Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organization cannot handle all aspects of a business process internally. Additionally some processes are temporary and the organization does not intend to hire in-house professionals to perform the tasks.
Once the task is outsourced to the service provider, he will take the responsibility of carrying out the tasks and maintaining the organization’s assets.
However prior to outsourcing any component of your business to a third-party vendor, it is essential to understand the advantages and disadvantages of outsourcing. Although outsourcing presents a variety of benefits to your organization, it could also pose difficulties if not outsourced to the right service provider.
Advantages and Disadvantages of Outsourcing
Outsourcing most commonly known as offshoring has pros and cons to it. Most of the time, the advantages of outsourcing overshadow the disadvantages of outsourcing.
Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output
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Concentrating on core process rather than the supporting ones:Outsourcing the supporting processes gives the organization more time to strengthen their core business process
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Risk-sharing: one of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better
When a company outsources, it buys from a third party a part or service it used to produce itself. This does not necessarily mean that the product is outsourced abroad, although it can be. For instance, General Motors, a US company, can outsource production of a certain car part to a Chinese company. The Chinese company, in turn, can outsource production of various components of that part to various other Chinese companies.
When a company offshores, it shifts the location of a service or production of a part to a location abroad. This can include companies who outsource to foreign companies – for example, GM offshores production of a certain part to a Chinese company, and the Chinese company outsources (but does not offshore) various components of the production to other Chinese companies. However, offshoring also includes companies who transfer production or services to a location abroad without outsourcing the job. So, for instance, if GM opens a factory in China, and shifts production of a car part to the factory in China, it is offshoring but not outsourcing – it is still an American company running the factory rather than a Chinese one.
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