Advantages and Disadvantages of Outsourcing

Written by

Lianna Arakelyan

Last updated

14 March 2024

How Strategic Outsourcing Can Benefit Your Business

In the realm of the global economy, business outsourcing has been a hot topic for the past few decades. People in first world countries often lament that jobs are going overseas and being taken by the labour force of emerging economies who perform the same work for less pay.

However, in the landscape of startups and small businesses, outsourcing doesn’t refer to doling out work to an offshore team. When it comes to these smaller enterprises, strategic outsourcing refers to hiring freelancers and firms to do work.

There are clear benefits of outsourcing for any kind of business. It will save on important resources like money, time, and man power. There are also downsides to be weary of when considering outsourcing projects, and in this article we will cover both:

• The advantages of outsourcing
• The disadvantages of outsourcing

You can outsource tasks on a project-by-project basis, or to create an extension of your company’s ongoing efforts. For example, hiring a lead generation company could complement your marketing or sales team’s efforts if you have limited time and resources to take it onboard internally.

Best of all, this will allow businesses to leverage professional expertise, technical skills, and vast experience, which they otherwise would not have access to.

What is Outsourcing?

Strategic outsourcing is a business practice that is utilised by many entrepreneurs to cut down on expenses, or to hire external experts for a given task or function.

These external service providers have a defined set of tasks that they accomplish to help your company grow. The work can be outsourced as part of a permanent and ongoing agreement, or only for one a standalone project.

Common areas where people outsource are content writing, SEO work, lead generation, web development, tech support, payroll services and the like.

Why Do Companies Outsource?

The main advantage of outsourcing is that you can reduce your company costs by bringing in experts in the field. In small business outsourcing, offloading work to freelancers means enjoying the expertise without having to pay benefits and spending on the infrastructure.

Naturally, outsourcing experts will cost money, but you avoid having to train up your current employees in areas they may not be very knowledgeable in, which can be a costly and time-consuming process.

As an example, hiring IT managed services for your small business can help you secure your small company from hackers. If you or your team does not have the necessary IT skills, it would be more efficient to outsource this responsibility rather than trying to learn it internally. There are both advantages and disadvantages of outsourcing technical support, as you may lose your overview of what is going on.

To help you understand both sides of the coin, take a look at the advantages and disadvantages of outsourcing below.

Advantages of Outsourcing

The reason why companies are no longer just relying on in-house talents is that there are many benefits of outsourcing. The following listed below are the top perks of this practice.

Save Money

Undoubtedly, saving money is the primary reason why most businesses choose to outsource. Companies that send work to emerging economies like India and the Philippines take advantage of the cheaper labour costs.

It is not seen as exploitation as the rates offered are higher than what local companies offer. In fact, workers embrace this industry because they can get higher than average pay compared to those who are hired in-house.

To illustrate, call centre work is typically outsourced to a foreign country. If your current telephone system doesn’t facilitate a full expansion, or if you have staffing limitations, then you can enjoy offshoring advantages such as cheaper labour, rent, utilities, and overall reduced operating expenses. By the same token, offshore employees enjoy the foreign exchange rate.

In addition, some functions can be costly if done wrong, and outsourcing can help avoid these expensive mistakes. For example, companies often outsource their payroll duties to payroll companies because this takes a lot of time. It includes reconciling data such as leaves, lates, night differential, and overtime pay.

Relying on experts is a smart choice because payroll mistakes are expensive and can impact cash flow. What’s worse, when the wrong amount of money is given to the employees, dissatisfaction will set in. This can also lead to a lack of motivation.

Enjoy Technical Expertise

Outsourcing for small businesses and offshoring means companies enjoy technical expertise coming from a highly-skilled and professional labour pool. For small companies, outsourcing to freelancers means benefiting from the technical skills without having to pay for employee privileges like insurance and leave.

Some companies also need short-term project work, so it would be wasteful to hire in-house personnel.

For example, it’s common for companies to outsource web design because this requires the help of creative individuals who are skilled in branding and crafting an attractive webpage that will drive traffic and boost revenues. These professionals are also able to stay up to date on trends and requirements, such as mobile website design principles.

It doesn’t make sense to hire a full time web designer because once the primary site is up and running there isn’t much work needed. Blog posts and other simple updates can already be done by in-house staff—or, alternatively, outsourced to freelancers on an on-going basis.

Boost Productivity and Profitability

With outsourcing, the core team will have all the tools, solutions, and expert help they need to get their tasks done. The collaboration paves the way for better ideas and improved performances for everyone. On top of that, employees are able to get work done faster with the aid of external agencies. This translates to higher productivity and profitability for companies.

The aforementioned example of hiring experts for your lead generation efforts is a better alternative than doing it alone. With their skills and tools analysing prospects, they can target the right audience and the right time for more successful lead generation.

On top of that, they have all the necessary software to track and evaluate marketing strategies to gauge which approaches are the most effective.

Disadvantages of Outsourcing

Since there is no such thing as a perfect plan, outsourcing also has its own set of disadvantages. To help you understand the nuances of this business practice, it is important to know the downsides so you can make an informed choice.

Losing Some Control

One of the biggest downsides of outsourcing is the loss of some control. When companies offload work to an external team, there is a loss when it comes to how tasks are being carried out. It is not so easy to monitor performance when dealing with freelancers.

For this reason, you have to do your due diligence and research when you are seeking outside help. You must be able to find someone you can trust so you can still stay on top of quality control.

Security Risks

Another con is facing security risks, especially when the work requires dealing with customer personal data. In this modern world, data protection is paramount because cyber threats abound.

By relying on others, the privacy of the business, as well as stakeholders, can be jeopardised. As such, it is the company’s job to ensure that the third-party provider is trustworthy and reputable.

For example, if you are outsourcing your recruitment efforts you should ensure that you have proper GDPR data processing agreements in place to protect your company from potential data breaches. Any breach will be severely penalised and can result in severe liabilities should there be any breaches.

It can be a challenge for small businesses to be GDPR compliant but it is paramount to be aware of the security risks and various requirements to avoid hefty fines.

Be Wary of Hidden Costs

Though outsourcing work is considered cheaper in many ways, most companies that have engaged in this practice warn that you must be careful of hidden costs. The last thing you want is to get ripped off by sub-par results coming from a freelancer.

On top of that, it is typical for outsourcing agencies to demand that businesses sign long contractual agreements to tie them up. This can include hidden charges and other unexpected fees. To help you mitigate this risk, it is important to read the terms and conditions of the contract carefully before signing.

Use Outsourcing to Boost Your Business

If you are thinking of engaging in this business practice, it is essential to understand the pros and cons of outsourcing. Knowing what to expect can help you make an educated decision, especially when it concerns your company.

Typically, outsourcing advantages overshadow the disadvantages, which is why most business owners employ this approach in this modern day and age. When you are set to hire an external team, it is important to ensure that you are working with a reputable provider that can get the job done efficiently and effectively.

If you are looking to outsource any of your operations and are looking for the best solution, then Market Inspector can help you. We offer tailored quotes from suppliers in your area.