Contracting Out: Why Do Companies Decide to Outsource?

Why do companies decide to outsource? Five reasons: to cut costs, reduce operational risks, save resources, access global talents and increase flexibility.

The advances in technology, the evergreen flow of ideas and economic interdependence — if we take all these in, it’s hard to deny what Stephen Covey is insinuating that outsourcing is inevitable.

Simply put, outsourcing fits right into what globalization enwraps.

So, if you’re a business owner who’s looking to scale your company, you should quit fiddling with the menial tasks and embrace contracting out, so you could win the war on talent, cut the costs and fire up your core competencies.

In this article, we’ll answer the million-dollar question: Why do companies decide to outsource?

If you want to know what motivates small and large businesses to send their tasks to other countries such as the Philippines and India, then you should stick around and keep reading.

What Is Outsourcing?

Outsourcing is a business practice where a company hires a third party on a contract to perform specific tasks that were usually handled by in-house employees.

Introduced in 1989 as a business strategy, outsourcing became a vital piece of business economics in the 1990s. It was often used by large companies to reduce costs, thus, hitting a nerve point on a wide range of domestic jobs. As such, this business tactic stirred some unwarranted bad press.

Nevertheless, supporters were quick to point out that outsourcing promotes a free market on a world-class level while allowing companies to effectively allocate their resources.

What Is an Example of Outsourcing?

Take for instance your company’s human resource acquisition, outsourcing transpires when you’re hiring an external worker to handle some of your most time-consuming HR tasks that include recruitment and payroll processing.

In practice, your human resource VA will take care of finding candidates, creating and posting job listings and conducting interviews, working hand-in-hand with your in-house HR staff.

What Are Some Jobs That Are Commonly Outsourced?

So, who is interested in outsourcing?

Business owners seek external contractors for a variety of reasons. Mostly, they outsource because they need specialized skills on a particular task, temporarily. This business strategy allows companies to meet their goals, without having to waste resources on training employees and committing for the long-term.

If you want to indulge in the same perks, you may want to start with these commonly outsourced jobs.

  • Customer Service Agents
  • IT Support
  • Bookkeeper
  • Human Resource Specialist
  • Writers
  • Graphic Designers
  • Researchers
  • Personal Assistant
  • Computer Programmer
  • Social Media Manager
  • Proofreader
  • Lead Generation Specialist
  • Drafters
  • Event Manager
  • Legal Counsel
  • Project Managers
  • Appointment Scheduler
  • Digital Marketers
  • Tax Preparers
  • Data Entry Operator

Why Do Companies Decide to Outsource?

Thinking about the value chain of outsourcing, it’s not hard to see why businesses love to outsource.

Check out our list of the 5 reasons why companies outsource.

  • Cut Cost

    Operation and labor costs are two main reasons why company costs pile up. Now, if you choose to outsource, you’re going to cut those expenses tremendously.

    Business outsourcing allows you to tap into talents from low-cost countries like the Philippines which are way, way, cheaper to hire than their local counterparts.

    Other than that, remote workers also take care of delivering their service. This means you don’t need to pay for office rent, equipment or utilities.

    And since these third-party providers aren’t exactly employees, but rather contractual workers, they don’t enjoy the compensation perks like full-time in-house staff do — no health care insurance or paid leaves to add up.

    If you take all of these into account, you’re about to save tons of money, allowing your business to scale faster.  

  • Reduce Operational Risk

    One of the aspects that make outsourcing services enticing is that you get to share operational risk with your offshore support.

    As we mentioned, virtual assistants take care of the requirements needed to deliver their service. This means you can rest in comfort knowing that they’ll be responsible for their workplace setting, a high-speed computer, a working phone and internet.

    At the same time, when daily tasks become overwhelming, you won’t have any problem scaling your VAs with your full-time hires to meet those task demands.

  • Save Resources

    If you’re a small business owner, you’re probably running on limited resources. With inadequate resources you have, you must allocate them wisely.

    Think about this, in an eight-hour stretch, your time could be easily eaten up by answering calls, replying to emails and data entry. Juggling these repetitive activities on top of the core tasks will drain your output quality and work-life balance, and that’s why it’s better to outsource.

    Outsourcing saves you time, money and energy, important resources that you could’ve used to take care of your core responsibilities.

  • Access Global Talent

    In outsourcing, you have a wealth of capabilities to explore. You can hire anyone virtually from across the globe.

    And with a broader pool like that, you can access diverse talents who can speak different languages and support varying markets. This also means more chances of finding the right person for the job and achieving the best results.

    This is particularly helpful when you’re outsourcing a task that no one in your organization knows or has experience of doing. Instead of spending time learning and training, you can delegate it to someone who can do it efficiently with high-quality results.

    Without the trouble of bottleneck hiring, your company can continue growing.

  • Increased Flexibility

    What happens when an employee suddenly quits?

    The workflow is disrupted — missed deadlines, project cancellations and loss of opportunities. You could find a replacement, but that would take time with recruitment and training.

    When you’re outsourcing work to a competent virtual assistant, you’re keeping up with business operations without pauses in having to hire and train new employees.

    It’s also easier to scale operations up and down, depending on your needs which ultimately helps you manage cost-effectively.

    In this fast-paced business landscape, being agile means staying competitive, despite the constantly shifting conditions and demands. Remember, bending without breaking is the key to surviving the evolving market trends.

Why You Need to Outsource Your Business?

Nowadays, outsourcing is an essential piece of business growth. If you don’t allow yourself to outsource your weaknesses while your competitors are doing just that, you’re putting yourself out of business.

The reality is, companies thrive when they’re teaming up with external firms. Of course, there are still many industry leaders who deprive themselves of this movement and are hesitant to jump on board. But like we said, there are too many advantages of outsourcing for you to just pass up.

If you’re unused to this modern approach, it might be difficult at first to manage a hybrid team or a remote team. But with new technology and collaboration tools, performances can easily be monitored and measured. Remote team members can follow through on ongoing projects and upcoming ones without delay.

The thing is though, outsourcing allows you to access better services, and in turn, remote workers with skills and immense potential won’t be wasted.

To Sum it Up!

At the height of globalization, where your next competitor is a click away and customers are online almost 24/7, outsourcing is your best bet in keeping up with the competition, cost-effectively.

Yes, the purpose of outsourcing varies from the unique needs of every company. But overall, it is being leveraged by many to lower costs, improve efficiency and gain speed.

Truth be told, “Outsourcing is a powerful tool to leverage talent, productivity and work cycle.”

Experience all of these for yourself, outsource your business process or service to an expert; hire a virtual assistant!