Reasons for outsourcing

May 12, 2008

If you already know what outsourcing represents but still are confused about it's purposes and means of efficiency, here are some basic facts about the effects of outsourcing in your organization if you decide to follow up this path.

First of all, outsourcing means for sure cutting down costs. It lowers the overall costs for your business by reducing the scope, redefining quality levels, re-pricing, re-negotiation and cost re-structuring. These are all made possible by the access to lower cost economies through offshoring certain organizational functions of your business. This process is called "labor arbitrage" which is created by the wage difference between industrialized and developing countries. Usually, such countries, especially, East European, have an abundance of well trained and well educated persons in the field of information technology, human resources, medical care or accounting which are the areas most used for outsourcing.

By outsourcing parts of your business to East-European countries you will definitely achieve a step change in quality through contracting out the service with a new service level agreement, an SLA in short. Moreover, by reducing costs through lower payments for the same quality and quantity services in other countries, you can focus on maintaining or developing new segments of your business, thus creating new job opportunities in your own country. Changing the resource pool means changing the intellectual environment also, so you will gain access to new intellectual property and wider experience and knowledge in the desired area of expertise. Needless to say, services will be provided through a legally binding contract with financial penalties and legal redress so your investments are completely secure which is not the case with internally provided services.

Take for example healthcare. You don't always have prepared a complete medical team for you in case of emergency. You usually get sick twice a year, if you're not really careful about yourself, and from time to time you need some specialized medical help. For this, you don't pay dozens of doctors,each with its specialized function, in stead you outsource your healthcare to a clinic or a hospital or a healthcare system. It is the same with security networks or technology development issues in your own firm. In order to save the costs of time and financial expenses to create a proper internal division to take care of such problems, you outsource this department to a fully operational expertise company from developing states. This also offers you access to a larger talent pool and a sustainable source of skills. You can use the service supplier as a change agent, a catalyst for major changes in your own firm that otherwise could not have been done alone. Because the supplier market in outsourcing is really dense in opportunities, the suppliers have to keep up high standards in order to attract clients and meet up their expectations, in this way, additional capability brought by the supplier accelerates the development or production of a product.

Outsourcing is usually made by large companies in Western countries to East-European or Asian regions. This means that a sequential task can be made during normal day shifts in different time zones – thus making it available 24h 7. This is especially useful for companies who require technical support through call centers.

It is only a matter of time until outsourcing will become the worldwide tool for enhancing profit and gaining steps ahead of the competition since everyone has to gain from it. If the outsourcing buyers market is increasing so is the offer from the suppliers side which are continuously seeking to improve themselves and their work.

Also read:

What is outsourcing?
Comparison between software outsourcing destinations
Outsourcing the right way: How can software outsourcing help you reduce your risks during the financial crisis?
To outsource or to insource?
Communication: a key element for reaching success when doing software outsourcing

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