The practice of offshoring means having the outsourced business functions done in another country. This type of Outsourcing grew in popularity before nearshoring and reshoring did. Work is often offshored in order to reduce labor expenses.
The evolution of outsourcing has led to a wide variety of available services today. Though at one time, the idea of outsourcing was unheard of, in today’s global economy, it makes more sense than ever before. With quick lines of communications across countries, it’s much easier (and more cost-effective) for domestic companies to use outsourcing services based in other parts of the world. It helps cost cuts, increases productivity, and enhances quality.
The Evolution of Outsourcing
The idea of outsourcing certain areas of a company didn’t really dominate the business sphere until the Industrial Revolution. Companies began outsourcing because production rates had increased rapidly and businesses needed help, which led many to wonder what else could be outsourced.
By the 1990s, organizations began to focus more on cost-saving strategies. This included functions that are necessary to run a company but are not specifically related to the core business. Companies started contacting emerging specialized companies to deliver outsourcing services such as accounting, human resources, data processing, internal mail distribution, security, and maintenance work.
Today, there are many different types of outsourcing that can increase a business’s productivity and reduce costs. A few of the main categories include:
Companies across the globe offer specialized services to help companies in different countries with their outsourcing, which is known as “offshoring,” “nearshoring,” or “reshoring,” depending on the location. With more and more types of services on the rise, outsourcing in general has continued to grow in popularity as companies look to reduce business costs while improving performance.
Types of Outsourcing
Professional outsourcing includes accounting, legal, purchasing, information technology (IT), and IT or administrative support amongst other specialized services. This is one of the most popular types of outsourcing as there is potential for high cost savings. The company pays only for services actually provided while having access to high quality resources, which significantly reduces overhead costs.
One of the most common services today, IT outsourcing involves subcontracting an outside organization to take care of all or part of a business’s IT needs, which range from software development to maintenance and support.
Almost every type of business today has IT needs or at least works with technology on some level, making it a commonly outsourced department. For many companies, it ends up being less expensive to contract a third party IT management team than to build an in-house one. Enterprises will often use IT outsourcing to store and manage data, but most large businesses only outsource a portion of IT functions.
Manufacturer outsourcing services are usually quite industry-specific. An automobile manufacturer, for example, may have an outsourcing arrangement for building and installing windows in all their models. Such outsourcing arrangements can result in significant cost reductions and quicker assembly time.
The only primary risk of this type of outsourcing would be quality issues and perhaps interruption of the production line. Many believe manufacturer outsourcing is also essential for small and mid-size businesses to survive today's non-stop competitive market.
Without the help of third-party companies, some businesses simply lack the economies of scale that allow them to compete with larger competitors. Fewer companies have the ability to actually invest in and continuously upgrade equipment, personnel, and process technology necessary in order to compete in a market where product lifecycles are shrinking.
Today, it is very common to outsource specific operation-related aspects to other companies or units that specialize in that particular service. For example, a bakery can outsource the delivery of a packaged cake to a courier company like UPS or FedEx. Such a contract would then involve details on delivery timelines, customer contacts and costs, which allows each company to focus on its strength and improve customer service all while reducing costs and time. Process outsourcing is also used to describe the practice of handing over control of public sector services such as fire, police, armed forces, etc. to for-profit corporations.
Sometimes companies have trouble managing one of their projects or even completing a portion of a specific project. This is why many will outsource the project to a project management company. In some cases, the company may not have enough in-house people with the necessary skills to work on the project. It may also cost more to complete the project in-house than to outsource to another, more qualified company.
Outsourcing: Everyone’s Doing It
Companies should recognize the benefits of outsourcing specific projects or areas of their business to help boost productivity and run a more efficient business overall. Consider areas where your business might benefit from outsourcing, and explore some of the other outsourcing services available to you.
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