobs was mainly outsourced until it was sold to Facebook for staggering billions of Dollars due to its widespread success.
Several reasons are responsible for the outsourcing of jobs outside companies and they include cost considerations, time management, tax rate in home country, energy cost, government regulations, need for diversification of ideas etc.
In the cooperate world, outsourcing is a big money making industry as it is well worth over $120 billion and it is believed that about 68% of US companies outsource with about 300,000 jobs getting outsourced out of the US yearly. It is estimated that one-third of SMEs outsource their roles to people outside their companies. While management roles and customer service jobs make a lot of rave in the industry with high revenues, IT is the big money maker bringing in over $60 billion in 2018 alone. The most common roles outsourced includes IT, customer service, Digital marketing and management, HR, Accounting, Legal, Content writing and graphic design services. Although these are often remote jobs, but just about any job can be outsourced these days with companies looking to cut costs and improve their wide array of options and results.
Here are pros and cons of outsourcing jobs to third parties.
PROS OF OUTSOURCING
• Higher revenue and less expenses: This is the major reason why companies outsource. No employment contract means no health insurance or work hazard insurance coverage cost or office running costs. This saves organizations tons of money as they can channel all that money into something else.
• Cheap labor cost: companies prefer to hire top workers in poor countries as they have currency advantage. An example of this is an American writing agency that will prefer to pay just a little over $100 to a writer in Nigeria because they are aware that an American writer will charge thousands and $100 in Nigeria currency is about 34,800 Naira. They exploit this currency rate difference to save costs and go for highly skilled workers while paying crumbs for tasks assigned.
• Increased speed and productivity level: since most hired individuals don’t have to transit down to the office to work, they can have more time to execute tasks which will improve speed and productivity of assigned tasks. A worker who will have to leave home to go to the office might get stuck in traffic or spend minutes in transit to the office but an outsourced role does not require office work as most of these workers can sit at their desks at home and get the tasks done, providing quicker and more refined results within a chart time compared to their counterparts in the day to day office work.
• No other financial commitments apart from wages: as explained earlier, this is the joy of most organizations as they are exempted from so many charges and costs that might have arise if they did not outsource the job. Medical insurance, workplace hazard insurance and compensation, lunch costs, maintenance costs, pension benefits etc. will be absent as the company outsourcing don’t have to pay anyone all that as it is simply hiring, not employment.
• Increase in knowledge and experience base across board: Hiring from different backgrounds and countries can help the company to have improved diverse results from different sources. This will broaden the horizon of the company and improve the diversity and tailor made results of their products and services.
CONS OF OUTSOURCING
• Company values might be eroded: not having your nose, figuratively speaking can erode your company values as the result they will give you might be slightly different from what you really want.
• Risk of data theft: Having your sensitive information in the hands of a third party might make you vulnerable to data theft or in some cases, having your data being sold to a competitor by the outsourced worker. Cases like this have cost companies billions of dollars every year due to loss of vital documents or such documents finding its way into wrong hands. Using an outsourced worker might expose you to this so it is best advised to be very careful while choosing an offsite worker and to do due diligence prior to employing such person.
• Poor delivery and work ethics: not having your worker around you means they are at liberty to do tasks assigned to them whenever they wish in as much as the delivery window is still open. Some workers take too many jobs at a time and rush it so as to move to the next one, this results in them making a mess of the task and giving a poorly executed result which will in turn affect the company.
• Fraud: A lot of hackers are out there posing as offsite workers when actually they are just lying in wait for a victim so as to perpetrate data theft. This is one of the many risks out there that can make you lose all you have in seconds due to selecting the wrong agent to work with. To beat this, work with trusted individuals and hire based om recommendations from trusted sources and if possible have a back up of your files and insure your company against such instances.
Outsourcing will definitely grow bigger with a major boom occurring during the corona virus pandemic, forcing major companies to let go of some of their workers to outsource their roles to individuals in developing countries so as to save cost. Although it has its pros and cons, it is one of the most booming and successful industry in the world that rakes in billions each year in the United States alone.