The Top Ten Reasons for Outsourcing

Outsourcing is the latest buzzword in global economy today, but it also makes for good business sense for a lot of businesses. A lot is being written on the subject but the benefits of outsourcing far outweigh the reasons why companies should not opt for it. The top 10 reasons for outsourcing are: 1. Savings in Labor Cost - This is perhaps the most important reason why companies should opt for outsourcing some of their activities. The cost of labor in some of the developed countries is extremely high and creates a huge expense for the employers. If the same jobs were to be done at a far lower price by equally skilled personnel then it is definitely advantageous. 2. Growing Global and Local Market Shares - More importantly, even if they do not outsource, their rivals will. This will affect them adversely as their rivals will gain in terms of profitability and lower costs. Able to pass on high quality at lower prices, rivals will walk away with market shares, which a firm cannot afford to lose. Stagnating corporate profits will limit the creation of new capital and its reinvestment within the domestic economy. 3. Communications - With the improvement in telecommunication networks and lowering of telecom costs across the world, outsourcing as an option provides round the clock services to companies and their clients without putting too much of a strain on the existing manpower. 4. Speed - As a result of better communications, outsourcing has helped a number of companies reduce their turn around times by taking advantage of the time difference between countries. In the big picture, firms reduce time to market on new products and improvements beating rivals that do not outsource. 5. Tax Breaks - A number of companies in the US have benefited through tax breaks from outsourcing. According to Federal Law, companies can defer payment of tax on profits earned abroad for an indefinite period. These taxes are to be paid only when they return these profits to the US. 6. Move to Higher Segments of the Value Added Chain - The move to outsource helps the higher income earning countries to move to higher segments of the value added chain as they are now free of some tasks that have been outsourced. 7. Profitable Use of In-house Resources - Firms around the world are attempting to make the most of their in-house talent pool. Expertise and experience are definitely in short supply,much in demand and more importantly, expensive. Outsourcing helps resolve this dilemma and frees a large pool of in house resources for other work. 8. Focus to Accelerate Business Transformation - This is done by passing on various specialized jobs to the outsourced vendor and focusing on the core business. This results in more time spent working on strategic issues for business transformation and implementation of the same. 9. Access to Skill Sets and World-wide Capabilities - The growing shortage of skilled workers in the US has prompted companies to look elsewhere for these skill sets.

Outsourcing enables firms to access a worldwide pool of workers equipped with a range of skills. 10. Reductions of Risks - Organizations make large investments in their operations and have to deal with a number of economic and political changes, which may prove risky for their businesses. By outsourcing, companies are able to reduce some of the associated risks because service providers also share in some of the costs. This reduces the cost burden on the outsourcing company.