Outsourcing – its Economics

On February 13, 2012, in Outsourcing, by Business Development Group
Business sees outsourcing as increasing efficiency and lowering costs. While business sees things from the point of view of supply, workers perspective is one of demand. They want job security, a stable work environment and a reduction in their financial anxiety.

Business sees outsourcing as increasing efficiency and lowering costs. While business sees things from the point of view of supply, workers perspective is one of demand. They want job security, a stable work environment and a reduction in their financial anxiety.

As defined, outsourcing is the practice of transferring labor from a company’s own employees to outside workers. The term usually refers to jobs that are transferred out of the country to a less-developed country where labor costs are fundamentally cheaper.

When an establishment’s own labor force is financially inefficient in its tasks relative to another labor force elsewhere, and the tasks can be transferred cost-effectively, then the opportunity for outsourcing exists.

However, there are many reasons that outside workers could cost less than internal ones, and most jobs are outsourced regionally, locally or within a country. In some instance a third-party establishment has better economies of scale – it has a more skilled workforce. Sometimes it runs with lower taxes and regulatory constraints as well as it operates in a freer business environment.

Related article: Philippine Outsourcing: What is a BPO Virtual Captive?

The Big Picture

Business sees outsourcing as increasing efficiency and lowering costs. While business sees things from the point of view of supply, workers perspective is one of demand. They want job security, a stable work environment and a reduction in their financial anxiety.

Establishments and businesses, especially in the information technology and communications sectors, has led the way in offshore outsourcing as they see a reduction in labor costs. In addition, outsourcing sets the ability to let others handle the basics of the firm, while they focus on the focal areas in which they specialize. By outsourcing, they can focus more on what they do best, which means greater efficiency, productivity and lower costs.

Related article: BPO Real Time Outsourcing Customer Engagement – Giving your Customers More!

Return of Investments

The primary effects of outsourcing jobs for small business is lowered costs. Small businesses often operate with a tight budget, lacking the strong financial underpinnings bolstering larger companies. Outsourcing jobs can reduce payroll costs, especially if you’re outsourcing work to less financially established world regions harboring lower wage thresholds.

Read related article: How to Successfully Transition to Outsourcing

Long Term Benefits

To run a small business can be challenging. As owners can be notorious multi-taskers: overseeing employees, developing better products, making budget adjustments and catering to consumer need. Outsourcing jobs can be a tempting option to streamline business processes and save money, but there are other, less obvious effects that make this option less ideal for some business owners. Understanding the effects of outsourcing can help you determine whether this is the right strategy for your company.

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