When Should New Economy Companies Consider Outsourcing?

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Michael Buenaventura

January 20, 2016

Outsourcing is quickly becoming the best way for companies to grow in a competitive new economy. It used to be that companies only outsourced for back office functions in IT, or for more obscure tasks that weren’t integral parts of the company functioning. These days, more and more of the world’s strongest businesses are outsourcing a variety of functions, including customer care and other back office support, because offshore providers can provide the best service at a fraction of the cost.

Outsourcing has become a huge, trillion-dollar industry. Much of it occurs in places where lower labor costs and global technology make it the most reasonable and affordable option – and also a major competitive advantage. Where before companies preferred to keep the bulk of their core operations in-house, now they are starting to see the myriad advantages of outsourcing. New developments in “nearsource” outsourcing are also making it a more popular option for companies that want to keep operations in a closer time zone.

Advantages of Outsourcing

Outsourcing offers businesses a competitive advantage for a number of reasons. For one, companies can forego the time and resource cost of building out facilities and staffing them by outsourcing these operations. These costs can be prohibitive and one of the biggest stopgaps in helping a company grow into the next level of operation. Building in-house resources isn’t always necessary, and this realization is helping many companies mature and grow at a much faster pace.

Another reason why outsourcing in the new economy equals a competitive advantage is that it allows a business to remain agile and scale at a fraction of the cost of building in-house resources. Because they can focus their efforts on core operations, these companies are able to scale more sharply and easily and respond to changes in the business climate more readily

Outsourcing is quickly moving into the spotlight of business operations, beyond basic IT functions and into management, business planning and more. Companies that provide outsourcing services are much higher-functioning than they used to be and are now sometimes involved in boardroom activity and more cerebral tasks as well as providing basic operational services.

Keeping Up with Global Competition

Now that companies are competing globally, there is a constant demand for cheap labor. That way, the companies are able to use the savings to staff other parts of their business. For example, if Apple can cut the cost of the iPhone by $100 by producing it in China instead of the United States, they can devote that $100 to hiring people in sales, marketing and design, thereby improving the operations and success of the whole company.

As another example, Delta moved 1,000 jobs to India in the early 2000s and was able to reduce costs by $25 million. It used the money saved to fun 1,200 new reservation and sales position in the U.S., resulting in a net gain for the company.

AirBnb has been getting a lot of attention for it’s stellar “virtual concierge service,” a team of outsourced customer service professionals that are on hand 24-7 to help customers with home stay issues. They have the antithesis of the modern day call center.

As the new economy continues to mature, outsourcing is likely to expand even further. In order for companies to stay competitive, they should start considering how they could benefit from using the cost savings from outsourcing customer care and other facets of back office support to improve the core operations of their business.

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Sources:

  • http://money.cnn.com/2012/09/14/news/economy/outsourcing-jobs/
  • http://www.commdiginews.com/politics-2/outsourcing-is-good-for-the-u-s-economy-26113/
  • http://www.bloomberg.com/bw/stories/2008-04-07/the-new-economics-of-outsourcingbusinessweek-business-news-stock-market-and-financial-advice