Understanding Outsourcing and Its Impact on Businesses

Business outsourcing solutions have become a mainstay in the global markets, and depending on the industry and emerging demand, relying on third-party companies to assume non-core functions is one of the more affordable strategies available. Furthermore, the emphasis on connecting with businesses from across the globe has enabled enterprises to access a diverse talent pool, paving the way for greater interconnectedness and allowing smaller businesses to rival their larger counterparts.

However, given the many economic disruptions experienced over the past two years, most business owners and entrepreneurs are tight on their budgets and can’t expect rapid economic growth and opportunities to sustain business expansion. As a result, it now begs the question of whether outsourcing a portion of business operations is still a viable model in 2022 or if businesses must assume control over their operations management to recuperate losses.

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Why Do Companies Outsource Non-Core Functions?

To put it simply, outsourcing non-core functions provides companies with the capacity to focus and allocate all their resources on more impactful business processes such as production, innovation, and distribution, as opposed to basic administrative tasks. As a result, companies benefit from (1) reduced costs and overhead on operations management and (2) reduced exposure to risk and inefficiencies, effectively lowering the margin of error.

  • Reduce Overalls Costs of Operations

    In today’s global economy, costs are rising at an exponential rate, with even more established brands like Ben & Jerry’s expected to lose significant profits for the year ahead. And provided this constraint, outsourcing non-essential business processes to third-party companies can alleviate some of the financial stress on the bottom line. Therefore, based on economic benefits alone, outsourcing solutions are still evaluated as a net positive.

  • Reduce Exposure to Risks and Inefficiencies

    Besides the cost benefits of employing global talent, keeping everything in-house exposes the business to overlapping tasks that create inefficiencies and waste resources. And while investing in management and supervision controls can help to compensate for some shortfalls, this circles back to more expenses in the long term. In contrast, outsourcing these functions removes the management challenge entirely, allowing for smoother operations.

Are There Inherent Advantages To An In-House Approach?

Likewise, despite the benefits of outsourcing solutions over an in-house team, there are still inherent advantages to the latter approach under the right circumstances and can even be better for overall business growth. Specifically, keeping non-core functions and other related services under one management provides (1)better oversight of the internal environment and (2) ease of communication and skills training for employees.

  • Better Oversight on Internal Control Procedures

    When managing the latest car models for sale or running a successful restaurant franchise, outsourcing services like financial management can expose you to delays. But if you choose to keep an in-house team instead, all the necessary paperwork and documentation for your audit trail are within arm’s reach. As a result, management over your internal environment is far superior when using an in-house approach.

  • Ease Of Communication and Skills Training

    Third-party companies operate under their rules, regulations, and business practices, and while the price they offer is competitive, there are zero guarantees that your work cultures or standards will match. Of course, that’s not to say these firms are inferior because there are numerous globally-recognized companies today, but it does increase the risk of miscommunication and a gap in quality assurance for work provided.

What Do Global Trends Dictate Right Now?

Last but not least, we can’t form our perspectives and decisions around the merits of outsourcing and in-house models alone without accounting for the current global trends present today. And when we implement these strategies within the context of (1) an economy struggling to maintain growth projections and (2) global supply chains still coming to blows with constraints, the tipping scale changes favor.

  • Economic Growth Projects are Staggeringly Low

    Although the previous year created optimistic outlooks on further economic growth and recovery, current market sentiments predict a slowdown in bullish momentum. And with prices increasing and the fears of inflation looming over industries, cutting back on costs will become necessary in the quarters ahead. As a result, outsourcing to third-party companies can help sustain current operations without sacrificing more resources in the process.

  • Desperate Need For Sustainable Supply Chains

    Global supply chains are still suffering from the adverse effects of the global pandemic, and with most JIT inventory systems operating at suboptimal levels, there is a desperate need for more sustainable operations. So, for companies that strictly focus on distribution and warehouse management, redirecting funds back to in-house channels and teams will become essential in building back losses and preparing contingencies for longevity.

Striking a Balance Between Both Methods

Overall, both business strategies offer distinct features, and depending on your circumstances; one approach will appear the better decision on paper. However, we recommend that you strike a balance between both methods to reap the benefits of each one without sacrificing too much of the other.

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