Outsource resources or hire your own resources?

 

Published.: April 06th, 2020
 

The advantages and disadvantages of outsourcing resources and services from the financial, risk and operational point of view.

Benefits of Outsourcing:

  • Controls capital costs:
    • Cost reduction may not be the only reason to outsource, but it is certainly an important factor.
    • Outsourcing converts fixed costs into variable costs, frees up capital to invest in other parts of your business, and allows you to avoid large expenses in the early stages of your company.
    • Outsourcing can make your company more attractive to investors, since more capital can be directly injected into income-generating activities.
  • Increases efficiency:
    • Companies that do everything themselves face much higher research, development, marketing, and distribution expenses, all of which must be passed on to customers.
    • The cost structure and economies of scale of an external provider can give your company a significant competitive advantage.
    • Reducing labor costs — hiring and training staff for short-term or peripheral projects can be very expensive, and temporary employees do not always meet expectations.
  • Focus on your business:
    • Every company has limited resources, and every manager has limited time and attention.
    • Outsourcing can help your company shift its focus from peripheral activities to customer-serving work, and help managers set their priorities more clearly.
  • Reduce risk:
    • Every business investment carries some level of risk. Markets, competition, government regulations, financial conditions, and technologies change very quickly.
    • Outsourcing providers take on and manage this risk for you, and are generally much better at deciding how to avoid risks in their areas of expertise.
    • Many processes, if not all, can be carried out remotely and do not necessarily require physical presence in the country of operation.
    • Operational risks such as layoffs, resignations, recruitment, human capital, growth, and others are assumed by the service provider company.

Concerns:

  • Quality.
  • Losing control:
    • Small business managers would certainly want to avoid losing control over crucial company processes; however, this can easily happen when many departments are outsourced instead of being operated internally.
  • Communication issues:
    • Sometimes the contractor may work in a different time zone or not have a stable internet connection.