Why Outsourcing?

For several years, many large companies have formed partnerships, while some companies are following this path for the first time. For companies that are just beginning to outsource different services operations, this process presents many challenges, especially when it comes to choosing the right partner. Therefore, managers in these companies should adopt an approach to outsourcing by project. As companies adopt different ways to hold suppliers accountable, choosing the right partner is crucial to success.

In order to build successful partnerships, an outsourcing strategy must answer three basic questions: What is the goal or intended outcome of the project? Who should the company contract with to achieve the desired goals? How should a partner be chosen? The success or failure of a project depends on setting clear goals for the project establishment.

What is outsourcing?

Outsourcing is defined as “the purchase of components, by-products, end products and services from external suppliers rather than being carried out within the company”.

Outsourcing is a business practice that companies use to reduce costs or improve efficiency by transferring tasks, processes, or jobs to an external contracting party for an extended period of time. The tasks contracted by the third party can be executed either on site or outside the commercial site, this practice can have significant impacts across sectors.

Lately a large number of companies outsource at least some of the HR functions, such as managing employee benefits and payroll.

Why outsourcing?

As competitive pressures increased and globalization advanced, companies began to work to reduce their costs and build new opportunities. Through the optimal use of available internal and external resources, these rapid developments have given rise to a global competitive market, this is what prompted companies that want to enter this market and be in advanced positions to provide its services in a more efficient manner, to improve its performance and raise the quality of its work.

Which was the fact that these companies focus on their basic activities that achieve a competitive advantage for them and transfer their competencies non-essential (outsourcing) to other organizations with the required competence.

Outsourcing was applied in many companies and left important positive effects on their performance, and from here it took its position and strength in the field of management corporate business.

Benefits of Outsourcing

-It can be outsourced to release cash, employees, facilities and time resources for a company.

-It can lead to cost savings from lower labor costs, taxes, energy costs and lowering the cost of production.

-In addition the company may also use an outsourcing strategy in order to focus on its core business competencies. This allows the company to allocate more resources to what it does well, which can improve efficiency and increase its competitiveness. Production and time can be simplified while operating costs are reduced.

-Those non-core functions that are outsourced usually go to external organizations as this function represents a core business competency, which benefits the business by improving the management of those functions.

-The company may also choose to outsource in order to avoid governmental regulations or mandates, such as environmental regulations or safety regulations and requirements.

Disadvantages of outsourcing

While outsourcing has many advantages, it also presents some disadvantages.

-The relationship has to be managed with the third party who takes on the outsourcing tasks. This includes negotiating and signing contracts, which requires time and the involvement of the company's legal advisor, as well as daily communication with the supervision and oversight of the work that is done through outsourcing.

-Security is an important factor in outsourcing. The relationship will inevitably include access by a third party to sensitive business data, trade secrets and other confidential information necessary to carry out its contracted functions.

-There may also be some negative impacts on a company's PR when outsourcing results in the loss of a large number of jobs.

The year 2020 has emerged as one of the most challenging years in recent history, with the whole world responding and looking to recover from the health and economic challenges posed by the COVID-19 pandemic, it has impacted every industry, causing businesses to revise budgets, amongst many other operational matters, in order to manage the effects of the pandemic. With the viability of several companies at risk as a result, companies are striving to be in a position of financial stability by focusing on revenue generation and outsourcing non-core functions.

Advances in technology have helped forward-looking companies to benefit significantly from outsourcing services for quite some time now. This is particularly relevant for small to medium-size enterprises, who simply lack the space or labor funds for in-house auxiliary departments like finance and payroll.

As consulting company, outsourcing will match your needs, therefore you will find the pros/cons for outsourcing in IT, Finance/Accounting, and marketing field.

For any clarifications needed, we are ready for any assistance.

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