Former US politician and vice chairman at JPMorgan Chase Alphonso Jackson once said, "Where the work can be done outside better than it can be done inside, we should do it."
Today, the global outsourcing industry is estimated to be worth around USD$ 90-B. It seems that most companies nowadays prefer to outsource most of their tasks, from marketing, HR, IT, manufacturing, and others.
In fact, you can even hand over entire business functions and focus on expanding your company’s skill sets.
It might sound impossible at first, but thanks to outsourcing, you can delegate almost any task to a third-party provider at a much lower rate.
- 74% of companies outsource IT
- 52% of companies outsource HR
- 43% of companies outsource procurement
- 39% of companies outsource finance
Nowadays, whole new roles have risen as a result of outsourcing, filling specific niches such as email marketing, bookkeeping, and graphic design.
We often hear that the main reason why companies outsource is to reduce cost. 59% of companies cited cost reduction as their main motivation in outsourcing. By outsourcing certain tasks, companies can stick to smaller budgets and only pay for what they need, thus making it far more cost-effective than hiring a full-time, in-house employee.
A freelancer will usually just charge an hourly rate for their work, while a direct hire will cost substantially more due to taxes and other additional benefits on top of their salary.
Developing countries like the Philippines, for example, have a much lower cost of living and wage range. The minimum daily wage in the country is at USD$ 9, significantly lower than the minimum hourly wage in the US.
For instance, software developers in the Philippines are paid an average of USD$ 7,174. Their US counterparts, on the other hand, are paid USD$ 69,589. This means that companies can save up to 70% — even up to 90% in labor costs — while still providing their outsourced employees with a decent, livable wage.
Outsourcing eliminates the need to spend on long screening and interview processes, as well as purchasing of applicant tracking systems and hiring a human resource team. There is also no need to spend on training in-house teams with new technology or updates. You can also work with an outsourced team under a project-based arrangement.
This means that once the project is over, you have the option to let go of the team, freeing you of any commitment to pay for underutilized resources.
For one, it allows companies to tap into global talent and leverage the experience of those who are experts at certain disciplines. Shortage of talent can pose a challenge to a company's growth, especially in emerging markets.
Tech company Texas Instruments managed to overcome this obstacle by outsourcing their R&D team to India. This did not only allow cost savings but also nurtured a valuable set of talents which helped them create an impressive stream of U.S. patents.
Outsourcing also allows companies to market their products faster and allows for more innovation. Procter & Gamble generated more than USD$10-B in revenue and created over 400 new products when they outsourced some of their R&D activities. It also boosted its innovation productivity by 60%.
Despite the global toy industry's lead paint crisis in 2007, toy company Hasbro and its factories abroad remained largely unaffected. This is because of their outsourced manufacturers who act as their strategic partners who work hand-in-hand with their in-shore operations as well as other overseas subsidiaries.
These offshore manufacturers help them continually monitor factories and ensure high quality standards and management systems. While quality issues are unavoidable, the seamless collaboration among these different entities allows them to act quickly when one occurs, and apply measures to keep it from happening over and over again.
Companies need to be a step ahead than their competitors when establishing a market presence. British-Swedish company AstraZeneca recognized the growing Chinese pharmaceutical market and made large-scale, multi-year offshoring investments. They also partnered with Chinese universities, government organizations, and private companies.
Today, AstraZeneca is one of the largest multi-national pharmaceutical companies producing Chinese prescription drugs.
In 2002, Taiwan-based personal computer maker Acer outsourced almost every technical task — including its manufacturing arm — to focus instead on branding and marketing. Acer hired Micro-Star International Company to create a new line of desktop computers with integrated audio and video functions.
This decision led to Acer’s faster-growing sales and gains in market share and paved the way to making them into becoming the world's second-largest PC manufacturer. The company maintains a strikingly lean and flexible in-house operation with about 6,800 employees, a tenth the size of its largest competitor.
Outsourcing does not just offer you cost-cutting measures. It also leads to learning opportunities and helps your business expand and globalize. With today's uncertain economic climate, outsourcing isn't just a strategic option but a call to take action to make your business thrive.
Hoping to delegate tasks at a much lower rate? Talk to us by completing this form, emailing firstname.lastname@example.org, calling 833-722-5310, or booking time on Calendly. Outsource with BizScale today.