In this age of information technology, outsourcing has become a well known term. When a company entrusts a portion of its work to another company, this practice is known as outsourcing.
If this company is located in a different country, it is also called off shoring. Though there are a number of arguments surrounding the concept, outsourcing has become an indispensible part of the modern business.
The Pros of Outsourcing
Like any other business phenomenon, outsourcing has its pros and cons. The pros of outsourcing are as follows:
• The greatest advantage of outsourcing is the huge savings in cost that it incurs. Outsourcing is done to companies where the labor charges are much lower than the master company. As a result, the net realization of revenue is far higher. Foreign labor is often less expensive than domestic labor. In addition, outsourcing helps the company to utilize contractual employees rather than part time or full time employees. This leads to better efficiency and long term reduction in cost.
• One of the greatest advantages of outsourcing is that because of the difference in time zones, it is possible to keep your office open round the clock. Even when you are enjoying off time, the needs of your company are being attended to from the other side of the world.
• Outsourcing allows better control of cash flow so that you can utilize the available resources to their optimum capacity.
• It is often routine activities which are outsourced. This frees up the resources and time of the company to develop the core competencies or even to branch out into new sectors.
• Since outsourcing involves a contractual relationship, it allows you the freedom to hire or replace according to your convenience. In fact, it brings out the best aspects of a true market economy.
The Cons of Outsourcing
In spite of the above benefits, outsourcing has become a rather dirty word in the world of business. The various cons of outsourcing are as follows:
• Time lag is almost inevitable when a job is outsourced. In fact, a general rule of thumb seems to be that it will take about four times the time quoted in the contract. This delay may occur due to various reasons like mis-communication, incorrect or inaccurate implementation etc. Sometimes, the manager simply fails to convey to the contractor what he desires.
• It is difficult to guard intellectual property rights when your employee resides half the world away in another country. If he decides to steal your proprietary code, you are more or less helpless.
• While outsourcing is supposed to be cost effective, you cannot regulate the productivity or the quality of the product of the contractor from your home office. The result is that you realize less benefits than you were expecting and this affects the quality of your product and ultimately the volume of your business.
In spite of the above problems, outsourcing is a phenomenon that is here to stay because it ensures cost cutting without significant compromise of quality.