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5 Advantages of Outsourcing

The advantages of outsourcing — and some pitfalls.

Global Influencer

Global Influencer
Global Influencer

Pixabay, Gerd Altmann

Your company is zipping along, doing well financially, and then a customer asks you to go above and beyond your comfort zone. What do you do? Let’s say you have a software company doing MRP, and a customer asks you to create a module specifically for accounting. I guess you can hire a team to fulfill your client’s job keeping them in-house, but what do you do after the client’s job is complete?

Do you fire the whole team or decide to add a new revenue stream to your product?

I wrote about a great company that does the whole MRP thing a few weeks ago, including accounting, and it’s all in-house. The company listened to its customers and figured that if it included everything the client needed, the software would be a hit — and it was!

Most of us would probably outsource the specialized “problem” rather than develop a dedicated team of our own. This brings me to the issue: Do you outsource your work to third-party experts or do you simply offshore it?

Outsourcing refers to the practice of contracting your work to an external company, usually in China, India, Pakistan or Malaysia. Offshoring simply means you are getting your work done in a different country.

My company, Bizzo Integrated Marketing Corp., has offshored our production work. My partner is Iranian, and, for the most part, our team is from Iran as well. We pay their salaries and get exceptional work from this trusted partner, versus blindly hiring one of the dozen or so companies that regularly bombard my LinkedIn account vying for my SEO and app work. I don’t know them and don’t want to work with them for many reasons. However, there are many advantages (and disadvantages) for outsourcing work to a another company in another country, which can be thought of as combining offshoring with outsourcing.

The Advantages of Outsourcing:

Specialized resources – Why hire a team with all the inherent issues you must deal with when you can hire a company that only works in that niche? I have been offered a team of engineers in India that would total up to a professional working in my head office. I’d be getting a team for one IT guy.

An outsourced team would undoubtedly be easier to replace if it didn’t work out—No three-month review or buyouts upon termination. They do the job, and it’s done! They also come with advanced skillsets that you can’t find easily even in a market like Canada or the USA.

If I need a specialized app developed, I can have an instant professional with just an email. They have skilled people, with specialized equipment and are focused on what they do best. This enables me to focus on my customers and run my business.

Cost advantages – Ok, maybe that should have been the first point, because, as we know, things are inexpensive in the countries that dominate outsourcing compared to North America. The cost savings are enormous when you consider the costs of the hiring process, training, employee benefits and even office space to house them. The pricing is sometimes many times cheaper than in-house work. Inexpensive labor means more profit – yes! I can send quotes in North America that are less expensive than my competition while offering better quality as well.

Faster and Better Service – I love our guys in Kuala Lumpur and Amsterdam. When I get up in the morning, I have work on my desk from Malaysia. With the 12-hour time difference, they began work when I left for the day yesterday. My guys in Amsterdam are leaving work when I arrive in the morning.

It is comforting to know outsourcers in Pakistan or India are working on your job when you are sleeping. Better quality is assured by these guys, firstly, because that’s their core competency and, secondly, because they have excellent quality control to keep me from contracting one of the other million outsourcers trying to get my business.

Save on Infrastructure – Outsourcers take care of their own staff and scheduling. You tell them when you need something and let them worry about the specifics of fulfillment. You don’t need to worry about hiring. If you think that’s not a problem, check out a study by Glassdoor, which estimates it takes 30 days to hire a programmer, and in 2020 one million programming jobs will go unfilled for lack of qualified people. It’s wonderful to be able to have the flexibility to grow or scale your operation with a phone call.

The availability of talent has a significant impact on companies. It costs money and is time-consuming. The IT field is particularly affected.

Boost Your Productivity – Enabling you to offer a customized solution for a specific client or adding a new revenue stream has to boost your business in terms of money and cache. It’s good to have your “own” team so you can focus on your core competencies. Without a strong HR department, which most young companies don’t have, the CEO usually spends hours going over resumes and doing interviews when that time can be better maximized somewhere else.

There is another side to outsourcing you must consider.

The Disadvantages of Outsourcing:

Communication – Connecting with a foreign outsourcer by email is easy and might inspire confidence. Still, business communication is a whole lot more complicated. The CEO you spoke to may have excellent English skills, but does his staff? Even if their language skills are passable, will their understanding of the nuances and subtleties of language be at a level that eliminates any chance of misunderstanding? I’ve used foreign interns to do some work for me in my Vancouver office and experienced numerous issues that stemmed from our mutual inability to communicate precisely with no ambiguity.

Product Knowledge – You’ve outsourced to a great company in Pakistan. They speak the language well, and everything is fine until you realize they are doing a very specialized job for you that doesn’t include them thinking beyond their role. Only your in-house people know the full specifications and nuances of your product line, and since it’s not in the job description of your outsourced staff, you may have problems and hidden costs down the road involving integration or other unanticipated delays.

Time Frames – Delivery times, sub-standard output or inappropriate categorization of responsibilities may be easy to manage in your office, but these can be hard to control half a world away. You are putting all your eggs in one basket. Imagine your client having a web meltdown during a busy Friday. You have to deal with it, but your team in Mumbai may not be fully available as they’re enjoying their weekend.

The Right Team – While the outsourced team will usually not interact with your customers, what happens when the customers need specialized training on an application? Do you run the risk of the outsourcers interfering in your client relationship? Do you take the time to train your in-house people? Is that the best use of your precious resources?

Outsourcing Your Main Product – This is a disaster waiting to happen. The number of issues that can occur in this scenario are numerous. Outsourcing should always augment your own team, no matter how small that team, and not be the focal point of your company. You become a contractor and nothing more.

Information Loss – Depending on people outside of your company can be a daunting proposition. You never know others outside your office as well as you know your own staff. Will you be running the risk of intellectual property theft? Will you be fully cognizant of their business practices? Are you confident in your troubleshooting abilities and legal recourse if a problem arises? Do you have the time and money to conduct a security assessment with which you’ll be fully comfortable?

Outsourcing has undeniable advantages. From finding talent immediately, saving time, reducing costs, improving productivity and increasing your company’s flexibility, outsourcing gives you a competitive edge that’s tough to beat. Make sure that you’re fully prepared, however, to consider all of the potential pitfalls if you do decide to go down this path.

Gary Bizzo is CEO of Syphon Nanotech Inc., Bizzo Management Group Inc., and Bizzo Integrated Marketing Corp. in Vancouver. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018. He is an Adjunct Professor of Integrated Marketing & Communications as well as Consumer Behavior at the New York Institute of Technology, MBA School of Management (Vancouver Campus).


Equities Contributor: Gary Bizzo

Source: Equities News