Outsourcing is hiring third-party companies or professionals to focus on certain core tasks, reduce costs, make fixed costs variable, benefit from the relevant supplier’s investment and creativity, and accelerate time to market. The third-party service provider arranges for its workers or computer infrastructures to perform the tasks or services on-premise at the hiring firm’s facilities or at remote locations.

The success of outsourcing is reliant on the business relationship between the in-house and third-party companies. Creating a trusted relationship is more complicated than establishing service levels. As a result, the primary company should incorporate an exit clause in the service contract and present the timelines of the activities in the agreement.

The outsourcing market is a booming business. Specifically, the global outsourcing market amounted to USD$92.5 billion in 2019. North and South America received the largest share of the revenue of USD$62 billion, followed by Europe. Globalization and widespread internet usage have contributed to the growth of the outsourcing market. 

History Of Outsourcing

The practice of outsourcing can be traced back to the late 18th Century during the industrial revolution. The US would import raw materials from India and have them processed in Scotland. The US shipped the outputs from Scotland and used them as inputs for industrial products. Modern outsourcing became a legitimate business model in 1989. 

During this initial phase of modern outsourcing, organizations and businesses sort out ancillary services from other companies. Publishing companies, for instance, outsourced composition, printing, and fulfillment services. The 1990s ushered in the next evolution stage, where companies focused on reducing production and service costs. Outsourced services included accounting, human resources, data processing, internal mail distribution, and security.

In the 21st century, organizations outsource a variety of tasks or services. They frequently outsource information technology (IT) services such as programming, advertising, application development, and technical support. Different organizations, like a design agency Bristol, have specialized in connecting companies with third-party service providers in marketing, advertising design, and web development. The common types of outsourcing include:

• Onshoring involves relocating work or services to a lower-cost location within the company’s own country.
• Offshoring is the relocation of work or services to third-party providers overseas.
• Nearshore outsourcing involves work or services performed by people in neighboring countries rather than in an organization’s home country.

The trend of outsourcing services and labor is still on the rise, with no signs of slowing down. Remote working is a by-product of outsourcing and it benefits multiple organizations. The following represent the benefits businesses can get out of outsourcing.

Benefits Of Outsourcing 

• Cost Reduction On Staff Hires

Cost reduction is the primary reason for outsourcing. Contracting a trained professional’s services is cheaper than hiring a new team member. The company expels funds to search for new hires. Furthermore, new hires require training and time to acclimate to company culture. Finally, the new team member will need health benefits and allowances as per team member contracts. 

More team members mean the company will need more equipment and office space. Outsourcing allows organizations to save costs by neither purchasing equipment nor expanding office spaces. Moreover, creating new departments to support certain auxiliary services would cost more than outsourcing them to companies or people skilled in those areas. 

• Resource Management Tool

The evolving business landscape presents different business models and management methods in various industries. This dynamic nature fosters local and international competition. Therefore, outsourcing can achieve more efficient and profitable results letting a business focus on its core competencies and offloading the remaining functions to third-party providers. As a result, outsourcing has become a global production and resource management tool.

• Hiring Specialists

The new company hires tend to be untested professionals who require some probation time to test their skills. Organizations are often in highly competitive environments. Outsourcing to skilled and tested specialists reduces company workloads. Handing tasks to experts who can give them 100% focus will divert a company’s efforts to its core business. 

• Time Management

Smaller IT tasks such as social media management, content creation, email marketing, admin and filing, and invoicing can be outsourced by the company. Taking these tasks off one’s plate allows the focus to be concentrated on growing and improving your business. Furthermore, because each task you outsource is now in the hands of a specialist, you will save time on project management.

Conclusion

Outsourcing is beneficial for businesses when managing time and resources and cutting unnecessary costs. Organizations also have the opportunity to grow and expand globally once auxiliary services become outsourced to third parties.