What is Outsourcing? Outsourcing Pros and Cons

Sep 5, 2018Blog, Employee Hiring and Retention

Outsourcing has been a popular recruitment strategy in today’s high-competition, high-demand, and high-turnover business meta. Most companies survive its founding stage by relying on outsourcing. Even popular companies outsource. However, you may have heard how outsourcing is bad for the economy — and even your business, eventually. But what is outsourcing? If you’re a start-up CEO or a business decision-maker, you definitely want to weigh out all your options before trying anything that may lead to a net loss.

In this article, we will help you figure out if outsourcing is right for you and your business.


What Is Outsourcing?

Before we talk about outsourcing pros and cons, we need to solidify what we mean by “outsourcing”.

What is outsourcing? Outsourcing is the practice of hiring companies or individuals outside of the business to be responsible for a task, process, operation, or service that is necessary for a company’s business model. Not to be confused with a supplier, which provides raw materials, goods, or products — as opposed to an operation or a service.

Some examples of outsourcing include: hiring freelancers from the internet, hiring temp workers from a staffing agency, or hiring digital marketing agencies.

Usually, when people say outsourcing, they also mean offshoring. Offshoring is the practice of outsourcing from another country. While all off-shoring is outsourcing, not all outsourcing is offshoring.

Seems basic enough, right? What’s the fuzz all about, then?


Outsourcing Pros and Cons

Pro: Outsourcing is cost-effective.

Outsourcing some jobs eliminates the need to hire regular employees on your payroll and dealing with operational costs like administration, rentals, HR, training, and utilities.

If you offshore services from countries like the Philippines or India which have lower labor costs, you may even get the same quality of work for a remarkably lower rate. But since a lot of companies are catching up on offshoring, there is an intense competition for highly-skilled workers overseas. As these workers realize their value, they become better at negotiating a higher rate. As such, you may still find workers with low rate — but they may only have entry-level skill. This isn’t what you want if you’re looking for a certain level of expertise.

Pro: Outsourcing helps you focus on your core business.

Outsourcing frees up your company’s time off miscellaneous, but necessary, responsibilities. Find HR responsibilities too bothersome? You can hire a firm or an expert to take care of that for you. Same goes for IT, accounting, or other office administrative duties. If your team knows little outside of coding, you can outsource everything and focus on what you’re good at. By delegating specialized tasks to experts, you are also increasing the overall quality of your work.


Pro: Outsourcing keeps your employment options flexible.

Hiring an employee is an investment. You need to nurture your new recruit to assimilate into the company culture. You need to be able to find areas of new growth and lead them to success. If they fail, you need to be forgiving as that’s part of the learning process. However, when you really need to let them go, you may find it difficult to sever from them emotionally if you have formed a bond. Worse, you might find yourself in a labor dispute and pay more than you bargained for.

Outsourcing keeps a distance between you and the people you work with — since you’re not directly responsible for them. Their value is only as good as their work and ability to meet your company’s expectations. If it’s not working out well, you can end it easily depending on your contract.


Con: Outsourcing is not for micromanagers.

If you’re someone who needs to oversee every little detail of your company’s process, outsourcing is not for you. Until you see the output, you have no way of knowing if they’re doing it right. Plus, outsourced companies and freelancers tend to work on other contracts, too. You don’t know how much of a priority they’re giving your work. This means you also don’t know if they’ll be right on schedule.


Con: Offshoring has a negative effect on the economy.

Entrepreneurs are a large part of what makes America great. The local jobs, investments, and innovation they create drive the economy forward in our current economic system. However, your money does not play that role if you take money away from local circulation to pay for employees overseas. While your business may have helped people from third world countries, it does not give back to America as much as it could.


Con: Offshoring may have a negative effect on your brand.

Clients and consumers, especially in California, prefer companies who are sensitive to the world issues at hand and the welfare of people. By offshoring work to an agency that runs its business under poor labor conditions and practices in exchange for a lower rate, your brand may have a scandal on its hands. You’re not always aware of this, but this has always been a risk.