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Outsource Services: Why Do Companies Outsource?

Certainly, there should be some incentives propelling businesses to outsource their functions. Although there have been some controversial issues around the subject of outsourcing, significant benefits attract companies (both large and small) to outsource. Top tech executives of various companies cannot just place more of their business operations in the hands of overseas workers without cause. In this post, we will review the reasons why organizations contract outsource services.

Lower Cost, Higher Efficiency

This is the major driving factor, a lot of companies achieve significant cost saving without compromising quality. Perhaps, it would cost more to perform such business functions in-house or within the country where the business resides.  Amazingly, outsourcing benefits have gone beyond cost saving as you will find out in subsequent reasons why companies outsource operations.

Unstable Political and Business Climate

In 2008, Information Week survey revealed nearly 30% positive responses from CFOs, confirming their uncertainty about business/political climates as one of the major reasons for outsourcing. Of course, it is reasonable for a company’s hiring decision to be partly influenced by political interruptions in business activities, including fears about increased taxes and more unfavorable regulations. So, in addition to cost saving advantage, organizations are also prospecting into the years and even decades ahead as they use outsourcing increasingly to hedge against possible political upheaval that may obstruct business flow. 

Small Business Growth Benefit

There’s a general assumption that big organizations hide under the umbrella of outsourcing to lay off their employees and reduce HR cost. However, we should not forget that small businesses are also using outsourcing services increasingly. The main reason is simply “commodification”. This simply implies that small businesses are now capable of paying incrementally for business functions, which were previously affordable to only large corporations. The increasingly low outsourcing service fee charged by offshore vendors has made commodification possible. Thus, immediate cost saving is not the imminent benefit in this scenario; but to achieve rapid growth that wasn’t possible in the past years. 

Time to Market is Accelerated

“The first to enter the market usually claims the largest market share”. This timeless business maxim points to another financial incentive for choosing outsourcing. A company achieves accelerated time to market by choosing to outsource some of its business functions. The reason is simple; the outsource services vendors are sufficiently trained and experienced experts in their various outsourcing fields. Therefore, performance speed is faster. Consequently, a company is able to introduce a new product to the market faster than using in-house employees. This also provides a competitive advantage for an organization.  

The list of outsourcing benefits is definitely a long one. However, proper selection process is necessary for hiring the right vendor and achieving great benefits ultimately. 

Daven Michaels is an award-winning outsourcer and author of the book, ‘Outsource This!’ Daven has been honored more than any other individual or outsourcing organization. You can get more information on outsourcing by visiting http://www.123Employee.com


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