Business companies, in order to save costs, typically carry out a practise in which they are open for individuals or other companies to perform specialized tasks, provide services or manufacture products. This style lately, is exceptionally widespread in IT and many other industries, and is called Outsourcing.
For instance, think of an individual magazine owner, who needs to design the magazine. He/ She could download or buy the required software applications, understand the basics, decide on a size, choose a template and then, take a risk that he/she can do a good enough job – and not mess the design up! He/she will also be stuck with the expense of learning the skills and developing the creativity.
Or, he/she could just hire a designer. Works with the same rules, the decision of outsource.
In 2004, when companies in the United States of America had outsourced between 300,000 to 1 Million jobs, Goldman Sachs- an American multinational finance company- projected that the number would grow up to 6 million within ten years and spot on, it did!
Outsourcing began when large manufacturing companies took on external companies to produce specialized components which were required for their products. These manufactured components included aircraft, computer networks or automobiles. However, over the last few years, service outsourcing –hiring external businesses for specialized work and expertise- made the big shift. They include call centres, payroll and book-keeping, advertising and public relations, supply and inventory etc.
- Permits companies to seek out and hire the skilled for specialized work.
- Helps keep more cash on hand
- Business can focus more on its core components without distractions
- Involves speed and nimbleness
- Company has less direct oversight and control of the product – this may affect the relationship of the company with its customers.
- Outsourcing can lead to language barrier issues.
- Security issues, like keeping proprietary information private.
The Economics of Outsourcing
Once a company hires an engineer, they must be paid. Medical insurance and retirement contributions typically cost another 30 percent to 40 percent of an individual’s salary. The company should make sure that such a massive investment would pay off steadily over many years to justify it, which is why they must first consider certain attributes like the number of employees needed, where they would work, and where they could be found.
The Organization Of International Investment reports the number of jobs sent to the United States has grown by 82 percent while the number the united states often pay more than those it outsources overseas, the group reported. So, when does it make sense to outsource locally versus overseas?
Outsourcing Locally Vs. Overseas
It’s definitely a balance of several things if a company chooses to hire an engineer overseas, over an engineer in the same specialization across the street. Basically, for a strong outsourcing deal, a company must look at various essential attributes such as quality commitment, price, reputation, business culture compatibility and location along with factors like comprehending objectives, constant management of the business, well-written contacts and strong communication. The above mentioned factors can be comparatively comfortable if the companies consider someone living in the same region or state. Hiring someone overseas might affect the above as well as the security, privacy and support and educational stability.
And on top of all the mention issues, is the major concern of any business; the price. For several reasons like high wages in countries like the United States, low costs of raw materials in certain countries, more business-friendly regulatory environment, lower corporate taxes and tax shelters, make it cheaper and secure to take into service employees off shore.
With the growing technology and market demand in today’s world, the outsourcing graph will only tend to incline. Companies will figure out newer and quicker methods and strategies, and outsourcing will always be of great help. Most importantly, with the increasing competition of different companies all over the world, no political opposition can prevent this cost-benefit handy practise. (If you know what I mean)