10 Great Myths of Outsourcing and Offshoring Debunked
When you consider using offshoring and outsourcing for your business, you should be prepared to encounter both myths and realities of outsourcing. What is true and what is false? In this article, Back Office Pro lends its decade-plus expertise to an overview of 10 common outsourcing myths.
Myth # 1: Outsourcing Means Offshoring
When reviewing the myths of offshoring, you will often see the terms “offshoring” and “outsourcing” used interchangeably — but they are not the same! Outsourcing involves buying parts or services from a third party instead of doing it internally. You can outsource to a company across the street or across the world. On the other hand, offshoring involves outsourcing to a company located in a different country, although it need not be truly “offshore” if the outsourcing country adjoins your country (for example, “offshoring” from the U.S. to Canada or Mexico).
Myth # 2: Outsourcing Is a New Phenomenon
While many media accounts might make it appear that outsourcing is a new business strategy, this is simply not true. While it might not have been referred to as outsourcing or offshoring, the phenomenon has been actively used for several hundred years.
From the 17th century to the 19th century, the Industrial Revolution regularly displayed the elements of outsourced activities — legal services, engineering, insurance and accounting are four examples of activities routinely outsourced to specialized firms even then. It is, of course, true that offshoring and outsourcing have evolved along with technological and cultural change. The current practice is for businesses to primarily outsource “non-core” activities, and today, outsourcing is a $507 billion global industry.
Myth # 3: Outsourcing Is Cost Cutting
While improving your company’s bottom line is indeed a valid reason to outsource, cutting expenses is only one of several major reasons that today’s businesses are outsourcing. Acquiring hard-to-find technical skills quickly is increasingly a strong motive for outsourcing. For example, a 2015 survey by BDO USA found that 23% of CFOs consider the lack of skilled workers in the local economy as the greatest challenge to industry growth. Saving time is an equally important reason to outsource in a 24/7 business world by freeing up your schedule to focus on more important duties. For example, an experienced outsourcing provider such as Back Office Pro typically offers their business clients multiple outsourcing benefits — saving time and money without the need to hire new employees.
Myth # 4: Outsourcing Means Low Pricing
In a competitive business environment, companies cannot afford to focus exclusively on price. A lack of time or a shortage of skilled labor can make outsourcing a viable option. For example, outsourcing computer-aided engineering drawings can result in a faster and more cost-effective final outcome without investing in new and expensive software and workstations.
Myth # 5: Outsourcing Delivers Poor Quality Output
Whether you are outsourcing or not, quality should never be “negotiable” — instead of “settling” for lower-quality output, outsourcing allows you to select a provider that will consistently improve quality. Established outsourcing partners like Back Office Pro routinely employ multiple review layers that ensure better quality and lower the risk of bad quality. Today’s discerning customers — both businesses and individuals — will reward quality: according to Statista, outsourcing activity has grown from $87 billion in 2008 to $104 billion in 2014.
Myth # 6: Outsourcing Poses Data Risks
Experienced outsourcing providers have always understood the importance of data security. In the most visible examples of recent data security risks (such as Target and Anthem), inadequate security measures within the companies themselves were responsible for massive data exposure. If these companies had outsourced their data management needs to experts, it appears that they would have been much better off — outsourcing is more likely to be the solution and not the problem when it comes to protecting your data.
Myth # 7: Outsourcing Means Job Losses
Contrary to the popular (but incorrect) myth of outsourcing, America, according to the U.S. Department of Labor, has averaged gross gains of 8.11 million jobs per quarter over the past decade and an average net increase of 400,000 jobs every quarter due to the positive impact of outsourcing, as reported by The Heritage Foundation. In actual practice, businesses routinely reinvest additional profits accrued from outsourcing into new infrastructure and business expansion that typically leads to more jobs. For example, between 1985 and 2005, 125,000 computer hardware jobs were outsourced by American industries. But this outsourcing caused computer prices to drop by 10 to 20 percent, making computers and laptops more affordable. According to one well-known Dartmouth study, American firms created nearly two jobs for each outsourced job. While there will always be individual exceptions to findings like this, an increase in new jobs is more likely than fewer jobs as a result of outsourcing for the “average business.”
Myth # 8: Outsourcing Weakens Economy
Economists believe outsourcing strengthens rather than weakens the U.S. economy because outsourcing allows companies to increase productivity and efficiency. For example, leading economists estimated that outsourced hardware businesses boosted productivity by 2.5 to 2.8 percent between 1995 and 2002, driving an IT boom, adding $230 billion to total U.S. output. On balance, this allows businesses to strengthen their bottom line, increase profits and provide goods and services to consumers at better prices. This also contributes to a healthy market for investment and employment. Outsourcing also creates a positive influence abroad by injecting jobs and infrastructure in offshoring countries. These measures are all hallmarks of healthy economies, not a weak one.
“Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy. The creation of new jobs overseas will eventually lead to more jobs and higher incomes in the United States.”
~ Dr. Daniel W. Drezner, Professor of International Politics at Tufts University, USA
Myth # 9: Outsourcing Puts Trade Secrets at Risk
Established and experienced outsourcing providers document confidentially agreements or NDAs (Non-Disclosure Agreement) to protect trade secrets, and these practices have always been treated with the highest priority — routine measures include NDAs, encrypted data and advanced firewalls. Many companies are justifiably concerned about protecting trade secrets during any commercial contract. During recent negotiations between the U.S. President and Indian Prime Minister, strengthening intellectual property rights was a primary goal.
Myth # 10: Outsourcing Will Fade Out
Simply stated, the current data indicates a continuing growth of outsourcing as well as a high level of satisfaction with the results. Until unforeseen future events occur to reverse these trends, outsourcing and offshoring do not appear to be “mature industries” that are in danger of disappearing anytime soon. Take a look at the BDO’s 2015 Technology Outlook Survey, which has revealed that the number of technology firms that either offshore or outsource their IT services has doubled in the past 2 years. Moreover, the number of companies who professed they are likely to outsource their IT or manufacturing processes to offshore locations has tripled, from 5 percent to 14 percent. In an environment of “The Customer Is Always Right,” a recent McKinsey survey confirms the increasing satisfaction by outsourcing clients.
Choose Your Outsourcing Provider Wisely
Once you are aware of the offshoring and outsourcing myths described above, it is still essential for you to find an appropriate outsourcing partner. Back Office Pro is a seasoned outsourcing provider that can help you avoid outsourcing problems and reduce outsourcing costs.
If you have experiences with outsourcing, please share your thoughts below and then share this article and your comments with your social media circle by using the share buttons.