Pros And Cons Of Outsourcing

The term “outsourcing” implies contracting internal work to a third party or external party. This definition withstanding, nowadays outsourcing has become synonymous with work being sourced from employees who work from another country or “offshore outsourcing”. Though outsourcing has achieved mainstream recognition recently, the process has been active since the early industrial revolution days. Whenever we consider any product created in collaboration of multiple parties, we are actually looking at an example of outsourcing, wherein a parent company has outsourced creation of specific components to the specialists. United States tops the list of outsourcing job providers, while India, China, Phillipines and other developing nations as the top outsourcing destinations. The impact of outsourcing is different on different countries. While outsourcing has become a multi billion dollar industry in developing countries, it has raised such hue and cry in the US that Obama administration is contemplating legislative action to discourage outsourcing. Now that we understand the global impact, let’s review some facts adhering to outsourcing

 

The primary reason for the work to be outsourced is the savings it provides to the company in terms of overall costs. This includes savings in terms of salaries and taxes.

The third party service providers, also known as vendors, are specialist in handling the types of jobs outsourced to them, therefore assuring higher quality of output.

 

The vendor will have to perform based on stringent SLA (service level agreements), which determines the quality, quantity and costs of outsourced product. This also legally binds the vendor to prevent any loss to the company, due to negligence or mishandling, making it the vendor’s job to monitor its employees strictly.

 

The vendors constantly strive to improve their own services, in order to beat competition and grow themselves while attracting new clients. This, in turn, directly impacts the quality of products and services in a favorable manner.

 

As offshore employees are handled by third parties the human resource management becomes simpler and less tedious. As such, the parent company need not be stressed about handling administrative issues.  

 

 

Mostly relevant in voice-based services, such as technical support or customer care, linguistic and cultural differences affect the quality of product heavily. Even in other products, the offshore workers understanding of customer may be not be as accurate as it is for internal employees.

 

Whenever a company outsources work, it hampers its social standing in the population, which loses earnings and jobs. In some cases, companies have been penalized by local government and some even lose major chunks of their consumer base.

Outsourcing of financial and other critical services face security concerns, as the employees do not report directly to companies, but to vendors who do not monitor the end results.

An offshore employee may not have the same amount of company knowledge and its clientele as in the case of an internal employee. This, in turn, can affect productivity and the output as a whole.

 

Since the parent company does not have any direct control on the human resource, chances are that the vendor might employ under qualified or unqualified employees, depending on his discretion, which would consecutively hampers the quality of service further.

One of the most rampant issues affecting outsourcing is staff turnover. As seasoned employees leave the vendor, it is not just the vendor but the parent company that is affected. Loss on productivity and quality are major issues that are affected due to staff turnover.

 

Note: Most of these cons however can be eliminated through better staff procurement & co-ordination, culture and language oriented training methods and stringent quality monitoring by third party service providers. The political and social debates over this may continue for decades, but at the end of the day, we need to understand that outsourcing is a trend, which generates jobs for destination countries and creates profits for outsourcers, thus adding more meaning to globalization.