Outsourcing

What is Outsourcing?

Outsourcing is a business practice where a company contracts out a number of tasks, roles or processes to a third-party provider. Companies across a range of industries outsource many types of jobs to cut costs, improve efficiency and deliver higher quality goods or services. By shifting business functions to a cheaper and more efficient provider, the hiring company can focus on growing the business and gaining a competitive advantage.

Outsourcing can hurt the reputation of a business if the decision is made without considering local talent and other factors. It is important for a business to weigh up the advantages and disadvantages of outsourcing first — especially if they plan on offshoring.

Why Do Businesses Outsource Jobs?

Outsourcing jobs has been a common practice for decades in many industries. Manufacturing, customer support, writing or designing are some examples of industries where jobs get outsourced. Certain functions are more effectively managed when they are handled by an external provider.

Other popular reasons why businesses outsource include:

• Reducing operational costs

• Improving focus on core business functions

• Obtaining specialist knowledge and expertise

• Gaining access to higher quality facilities and production methods

• Reducing risk

• Accessing a new pool of talent / Make up for the absence of local talent

What are the Advantages of Outsourcing?

Outsourcing is a cost-effective solution that better allows a business to devote its resources to core business practices such as infrastructure, facilities and advertising.

Besides reducing the cost of labour and production, outsourcing can save the business money on taxes, energy efficiency and paying for employee benefits such as annual leave, holidays and sick leave.

Most third-party providers are experts in their field, offering access to specialist expertise, equipment and facilities. These benefits often allow a third-party provider to deliver a higher quality product or service than what the outsourcing company may be able to achieve in-house. Third-party providers also share a responsibility in the production of goods and services. Therefore, they incorporate risk-management procedures to ensure consistent quality of the highest level.

What are the Disadvantages of Outsourcing?

When a company outsources a job to a third-party, they often need to share sensitive data. If this data is leaked, the information could get into the hands of a competitor or the general public. To avoid the risk of data leaks, the contract should have a strict confidentiality or non-disclosure agreement.

It is important to choose a provider who can meet the specific needs of the business. If the provider is slow to deliver the agreed product or service, or creates a product of inferior quality, it could impact the customer base and reputation of the outsourcing business. Be sure to carry out due diligence before signing the final contract.

Depending on the industry, the decision to outsource rather than hire local talent may also result in a negative public opinion of the company.

Offshoring

The terms outsourcing and offshoring are often used interchangeably, which can create confusion in the workforce. Offshoring refers exclusively to a business that outsources a job, function or process overseas. Some businesses may relocate their entire operations overseas, while others delegate only a portion of the business.

Offshoring presents a number of risks not found in outsourcing. Changes to international law or an unstable geopolitical landscape can affect the providers’ ability to meet the obligations of their contract. If the relationship falls apart due to a specific international concern, the company may not have a backup to recover quickly.

For these reasons, it is a good idea to consult an international law expert before going ahead with an offshore agreement.

Employment Obligations

If you are considering outsourcing, there may be a number of implications for existing staff, particularly if you are replacing them. Outsourcing may give rise to situations of redundancy and trigger other obligations such as consultation. If not addressed appropriately, such matters could result in unfair dismissal or other penalties.

If you require assistance in meeting your obligations, please fill out the online form to request a free consultation with a workplace relations specialist or call our advice team.