Outsourcing has evolved from a cost-cutting, stop- gap measure to a critical process for maintaining profitability while reducing risk during times of economic turbulence.
It has continued to grow in the last 15 years because it has proven to be effective in helping businesses regardless of size and scale to navigate unfavorable conditions.
Here are 8 reasons why outsourcing is growing so fast:
1. We Live in a VUCA Economy
VUCA is the acronym coined by the Army College to describe the post- Cold War era. It stands for Volatile, Uncertain, Complexity and Ambiguous.
The “Fall of the Berlin Wall” is widely recognized as the event that ended the Cold War between the United States and Russia. It became the impetus for rigid political structures and economic barriers to fall down and encourage greater global collaboration.
But events in the new millennium exacerbated the need for economies to come together and mitigate the damaging effects of global turbulence. These events included:
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9/11
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2003 Collapse of Global Equities Markets
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2003 Iraq Invasion
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2009 Euro Zone Crisis
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Global Recession
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Global Warming
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Tensions between Russia – Ukraine
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Tensions in the Middle East
All of these events created volatility, uncertainty and made conditions for business complex and ambiguous.
Outsourcing became the popular hedge versus VUCA. As proof the growth of outsourcing coincided with the new millennium. From a $45 Billion industry, outsourcing grew to $105 Billion within 14 years. It is estimated to be worth $584 Billion.
2. Reduces Costs of Business
The number one reason businesses adapt outsourcing strategies is to reduce costs. Outsourcing lowers costs in 2 ways:
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Capitalizes on Comparative Cost Advantages – The most significant cost advantage lies in labor. Contracting third party service providers will cost you lower than hiring full time employees.
For example, if you outsource to a Virtual Assistant, you only pay for productive hours rendered. The VA as a contracted worker is not entitled to government- mandated and company benefits.
It is estimated that the cost of a full- time employee is equivalent to 1.5 to twice his or her basic pay.
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Economies of Scale – Third party service providers are also accountable for their own costs of business. These costs include Internet, power and contingencies. You will not incur additional costs when outsourcing services.
When you expand your outsourcing strategy, it will be easier to negotiate for lower rates. Many outsourcing agencies are agreeable to reducing rates in order to receive greater work volume.
3. Improves Productivity
By delegating work to third party service providers, you can free up more time and resources to the core functions of your business. This immediately increases your level of productivity.
The cost savings you generate from outsourcing can be used to fund revenue generating projects in the pipeline. It can also be used as investments to improve infrastructure and introduce greater efficiencies in operations.
4. Enhances Business Flexibility
With outsourcing, it is easier to introduce changes or revisions in business strategy because there are less impediments.
For example, if you want to ramp up manpower to accommodate greater volume of business you can contract another agent or Virtual Assistant for your manpower roster.
You will be more encouraged to build up manpower because you don’t have to concern yourself with legalities if you have to terminate services.
If the increase in business cannot be sustained, you can simply pre-terminate the contract with the agent or VA without issue. There will be no need for adjudication and it will not entail additional expenses for separation pay and other benefits.
Another example is if you want to get creative with managing the business. If you are planning to introduce after- office customer service, you can contract outsourcing agencies from remote locations such as the Philippines and India. The time zone differential will allow them to manage your customer service operations while you sleep.
5. Automation Leads to Greater Efficiency
Technology continues to evolve in its quest to make life and business efficient and more convenient. The world has become more dependent on technology.
Transactions, work collaboration and searches are primarily conducted on the Internet. Networking, marketing and promotion and content distribution are coursed through online channels such as social media.
Mobile technology has allowed businesses to operate beyond its four walls. Outsourcing services such as customer service, big data analytics, content marketing, website development and digital marketing makes your business more efficient.
These are services that can be done without fixed hours and can be relayed through the Internet. You don’t have to fund full- time in-house teams to get the job done right.
6. Improves Quality of Deliverables
Outsourcing services improves the quality of work because of 2 important reasons:
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High Level of Experience and Expertise – You are not contracting fresh graduates or people without experience when you outsource.
Many of the agents who manage your tasks were previously from the brick- and- mortar world. They have the experience of working within a team environment and have accumulated knowledge to further their level of expertise.
You can outsource work to professionals; these include those with certifications for AutoCAD, medical transcription, billing and coding, SEO, digital marketing and website design.
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Availability of Time – Even if you have the proficiency in the skill you want outsourced, you won’t have the time. As the business owner or main decision maker, your time is best allocated to managing the core functions of your business.
7. Builds Strong Strategic Partnerships
Outsourcing can take your business to the next level not just by reducing costs and improving productivity. You can improve the overall value proposition simply by transitioning the outsourcing agreement from a Client – Service Provider arrangement to a strategic partnership.
With a strategic partnership, both parties identify and share a common interest and that is to protect and further their goals and objectives. They cannot do this by prioritizing only individual interests. By working together the strategic partners can get more work done and accomplish goals faster.
Best of all, strategic partnerships last longer. Both parties are into the partnership for the long term. When a common goal is attained, they will identify and target a new one.
8. Promotes Sustainable Business Strategies
A lesser known benefit of outsourcing is its ability to promote sustainable business strategies. There is a reciprocity effect when you contract a third party service provider.
A good example is when you outsource services to a remote location. In the Philippines, outsourcing has been declared the new engine of economic growth. The Philippines’ outsourcing industry has grown by 46% since 2006. It has generated more than 1 million jobs and added much needed export earnings in its coffers.
So not only are you reducing costs and improving productivity in your business when you outsource. You are also helping other economies grow and prosper.
What does the future hold for outsourcing? The new millennium has ushered in the new economy. VUCA is not a trend; it is the way conditions will be moving forward.
All you need to do is to read the news. New changes in political structures; many are challenging the natural course of globalization. 2016 has been regarded as one of the most difficult years in business.
Will 2017 continue the woes of 2016? Why bother to wait? Protect your business by outsourcing services.