Outsourcing is the practice of hiring someone outside of your business to complete a specific project or task. The work that would either fall onto the business owner’s plate or require an internal hire can be completed by a third party. Outsourcing is completed by a number of different types of people and businesses, from individual freelancers to large businesses specializing in a single function. Outsourcing is different from offshoring, which has been a big political issue in the past. 

Read the white paper about outsourcing in here: Why Outsource Your Web Development and Top Mistakes to Avoid

Company successfully outsourced are certainly well aware of the advantages of outsourcing, but it is also worth remembering its disadvantages because it is not a solution for everyone. First, outsourcing may help non-digital businesses cut project development expenses. Second, it provides a chance to recruit highly skilled individuals talents for a specific project. However, IT outsourcing has several disadvantages. In our post titled Software Development Outsourcing Models, we discussed the many forms of IT outsourcing, and now we'll highlight the main pros and cons of it.

Pros of Outsourcing

What are the pros and cons of outsourcing? There are benefits that impact the company that outsources directly and others that could impact the local or foreign economy. Here are the top four pros to outsourcing.

Improved focus on core business activities

Outsourcing can free up your business to focus on its strengths, allowing your staff to concentrate on their main tasks and on future strategy.

Increased efficiency

Companies generally decide to outsource the production of goods and services if they think it can save them money and, by doing so, increase company profits. The most frequently cited example of this has to do with labor costs. Companies might outsource and/or offshore to a country that has lower labor costs. While some might see the local job loss as a negative effect of outsourcing, the increased profits that can result are hard for companies to resist. Companies may also outsource to save themselves the expense of training and hiring all in-house employees or to scale their business.

Reduce software development costs

Cost savings achieved by outsourcing can help you release capital for investment in other areas of your business.

This is one of the most important competitive advantage. The rapid pace at which technology evolves means that the software development industry is ever-changing. Hiring and training software developers for a project can turn into unnecessary overhead costs.

Increased reach with high-quality software development team

Outsourcing can give you access to capabilities and facilities otherwise not accessible or affordable.

With software outsourcing services you are able to hire a diverse software development team with all sorts of skill sets. Those niche experts can help you to understand the market from a domain and technical perspective.

Flexible team capacity and scalability

An awesome thing about software development outsourcing is that it can give you a sense of ‘on-demand’ service. Imagine a scale between skills and cost (sure, it’s a loose idea), but this will help to visualize the freedom that you have with this opportunity. Scaling your project as and when you need it has huge benefits for time and money.

Greater competitive advantage

Outsourcing can help you leverage knowledge and skills along with your complete supply chain.

Outsourcing can also help to make your business more flexible and agile, able to adapt to changing market conditions and challenges while providing cost savings and service level improvements.

Increase Economic Efficiency

Sometimes companies outsource because of the opportunity costs of doing or producing a good or service themselves. For example, a CEO of a consulting firm might outsource their back office ERP implementation to another low cost country (i.e Vietnam, Philippines, Malaysia...) because she feels her time would be better spent meeting with big clients and getting her tech team up to speed than with managing tech team.

When highly skilled people can outsource lower-value tasks and spend more time on high-value tasks, businesses tend to benefit. Proponents of outsourcing say that it can also increase overall efficiency in the economy by distributing tasks to people who have the appropriate skill level for those tasks and letting highly skilled workers be more productive.

Outsourcing benefits our economy because it lowers inflation, allows employer and consumer spending, and increases productivity and lowers interest rates. This is commonly referred to as the trickle down affect. Workers in developing nations will get new and higher-paying jobs, and consumers in the U.S. will be able to buy products that are cheaper than if they were made in the states.

Cons of Outsourcing 

When you’ve decided to outsource work, no matter how much, it can have a big impact on who you hire, the business itself and potentially the economy. Let’s look at the four biggest cons to outsourcing on a wide scale.

Offshore outsourcing issues

Offshore outsourcing, although potentially more cost-effective, may present additional challenges such as hidden costs of provider selection or handover, severance and costs related to layoffs of local employees who will not be relocated internationally, etc. Even simply managing the offshore relationship can prove challenging due to time zones, different languages or cultural preferences.

Communication and culture issues

A recent study showed that nearly 90% of businesses believed communication to be one of the key challenges with outsourcing capabilities. This can arise from a number of factors such as culture (both national and organizational), language, and the distributed nature of teams.

This can be further compounded by the client/service provider dynamic, where service vendors staff might feel compelled to be agreeable towards the client and not challenge unachievable requests, ultimately leading to disappointment when results do not materialize.

Lack of Transparency

More and more, consumers want to know where their products came from and who made them. Outsourcing makes this kind of transparency difficult. A U.S. company might outsource part of its business to a company in, say, Vietnam, which might also outsource to another Vietnam company for staffing.

Lack of control over the process and management

As a business leader, it may feel uncomfortable and alien to be handing over vast swathes of the infrastructure management and processes of your organization to another outsourcing company and indeed this perceived loss of control can be disconcerting. Critics of IT outsourcing argue that no external supplier can match an in-house team's responsiveness and service levels, partly because the vendor is not subject to the same managerial direction and control as your workforce. Of course, the lack of control itself is not a risk, but rather what may arise as a result.

Lack of experience with remote teams

We're in an era where working remotely is becoming increasingly common. Many businesses, in fact, are totally remote. Remote teams allow companies to tap into a larger talent pool and allow everyone to work where and how they are most productive.

It Can Backfire for the Outsourcing Company

Outsourcing isn’t always a money-saving home run for the companies that do it. They might find that the company they’ve outsourced to misses deadlines, doesn’t perform well or otherwise, has a negative effect on business. There may be communication problems or costs might exceed expectations. For smaller companies, in particular, outsourcing can be a gamble.

The Bottom Line

Outsourcing is a good business strategy for companies seeking a competitive edge in finding low-cost labor. This allows these companies to boost profits and pass lower costs on to consumers.

Outsourcing also has a number of unintended consequences such as lowering barriers to entry and increasing the level of competition a company has. It also has effects on brand loyalty and satisfaction; both for a company's employees and its customers.

Last but not least, partner with Asian outsourcing vendor for streamlined business solutions

TIGO Software, is a software outsourcing Development Company established in Vietnam with more than 10 years of experience. Collaborating with TIGO Software can bring you numerous opportunities for business growth. That is the reason many businesses have reached out to TIGO Software to get expert advice from software development to technology stack selection and project management, including overcoming communication barriers and the challenge of finding a technology partner to ensure the delivery of results as expected. Besides, TIGO Software also helps businesses with the management process of transferring knowledge and accountability to ensure project continuity and quality.

TIGO Software has years of experience working with clients from Europe and the United States and introducing the new offshore development team working alongside the existing in-house team. 

TIGO Software can help you to access the large pool of IT talent in Asia and beyond, and our consulting services team will guide you through your outsourcing engagement, from beginning to end. Get in touch today! 

Contact us for streamlining your business: info@tigosolutions.com