Outsourcing allows organisation to focus on core competencies and, more importantly, cut costs and improve efficiency, all very much hassle-free. As time has gone by over the last decade or so, business owners now realize that there are many reasons that companies, both big and small, outsource various jobs, the most prominent advantage seems to be the fact that it saves money and time.

Outsourcing: Outsourcing refers to the way in which companies delegate the processes of their business functions to external vendors. Outsourcing is the process of engaging a third party or organization outside of the company, either locally or globally, to handle certain business actions. It is a collective business practice that allows companies of all sizes to develop and when they need it, without main risk or investment. Any business procedure that can be serving from an offshore location may be outsourced.

Examples: A law firm might store and back up its files via cloud-computing service provider, thus giving it right to use digital technology without investing large amounts of money to actually own the technology. A small business may decide to outsource bookkeeping responsibilities to an accounting firm, as doing so may be low-cost than retaining an in-house accountant. Other firms find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial.

Outsourcing internationally: Outsourcing globally can help companies benefit from the differences in labour and manufacturing costs among countries. Price dispersion in another country may attract a business to rearrange some or all of its operations to the cheaper country in order to rise profitability and stay competitive within an industry. Many big corporations have eliminated their entire in-house customer service call centres, outsourcing that function to third-party outfits located in lower cost places.

Benefits of outsourcing:

•    Increased efficiency

•    Focus on core areas

•    Save on infrastructure and technology

•    Access to skilled resources

•    Time zone advantage

•    Faster and better services

•    Strategic optimization: Focus on core mission and allocation of operations to more profitable activities

•    Better Supply Chain Management: Select suppliers who are leaders in their specific field

•    Market discipline: Focus company payroll and resources on growing market share

•    Technology: Gain access to state-of-the-art technologies

•    Flexibility: Resources redirect for core operations and new product development

•    Expertise due to learning curve: the idea, also known as experience curve. As a company increases production, it learns how to better use its equipment, how to standardize and optimize processes and how to better use equipment. Employees gain expertise and become more efficient resulting in higher productive and increased cost savings.

Cost advantage from outsourcing:

•    Cheaper labour and lower asset cost: the most common regions for outsourcing manufacturing are Asia, Latin America, and Eastern Europe Additionally, the cost to set up business (land acquisition, construction and so on) is lower.

•    Economies of scale due to pooling: this effect is most pronounced in manufacturing when fixed costs are high and pooling across organizations result in lower per unit cost for all.

•    Financial benefits: Improvement of balance sheet by eliminating assets

•    Lower fixed cost: in outsourcing, the company only pays for the variable cost of production and does not incur upfront fixed cost for setting up the operations. As a result, the barriers to entry are lowered. Companies that earlier found the business unviable could now enter and also be competitive.

Matters to remember when outsourcing:

•    Look for compatibility and management philosophies that align with your own

•    Focus on the best solution, not just lowest price

•    Develop detailed RFPs (Requests for Proposal), contracts that in0corporate up-to-date legal caveats

•    Share risks and rewards

•    Involve key players

•    Document the transition phase

•    Communicate clearly from the beginning

Reason companies outsourcing: company outsource to acquire the best talent in a highly specialized area and not have to carry them on payroll. Companies outsource for a decrease in labour costs or efficiency. It may be more effective to have a valet company who is knowledgeable and knows the business.

Way to begin outsourcing: An enterprise should always call other businesses that outsource the area they are looking at and get references and recommendations. It is vital to get good word of mouth and strong financials as backup. The business in question would need to be investigated by the company who is going to hire them.

Contract process: Contracts must be put together with a great legal team that is well experienced with these types of activities. No costs should be cut to find cheaper legal representation with a firm that might not be as fruitful. This takes money to save money and takes money to make money.

Outsourcing forms an incentive for businesses to allocate resources where they are most in effect. It has also been demanded that outsourcing has contributed significantly to globalization, and that it supports the free market economy on a global perspective. Irrespective of what area of business might be thinking about outsourcing, the bottom line here is that taking part in this enormously worthwhile activity will give the chance to expand business at the same time as saving expenses.

The writer is an Assistant Professor at

Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj, Bangladesh.

Email: [email protected]