Pros and Cons of Outsourcing

It’s such a taboo subject and gets such a bad rap that it’s almost not even worth defending. You might be better off defending socialism at a “Tea Party” rally. Okay perhaps that’s overdoing it. It’s not that bad.

However, one mention of the word outsourcing and you get a lot of people up in arms. It’s one of those words that has just accumulated a terrible reputation over the years, whether it’s fair or unfair. When major politicians (Hello Mr. President) and influential business leaders such as Bill Gates speak out against outsourcing, you know it’s destined to become a poisonous term.

But is it fair? It seems like there are plenty of misconceptions on the subject out there. For one, outsourcing is a bit different than offshoring. Outsourcing is putting the work in a hands of a third party vendor, it could be abroad or at home. Offshoring is sending the work overseas, it may stay in the same company or not.

One thing seems certain, there have to be reasons as to why some of the biggest companies such as IBM and American Express outsource constantly. What are the pros of the outsourcing? What are the cons? These are the questions we at Business Review USA try to answer with a good ol’ fashioned list of pros and cons.

We’ll start by defending outsourcing, which will probably be a little more challenging. The most obvious reason on the surface for outsourcing seems to be money and cutting costs. The fact that many large companies outsource for this reason primarily cannot be denied. According to the Outsourcing Index, 64 percent of large companies, defined as having more than 5,000 employees and $2.5 billion profit, outsource for the main reason of reducing and controlling operating costs. Philippines outsourcing

It’s difficult to estimate how much exactly a firm can save through outsourcing, but make no mistake it’s definitely substantial. Take for instance the case of San Carlos, California. This small, affluent Northern California community plans to outsource its fire and police services. The move will save the community an estimated $5.5 million. There are lot more San Carlos Californias out there, much bigger in size and saving a lot more.

Many large multinationals outsource overseas or offshore because of cheaper wages and less restrictive labor laws. Additionally, employers don’t have pay federal or state tax wages on oversea employers. For these reasons, offshoring has become a popular cost cutting strategy. A recent study from IBM says multinationals that outsourced various IT projects overseas enjoyed an average of 11.8 percent higher growth in net earnings in 2009. By saving more from outsourcing, a company can invest into R&D, technical equipment and other things pertinent to its success.

Yet, money isn’t the only pro to outsourcing. Many companies who outsource do it to focus on core businesses. By handing over the reins to a third party vendor you’re obtaining their main skills, something that you may not excel at. This is the reason why many small to midsize businesses outsource. In fact, many tech companies outsource for this reason alone. A survey from Computer Economics reveals application development, at 33 percent, was the most popular reason IT firms outsourced last year.

One last prominent pro for outsourcing is the increasing of productivity. If everything was kept in house, you’d only have people working for eight-ten hours a day. Outsourcing and off shoring means your business becomes an around the clock operation

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