Outsourcing or subcontracting is a business practice that took several years in the market to take hold. The essence of outsourcing is simple. One company outsources to another a specific series of products and services.
Outsourcing became almost a dirty word years ago when companies took outsourcing to countries with lower wages and looser labor laws than in the US. These laws include child labor, hours of work, working conditions, and overtime.
Because of these conditions and the loss of jobs in the US, many US workers protested companies that took their labor out of the country for these reasons. However, while the optics on this type of outsourcing made the word controversial, outsourcing is generally a positive move for a company.
There are multiple examples of companies that outsource in the world market. For example, computer companies commission part of their product development to more capable companies. Or cable and internet providers outsource equipment and wiring installation to contractors or other companies. Often, subcontracting labor fulfills needs that a company does not have the human resources or equipment to perform.
The advantages of outsourcing for companies, professionals, and the end customer are many. Still, before deciding to implement outsourcing in your organization, you must look at both the advantages and disadvantages. Here are some pros and cons of outsourcing to help you make a sensible decision on whether to outsource some of your business.
Advantages of outsourcing
- Outsourcing allows the company to focus its technological and human resources on the essential products or services it commercializes. Subcontracting some responsibilities or production to other qualified companies will make this focus possible.
- Outsourcing products or services free the contracting company from many organizational and management tasks, training costs, and direct costs in labor.
- Subcontracting products and services allow the company to convert an essential series of fixed costs into variable costs. From an accounting perspective, outsourcing can be cost-efficient and profitable.
- The outsourcing process allows companies to grow more quickly in their specific economic sector. If a company does not have enough staff to fulfill production and other company needs, subcontracting can be key to continued growth.
- Outsourcing leaves time to react more quickly to the demands of a continuously changing globalized market. Giving production and other tasks to another company or individuals can improve overall time management and alleviate stress and missed deadlines.
Disadvantages of outsourcing
- Subcontractor services or products do not meet the expectations of your client. This customer dissatisfaction will reflect on your company and could cause loss of business and poor reviews on social media. There is less control over the quality and training of staff, which can be potentially harmful to your reputation.
- Offshore outsourcing to other countries with lower labor costs can lead to job losses in the local market of the contracting company. This con has been one of the most hotly debated issues of outsourcing to other countries. Many qualified in the contracting company’s local market could be laid-off or have their hours affected.
- Offshore outsourcing to other countries can detriment the product or service quality that eventually reaches the consumer. Quality standards in some countries are far lower than in others. Subcontracting to countries with fewer regulations on standards could potentially lower the standards of your products and services.
- Offshore outsourcing to other countries can lead to poor communication because of language barriers, differences in cultures, and work practices. Though these differences can be overcome through training and setting standards, communication standards may not be met since the contracting company is not responsible for the staff.
Deciding if outsourcing is right for you or your organization can be a difficult task. Researching the advantages and disadvantages will help you make an informed decision that is right for your company.
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