There are numerous reasons for outsourcing some types of work functions. Business owners and corporations choose this option as a way to save money in company operations, maneuver the company into a more competitive position, and to solve manpower issues without the cost of hiring more employees.
1. Reduce Cost of Operation
The biggest motivating reason for a company to outsource is to save money. There are many reasons a company may want to reduce operating costs. There might be a problem with a supplier or a cost increase in materials and the company needs to reduce costs to stay competitive with its products. Another reason may be the need to downsize due to a merger or acquisition.
2. Save on Training Costs
Within the overall cost savings for outsourcing, a company also saves wages, benefits and training costs. The training period for new employees is eliminated when skilled workers can immediately step into the position the very first day.
3. Free Up Resources
A company may need to outsource a department in order to free up experts needed on other projects. Business expansions often require additional duties for existing personnel and outsourcing is a good solution for having too few personnel to fill the new demands. According to Business.com, some companies use outsourcing as a way to free up capital, so it can be invested in other areas of the corporation.
4. Company Restructure
The company business model may need to be restructured. The duties of existing personnel may have changed in order to fulfill important positions. Instead of hiring more experts to back fill those jobs, some companies view outsourcing as a better option. Forbes agrees that outsourcing provides companies with more options for experts and other talent.
5. Improve Productivity and Efficiency
A company may be seeking ways to improve its efficiency with its allotment of manpower. This might be in production where there is greater expertise outside the company. For example, a laptop company might find it more profitable to outsource the manufacturing of electronic components to an OEM (Original Equipment Manufacturer) instead of attempting to produce in-house.
6. Reduce Business Risk
There are times when companies may not wish to shoulder the burden of a specific function and find by outsourcing it, they can reduce the financial risks. This is especially true when a company turns to an outsource highly experienced in a specific service.
7. Meet Compliance Requirements
The Wall Street Journal describes how a company facing compliance requirements, may decide to outsource the compliance team instead of adding stress to their existing workers. This requires overview since handing over this type of responsibility to a third-party has risks that may be outweighed by the lack of experience and capability of the company being able to meet the compliance demands.
8. Lower Wage Requirements
Many outsourcing companies, as well as individuals, can provide the same in-house services for a lower cost. This saves companies from needing to hire personnel at higher pay rates.
9. Tax Benefits
According to Lexology, the 2017 Tax Cuts and Jobs Act may incentivize corporations to bring outsourced jobs in foreign countries back in-house to the U.S. Much depends on the company structure and which services are outsourced.
10. Transitioning to New Systems
A company may find itself in the throes of transitioning to a new computer system or manufacturing system. It may behoove the company to outsource the positions responsible for installation and training of in-house talent. This might be a temporary outsourcing to ensure uninterrupted continuity in business operations.
11. Loss of Market Share
A company may choose to outsource due to the loss in its market share to competition. In some instances, a company might choose to outsource its sales department.
12. Specialize Functions and Services
Some companies may find that outsourcing specialized functions and services is more cost effective. For example, a company wishing to provide a cafeteria for employees most likely would outsource to a professional catering service. By the same token, companies may choose to outsource their IT needs.
Understand the Reasons for Outsourcing
There are many reasons a company may consider outsourcing. Outsourcing remains a choice for companies needing cost-effective manpower solutions.