what is outsourcing and what you should know about it.
Outsourcing is an agreement between two companies, in which one company hires another one, to be responsible for a planned or existing activity that is, or could be done internally. and sometimes outsourcing involves transferring some employees, and assets from one firm to another.
Not all the jobs can be outsourced. You should consider that outsourcing is a win win contract, which you save money and time.
In other words, outsourcing can be defined as follows, it is the practice of obtaining goods and services from a foreign supplier.
This practice is most commonly used in industries where there’s either a shortage of labor for particular positions or where the cost of labor is too high. For example, software developers, designers or technical engineers.
Outsourcing is also the practice of handing over control of public services, to private enterprises, even on a short-term limited basis.
Outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring (relocating a business function to a distant country), or nearshoring (transferring a business process to a nearby country).
Offshoring and outsourcing are not the same, there can be one without the other. They can be associated like Offshoring, or can be partially or completely reversed. involving terms such as reshoring, inshoring, and insourcing.
1: Examples of outsourcing:
Nowadays outsourcing’s biggest advantages are time and cost savings. You as a manufacturer of personal computers might buy internal components for your machines from other companies to save on production costs. A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.
For example, a small company may decide to outsource their bookkeeping duties to an accounting firm, as doing so may be cheaper than employing an accountant. Also other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. Thus when used properly, it is an effective strategy to reduce expenses, and can even provide you as a business with a competitive advantage over your competitors.
How many outsourcing forms are there?
There are different distinguished forms of outsourcing:
In business process outsourcing, entire company processes are outsourced. An example of this: you can have your employees’ payroll created by an external service provider.
Knowledge process outsourcing:
In this way, complex tasks are outsourced to a another company. An example of this can be the preparation of search engine optimized texts, for your website. The respective company usually has experts with a high degree of specialization.
In this case, only individually-defined tasks are handed over to another company. Often it is because they are time-consuming and administrative processes, such as the archiving of e-mails or data backup. However, the responsibility for this remains with the company, as the whole business area continues to be managed independently.
In this method mixes business process outsourcing and out-tasking. Distinct major sub-areas are outsourced, but nevertheless do not correspond to a complete process.
Outsource Customer Service and Lead Generation:
Sales call count numbers. It means more the call more will be leads and sales. The moment first outreach is performed, closing the sales can be controlled by the internal sales force. Intelligent salesperson skills as well as expertise, can be effectively used to handle the clients and close sales instead of making cold calls. It may also be very much effective, to outsource the customer support as compared, qualified office staff, so as to handle these tasks. This is mainly true for the product based companies.
Outsource Accounting and Bookkeeping:
Bookkeeping can be taken as an act of keeping a record of all the financial transactions in a properly organized way.But accounting and bookkeeping are like the morning joggers. You actually don’t want to take any time out to make it happen, but it may somehow result in very serious complications after a specific period of time. So you may always have a chance, to employ the dedicated individual to take care of your everyday bookkeeping, and accounting activities. Though it has now become a practice for the companies to outsource all the bookkeeping activities.
Outsource Social Media Marketing:
Social media platforms are now not restricted to any personal communication. Today there are lots of companies which use social media channels like Twitter, Linkedin, Facebook and more for generating leads. Advertising on these social media platforms is actually not an easy task to do. And such an activity will need a considerable amount of time.
2: Reasons for outsourcing in companies
There are many reasons why a company may choose to outsource certain business functions. Some of the most common reasons include:
Reducing and controlling operating costs (the largest driver);
Improving company focus;
Gaining access to world-class capabilities;
Freeing internal resources for other purposes;
Streamlining or increasing efficiency for time-consuming functions ;
Maximizing use of external resources;
Sharing risks with a partner company;
And other reasons:
Also about outsourcing internationally, it can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.
In addition, when a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company, to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs. Businesses can also avoid expenses associated with overhead, equipment, and technology.
Moreover, it companies can employ this strategy, to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency, and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry and the cutting of overall operational costs.
3: Advantages and disadvantages of outsourcing
There are many reasons why a business may choose to outsource a particular task, job or a process. For example, some of the recognized benefits of outsourcing include:
Improved focus on core business activities:
outsourcing can free up your business to focus on its strengths, allowing your staff to concentrate on their main tasks and on the future strategy.
choosing an outsourcing company that specializes in the process, or service you want them, to carry out for you can help you achieve a more productive, efficient service, often of greater quality.
cost-savings achieved by outsourcing can help you release capital for investment in other areas of your business.
outsourcing can give you access to capabilities, and facilities otherwise not accessible or affordable.
Greater competitive advantage:
outsourcing can help you leverage knowledge, and skills along with your complete supply chain.
It can also help you to make your business more flexible and agile, able to adapt to changing market conditions and challenges, while providing cost savings and service level improvements.
It involves handing over direct control over a business function, or process to a third party. As such, it comes with certain risks. For example, when outsourcing, you may experience problems with:
Thanks to digitization, you can collaborate with freelancers from around the world. But in the case of an urgent assignment or spontaneous meeting, the time difference can be a difficulty.
Fluent English is one of the most important prerequisites, for outsourcing abroad.
Techniques and approaches are not the same in all companies. It is likely that a company on the other side of the world might address a problem differently, to the way you are used to.
In conclusion, outsourcing is a business strategy used by companies, for reasons such as the lack of expertise, through the subcontracting of their business functions to outside organizations. Outsourcing is receiving much response from companies all around the world these days, with 70% of European companies already using it for reasons such as to seek cash infusion, reduce risk and operating costs, etc.
All in all, outsourcing is not the right tool for every job but it is a good tool for the right jobs. There are a couple of typical, and traditional problems faced in outsourcing that you should be aware of. Poor planning and less-than-expected results are some of the problems faced by outsourcing players. The future of outsourcing appears to be fairly bright and positive. The information technology era enables new outsourcing players, to take advantage of the different stages of an organization’s value chain. Besides that, there are also clear signs indicating the broadening confidence in the outsourcing industry, which would lead to more companies adopting this business strategy over an increasingly wide range of business processes and functions.
AcceRun: a leading provider of outsourcing services
As a pioneer IT & software outsource company, AcceRun offers a wide variety of solutions such as UI/UX design, web design and web app developing, as well as mobile and desktop application development and SEO services, to the enterprise and business partners to help them relieve the operational, manufacturing and product development process and reduce costs. We at AcceRun offer after-sale and customer support services to ensure a smooth and satisfactory transition for companies that decide to leverage outsourcing benefits. For more information on AcceRun software and IT services visit our website : Accerun.com or contact one of our contact numbers either in Hong Kong Or Germany, or just touch the WhatsApp icon on the right corner of the screen.