Outsourcing – Concept, advantages, disadvantages and examples

We explain what outsourcing is, the advantages and disadvantages of this process. Also, some examples and what is offshoring.

Outsourcing is a business process that derives tasks or services to other companies.

What is outsourcing?

It is known as outsourcing (neologism from English: out, “Out” and source, “Source”), or as subcontracting, outsourcing or outsourcing, to the business process in which the fulfillment of certain internal tasks or services is derived to another organization, which would otherwise be more costly (in time or money) to assume.

Contracts outsourcing are generally assumed by subcontractors of specialized services in the areas most conducive to this: generally those that require hyperspecialized knowledge or a series of tools and resources that the contracting company does not have or does not want to have. For example, the areas of IT, human resources, asset management or accounting, technical support, engineering, etc.

Of course: the outsourced area cannot be central or nuclear in the business of the contracting company, and it is usually based on contracts or regular tenders, held for a certain period of time. Not always when the services of an external company are hired, it is possible to talk about oursourcing.

This practice is increasingly common in the business world, given the high level of diversification of organizational needs, and the enormous inequalities between the economic regions of a world however globalized. Thus, in many cases outsourcing represents a cost reduction that few companies can afford to reject.

Advantages of outsourcing

By outsourcing specialists in the area, greater effectiveness is obtained.

Some of the advantages of outsourcing are as follows:

  • Cost reduction. Especially when outsourcing to a small company or one belonging to a poorer economy (exploitation). This affects a higher profitability of the company.
  • Greater effectiveness. Since specialists are subcontracted in the specific area and issue that they want to attend to, which frees the company from costs and training times, purchase of materials, etc. The outsourcing yields results much faster.
  • Greater specialization. Since the subcontracted work is carried out according to the client’s needs, evaluating the conditions of each specific case.
  • Lower risks. Since it is enough to change the external service provider to change the strategy or the way in which the work is carried out, instead of reformulating an entire area and having to incur layoffs, changes or incorporations.

Disadvantages of outsourcing

Some of the disadvantages of outsourcing are:

  • Discredit. In the case of the exploitation of underdeveloped economies to carry out expensive work at a much cheaper price, paying figures far below the ethical level. Outsourcing always incurs these risks.
  • Lack of worker loyalty. Since outsourced employees do not receive their payment directly from the hiring company, but from the outsourced, so they do not necessarily feel part of the project they are working on.
  • Worsening of working conditions. Since outsourcing is cheaper and more efficient, so many companies choose not to grow or not to incorporate new staff on a permanent basis (and with all the benefits of the law), but to hire a outsourcing get the job done in a given time.
  • Lost of control. Since the outsourced company must be fully trusted. If this is from another cultural region, for example, problems of understanding may arise.
  • Lack of exclusivity. By the outsourced company, which can turn into episodes of fraud, industrial espionage, etc.

Examples of outsourcing

Examples of this practice are the order of the day. Many companies outsource Community Manager (CM) to carry their social networks, since their communications employees cannot dedicate the entire day to managing their Facebook and Twitter accounts, for example. This has created a large field of work made up essentially of young people.

The market of outsourcing It is so varied and so rich that large companies such as Accenture, IBM, Sodexo, Hewlett Packard, Genpact and many others dedicate, apart from running their own business, a good amount of their efforts and their time to outsourcing services for other large companies. and medium-sized companies in various areas.

Outsourcing vs. offshoring

The term orffshoring (of English: off, “Out” and shore, “Coast, border”) or offshoring, as it is called in Spanish, is often used to distinguish certain cases of outsourcing in which it is outsourced to a company from another country or another region of the world.

The purpose of creating this term is to distinguish the most problematic cases of subcontracting (either for ethical reasons or for specific risks that have to do with immigration: lack of effective communication, geopolitical risk, etc.) from outsourcing daily, since the latter occurs within the borders of the same country.