New activities often arise when your company grows, or existing activities require expansion (larger transport centers, higher need for customer service, etc.). For example, many companies choose to outsource ICT security because it is cheaper and leads to better results than doing it yourself. But what does outsourcing exactly mean, and what should you take into account?
What does outsourcing mean?
Outsourcing is simply the outsourcing of tasks. You commission a third party to perform this work when you outsource work rather than doing it yourself. This can concern tasks that were previously performed internally, but it can also concern tasks that you as a company have not previously dealt with.
There are different forms of outsourcing.
Outsourcing is the umbrella term for on-shoring, near-shoring, and offshoring.
On-shoring stands for outsourcing the work in one’s own country. For example, an IT company in the USA that has its website restyled by a company in Virginia. We call this On-shoring.
If you as a company have a remote IT team working from, for example, a country like Ukraine, you call this near-shoring. With near-shoring, you outsource work to a surrounding country or a country with a maximum time difference of 1 to 2 hours.
Offshoring means that you outsource the work to an employee or employees who are stationed far away. You should think of a country in another continent with a considerable time difference of at least 5 to 6 hours. Imagine that a company in Mexico has a remote team of IT professionals working in India. We call this offshoring.
Hopefully, after reading this blog, you will have a clear picture of what outsourcing and its forms exactly entail. Let’s view its advantages and disadvantages and which form of outsourcing could best suit your company.
Pros and Cons of Outsourcing
Of course, outsourcing has many advantages but also some disadvantages. Let’s look at them.
The benefits of outsourcing
Outsourcing tasks can bring many benefits. For example, you can outsource work that you do not have time for yourself or for which you do not have the necessary skills and resources. This allows you to focus on activities that fully distinguish you as a company.
Less staff costs
Life is often a lot cheaper in the countries where near-shoring and offshoring activities occur, resulting in lower personnel costs. Operational costs are also often lower in the near-shoring countries.
Grow your business quickly
You can serve more customers or take on more projects by scaling up quickly. This, in turn, results in higher turnover and profit.
Big time gain
The local recruiters easily fill the vacancies where you are going to outsource, so you no longer have to interview the applicants yourself, promote vacancies, and employees no longer need to be trained internally.
Large fishing pond with talents
In our own country, certain programmers are very scarce. For example, many IT talents are still around in a country such as Ukraine who can fill niche profiles. These often young people are eager to start working for a great European company and are often motivated to the core.
For example, with an outsourcing partner who is on the other side of the world with a considerable time difference, you can let the teams work 24 hours a day without burdening them with a night shift. Things to consider carefully before you decide to outsource.
Disadvantages of Outsourcing
If communication does not run smoothly, miscommunication can occur. This may result in the employee not performing the assignment properly. Obviously, this chance is smaller if the same language is spoken. It’s always good to meet the employees yourself, but you do this faster if your remote team works from a nearby country.
It can also be a disadvantage if there is a large time difference in the country where your remote team is working. Communication is often difficult. If you want to speak to them, you have to do it late in the evening or at night. If you opt for near-shoring in a country such as the USA, you will not be bothered by the time difference.
Every country has a different culture. Sometimes you have to get used to working together, and culture can also be an obstacle. This can cause miscommunication. As a foreign remote team manager, it is important to immerse yourself in their culture so that you are not faced with strange scenes.
Travel distances to your remote team
Of course, it depends on where your remote team works from. With Near-shore outsourcing, your remote colleagues work in a country with a maximum time difference of only 1 to 2 hours. While offshore outsourcing, your colleagues work in a country with a minimum time difference of 5 or 6 hours, such as Pakistan. This is, of course, a lot more difficult to visit here.
Simply put, IT outsourcing is a form of outsourcing where the IT activities are outsourced to another company. An example of this is that the storage of data is outsourced. It is cheaper not to buy the data storage devices yourself but to use them and have them maintained by another company.
WHICH IT FUNCTIONS ARE OUTSOURCED THE MOST?
- Web development: front end, back end, and full-stack developers
- Application and software development
- Website application maintenance or management
- Software testers
- Database development and management
- Technical Support
EXAMPLES OF IT OUTSOURCING
There are companies all over the world that you could hire to take care of outsourcing. With IT outsourcing, it makes little difference whether the company is in the same country, 2 hours away, or on the other side of the world.
For example, a company that is located in Michigan where the IT team is located in Pakistan. Or a Belgian company that has its full-stack developer work from Ukraine. These are both examples of outsourcing.
REASONS FOR OUTSOURCING
There are many reasons why a company should choose outsourcing.
Reasons for outsourcing are:
- Certain niche profiles that cannot be filled locally:
IT professionals trained in specific programming languages can be in short supply locally. Outsourcing is then an easy way to fill in the niche profiles.
- Cost reduction
Labor costs can be 30 to 40 percent cheaper in, for example, the USA for a senior full-stack developer. This cost-saving can, in turn, benefit other investments in the company along with flexibility and quality.
- Scale up or down staff quickly
If you unexpectedly need extra hands, it’s nice to be able to scale up quickly. Even if a company needs extra hands for a short period of time, this can easily be done by outsourcing the project. For a start-up, outsourcing is, of course, ideal so that a lot of work can be done within a short period of time.
- Outsource easy work
When a company outsources certain business processes, internal staff can focus on important and meaningful activities.
Things not to overlook when considering outsourcing:
These costs are sometimes forgotten but can add up considerably and also cause considerable delays. You can include all costs related to the transition from the old situation to the new situation under switching costs. These costs include, for example, the personnel and production resources (perhaps even real estate) that were deployed for this purpose. Do you want to get rid of this, and what are the costs? And how willing is your staff to make the transition smooth? It is also good to realize that activities that you want to outsource may be involved in other activities that you want to keep internally. Make good considerations about this beforehand.
Nature of work:
Is the work you plan to outsource part of your core skills? Then it is probably wiser to keep it internal. In that case, a lot of knowledge is lost when you leave these tasks to another party.
Transaction costs and specific investments:
Transaction costs are almost always underestimated. It isn’t easy to estimate this in advance. Even more, risks are involved with investments made, especially for specific collaboration. You are then less flexible to switch to another party and the risk of delay for both parties increases. It is very important to make clear agreements in advance with the party to whom you want to outsource activities, for example, about who will bear which costs.
So it may be a good idea to outsource an activity when it is minimally intertwined with other tasks, the sunk costs of labor and production resources are low, it is not part of your company’s core skills, or when you have a clear of the transaction costs and necessary investments. Of course, you want to end up at the bottom of the line with lower costs and/or higher quality.
Make the right decision before you do business with someone.
Have you made the decision to outsource a particular activity? Then it is just as important to make a well-considered choice with which party you will do business with. Can it keep its promises and meet financial agreements?
Carrying out a supplier analysis beforehand is therefore strongly recommended. This analysis gives you insights into the financial health of a potential supplier, how suppliers relate to each other and the market, and damage to the supplier’s image and continuity.
Are you facing the difficult decision described above? Or want to outsource some tasks like web development? Count on us. MavenUp Creative is a premier digital marketing Company and the right supplier for all your digital needs. Call us today to hire our services.