Outsourcing and offshoring are terms interchanged by people on the regular. Outsourcing is the process of using a third party to provide a service for your products. When a company hires someone to take care of their HR, that is an example of outsourcing. Furthermore, if a startup uses a company to edit their pictures in post production, it is also referred to as outsourcing. So what are pros and cons of outsourcing and offshoring?
Pros of Outsourcing
1. Increase profits
Outsourcing is done if companies think they can save money by it. In doing so, increase profits of the company. The prime example of this is, labor costs. You would not have to hire workers in order to edit something in post production. Otherwise, the training costs are also cut as a result of outsourcing, as new workers do not need to be hired and trained to make them learn how to work.
2. Increases economic efficiency
A business tends to profit when highly skilled people can outsource lower-valued tasks. Outsourcing can increase overall efficiency in the economy by distributing tasks to people who have the appropriate skill level and letting highly skilled workers be more productive.
3. Distribute jobs to developing countries
Outsourcing can lead to higher wages and more job opportunities for people in developing countries. This will in the long run, shorten the gap between rich and poor countries.
4. Strengthen international ties
When two countries trade with each other, they are less likely to get into a war. As a result, they can cooperate towards the same goal through communications. Outsourcing strengthens the relationship of two countries, even going further to form a bond between their respective governments.
Cons of Outsourcing
1. Job Losses
People will lose jobs when businesses are hiring workers from other countries to do their work. This led to a lot of people in the U.S.A losing their jobs along with factories closing down as a result.
2. Lack of Transparency
A lack of transparency is apparent when it comes to the chain of commands when outsourcing. For example, a company from the U.K might hire people from the Philippines, but the methods in which they are working is unknown to you. This creates a lack of communication and hence, when charged for a mistake in the production, a company will have no idea who to blame it on.
3. Standards may be hindered with
If a company from a developed country chooses to hire a business from a developing country, with significantly lower wages. The product of that service may not live upto the standards of the hiring company. Therefore, it creates not only a problem for the customers but also the workers with lower wages. Who do not have the necessary resources to produce with that level of quality.
4. It can be a gamble
For an outsourcing company, it can be quite difficult to meet up to certain criterias of production. Suppose, the company misses deadlines or better yet, there have been problems regarding the cost or problems in communication may occur. This makes outsourcing a gamble for most small businesses.
Outsourcing, might not always seem like roses on a bed but it comes with its own risks that the business needs to account for. If the cost-benefit analysis is done correctly, it offers great things for both parties involved in the ordeal. Hopefully this answers your question on what are pros and cons of outsourcing and offshoring.