What is outsourcing in business?
The increasing globalisation of markets has made business outsourcing a common practice in many countries, including Australia, particularly among companies wanting to grow their business. It is the process whereby a company hires a typically cheaper third party to perform certain jobs or tasks for them. Outsourcing is considered a good business strategy that maximises profits and efficiency in organisations. Traditionally, services tended to be outsourced to third-party providers overseas, but nowadays, onshore outsourcing is becoming increasingly popular as well. Let’s take a closer look at their differences.
Offshore outsourcing
Offshore outsourcing means hiring a provider in another country to carry out certain processes or perform certain jobs. Outsourcing abroad has several benefits. You can:
- save costs as providers in many countries are cheaper than labour in Australia
- cover different time zones around the globe as needed
- quickly scale resources if you need a large workforce at short notice (e.g. a fully set-up call centre)
- benefit from market-specific expertise (e.g. services in the local language of a new target market)
- become more efficient by focusing on your core business.
Onshore outsourcing
Although offshore outsourcing is a popular choice for many companies, onshore outsourcing also has its benefits. For example, you will have:
- no language barrier
- no time zone-related difficulties
- local service providers who understand the Australian market and all the applicable regulations and laws
- customers who might feel more confident dealing with local service providers
- more control over your operations
- less risk of reputational damage by not relying on providers abroad.
When should a business outsource jobs?
There are many reasons why you might want to consider outsourcing in business. Here are some of the most important ones.
Save costs
It’s no secret that many countries have lower labour costs than Australia. Hiring skilled workers abroad can therefore save your organisation money. As long as you don’t exploit local labourers and pay at least the minimum wage of each country you outsource to, business outsourcing can be a smart financial decision.
Utilise expertise
You’re no doubt good at what you do, but it’s only natural that you can’t be an expert in everything. It can be a smart and fruitful decision to hire experts in specific fields and draw on their expertise. Thanks to their know-how, things will get done quicker than if you had to struggle through challenging tasks yourself.
Become more productive
When someone else takes care of certain administrative or standardised services for your company, you can devote your resources to your core activities and areas of expertise. As a result, you’ll likely become much more productive and efficient in what you do, since more time can be invested directly into your productive areas rather than back-office tasks.
Reach the global market
If you are planning to expand internationally, having service providers on the ground in your target markets can be incredibly helpful. You’ll gain direct access to your customers and will be able to service them in their own languages. Customers will feel appreciated and understood and be more likely to buy your products or services, thus boosting your sales. A win-win for all parties!
When is it best to avoid outsourcing?
Outsourcing can sometimes lead to criticism too, so it needs to be considered carefully. Here are a few frequently raised points of criticism.
Local job losses
When you choose to hire an offshore provider, local companies in particular will naturally lose out on these opportunities. Local job losses are therefore an unintended yet significant consequence of outsourcing in business. Some people might argue that this can damage the Australian economy. Depending on your industry, this might be an important consideration.
Sharing sensitive data
For some services to be performed, you will need to share sensitive company or customer data with your hired third-party provider. You need to be sure that you’re not breaking any Australian confidentiality and data security laws, on the one hand. And, on the other, you need to avoid any risk of data leaks. If a third party leaks any of your sensitive data, this could have disastrous consequences. Watertight non-disclosure agreements are therefore a must when outsourcing. And, of course, it is always a good idea to consult an international legal expert before outsourcing abroad.
Lack of control over provider
When you give someone within your organisation a task, you can closely supervise them and monitor their progress. If the job is outsourced to someone far away from your offices, you will be unable to keep an eye on proceedings and will have to trust that they are doing the right thing. This lack of control over your hired providers is something you need to be comfortable with before outsourcing. What’s more, unstable geopolitical conditions or changes to international laws can also affect your third-party provider’s ability to meet their obligations.
Negative publicity
Some industries may be more sensitive to outsourcing than others, but it’s worth bearing in mind that any business outsourcing may lead to negative public opinion of your company and thus damage your reputation. The public often prefers to see companies hiring local talent rather than investing in services farther afield or overseas. So consider how outsourcing may affect your employer brand, both in terms of public opinion and hiring future talent.
Related: Employer Branding Matters More to Job Seekers Than You Think
Australia’s changing economic landscape and our increasingly digital age mean more companies are forced to keep up with their competition by turning to innovative solutions such as outsourcing. As long as you make an informed decision and are aware of the pros and cons of outsourcing business either domestically or abroad, you’ll find that outsourcing can very much pay off.
