Why Do Companies Outsource Jobs Overseas? 04 Jul 2014

Why Do Companies Outsource Jobs Overseas?

At one point, companies were largely self-contained. That is, they employed skilled workers that provided all their needs, from accounting to customer service. However, that’s no longer the norm as more and more companies are opting to outsource jobs overseas. Why has this trend become so prevalent? What does it offer in the way of advantages and benefits?

An Introduction to Outsourcing

First, understand that outsourcing, or offshoring as its called today, has actually always been present in industry from the earliest times. It just wasn’t labeled as such. In fact, it wasn’t until 1989 that it became a codified business strategy. The impetus to that definition came from companies built on diversification in the 1960s and 70s finding that they were unable to compete and lacked flexibility as globalization began to take hold. From the late 1980s onward, outsourcing has grown to become the “norm” for most industries.

The Benefits of Outsourcing

The decision to outsource jobs carries with it a considerable number of potential benefits, including the following:

  • Taking advantage of a larger pool of skilled work and talent
  • Cutting costs in terms of in-house management
  • Cutting costs in terms of benefits provided to in-house staff
  • Cutting costs in payroll
  • Reduction in operating costs overall
  • Risk sharing with outsourcing companies
  • Greater availability of resources
  • Better competiveness within an industry

How Companies Turn Their Benefits into Profits

How do companies that outsource jobs turn those benefits mentioned above into profits? Some of it’s pretty straightforward, while other methods require a bit of explanation. For instance, cutting down on in-house staff reduces payroll, and when the amount paid to the outsource provider is less than the cost of payroll and benefits for fulltime employees in house, the savings are obvious.

However, a less obvious way to translate benefits into profit is through risk sharing. By partnering with another company, a firm can reduce the risk it takes, meaning that lower than expected sales or outright failures cost less in the long term, saving the business money.

Competitiveness in a Changing Economy

Perhaps the most important advantage of the decision to outsource jobs is the ability to become more competitive in a changing economy. By outsourcing specific jobs and tasks within the company, these firms are able to save money, but rather than adding that directly to the bottom line, they reinvest by passing some or even most of the savings along to their customers. This might come in the form of additional services, reduced prices, 24/7 customer service availability and in other ways. The immediate upshot is that companies are able to garner a larger market share and enjoy better customer loyalty.

The Hidden Benefits of Outsourcing Jobs

Cost savings and better competitiveness are not the only benefits, although they might be the most obvious. There are several hidden benefits to outsourcing jobs, though. One of these is the ability to tap into a pool of more skilled, experienced workers than is available in your base location. Another hidden benefit is driving change throughout your organization, allowing you to be more flexible and run leaner.

– Back Office Pro

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