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A Case for Outsourcing: Pros & Cons

12 Sep, 2011 By: Editorial Staff imageSource

Unlike the popular belief that outsourcing is a recent phenomenon, it actually has been in existence a long time. To understand the growing debate on outsourcing, it is pertinent to understand the overall pros and cons.

According to Apt Services, outsourcing refers to the process wherein a business contracts with a third party service provider to provide services that might otherwise be performed by in-house employees of the business. Typical areas are IT services, managed services, customer service, call centers, administration services, financial services, and other key areas.

Unlike the popular belief that outsourcing is a recent phenomenon, it actually has been in existence as long as work specialization has existed. In fact, companies have been known to have used outsourcing in some form or the other since a long time. Typically, companies have been known to outsource those functions that are considered non-core to the business or such functions which needed specialized skills unavailable in the open market.

Of late, outsourcing has been attracting a lot of debates. And the main reason for the ongoing debate is the emergence of service providers from various countries trying to provide services in foreign locations. To understand the growing debate on outsourcing, it is pertinent to understand the pros & cons of outsourcing.

The Pros of Outsourcing

1. Cost Savings: The costs associated with an in-house employee are always higher than the cost of an outside service provider and this is the primary reason for most
of businesses to opt for outsourcing non-core functions.

2. Quality Services: Since most of the third party service providers excel at the services they provide, businesses are assured of better quality than many in-house employees give. Additionally, any service provider will always look to give the best of services since their reputation is at stake.

3. Access to Specialized Skills: A third-party service provider brings in experts for the service it provides. In fact, to beat competition, they would have to keep honing the skills of its employees. Also, the service provider would build up specialized skills in its niche area of operation. By outsourcing to such a service provider, business gets access to such specialized skills, which may be of use in some other field of operation of the business.

4. Contractual Obligation: The liability of a service provider is higher than that of an in-house employee. This makes working with them a safer bet for businesses.

5. Staffing Issues: By outsourcing a non-core function, a business avoids the entire headache associated with recruiting and hiring staff for such non-core function.

6. Risk Mitigation: Many times, non-core functions may become critical and would need skilled intervention, which the business may be lacking. At such times, if the same function is outsourced and becomes critical in the hands of the service provider, because of the talent pool available at the service provider’s end and because of all the experiences it would have gained by way of servicing other clients, it would be in a much better position to counter any kind of risks.

7. Capacity Management: There may be times when the non-core function may need additional hands to meet deadlines. In such times, it would become difficult for an in-house employee to tackle the pressure. However, if the function is outsourced, the headache of meeting the deadline is the service provider’s. Besides, since the service provider would have a significantly large talent pool at its disposal, it can easily tackle such issues.

Those are some of the benefits associated with outsourcing. Let’s now examine the flip side of outsourcing.

The CONS of Outsourcing

1. Linguistic Barriers: When a function that needs handling of calls is outsourced to a foreign location and the first language of that nation is different from the nation which outsources the function, it may lead to low quality call handling. This concern is evidently higher in call center functions that are off shored. People find the linguistic features such as accent, word use and phrases that might be very different, often non-understandable.

2. Social Responsibility: When off shoring is resorted to, which means outsourcing for a process from a foreign location, it results in reduction of employment in the nation requesting the function, etc. This goes against an ingrained nationalism, regardless outsourcing is a necessity in order to profit.

3. Company Knowledge: An in-house employee will always have a better understanding of the nuances of a function since he/she would always have a better knowledge of the company and its business as compared to a
third party - or so it’s assumed.

4. Staff Turnover: Many people debate that quality of a service provider is as good as its people and when there is staff turnover, the quality of services will definitely suffer. In outsourcing, the jobs can get monotonous and make for turnover, needing another replacement. High turnover has many ways of surfacing for any company, however.

So, what do businesses do? Do they outsource or not? Is there anything that contradicts the negative points raised against outsourcing? The answer is “yes.” 

Resolving the Negative Points

1. Linguistic Barriers: Linguistic barriers do pose a threat. However, there are number of countries that promote their people to learn foreign languages to help outsourcing processes. One of these is India, where numerous institutions excel in teaching foreign languages. Most call centers in India have compulsory accent training for their agents before they go “live.”

2. Social Responsibility: It’s true that off shoring of processes results in higher unemployment in the country that decides to outsource services. However, that’s only one part of the story. Outsourcing often results in higher profits for those businesses which then put dollars back into the economy in other areas locally.

3. Company Knowledge: It’s true that an employee would have a better knowledge of your business. However, that knowledge is built over time. Any service provider can build the same kind of knowledge, provided there is a structured info transfer from the business to the service provider.

4. Staff Turnover: Staff turnover is something that every business has to handle with in-house employees. This is something which is a common problem and hence cannot be used against outsourcing, etc.

APT Services is a fast growing outsourcing firm in India, servicing clients in the US.  Owned and managed by Indian CPAs, APT Services has built expertise in the niche areas of accounting, payroll & tax preparation services.

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