Why Outsourcing Is A Strategic Move In Volatile Economic Times


outsourcingHow can outsourcing assist businesses during an economic downturn?


Desperate times call for desperate measures.

This adage tells us that taking extreme steps during the times of adversity is a necessary way of survival. For businesses, it usually happens when there’s an economic downturn or when the company is on the verge of failing or closing down. In order to save the company, they resort to activities that they don’t normally do.

An example of this activity is the business practice called outsourcing. By definition, outsourcing refers to an arrangement wherein a company transfers tasks, operations, processes, and other related activities to an external workforce. It includes a wide range of jobs such as customer service, back office, and manufacturing.

Traditionally, companies outsource to reduce their expenses and improve their profitability. While this remains as a primary reason why outsourcing is being undertaken until today, business executives should view the potentials of outsourcing as something greater than a cost-cutting tool.


Outsourcing: Where’s the value?

During the Great Recession of 2008, many businesses considered outsourcing some of their processes in countries with the cheaper labor force.

Michael Fraley, a managing director at a multinational professional services company, said that cheaper labor means a stronger bottom line. By saving more, companies can allot more budget on their strategy, research, and high-quality jobs.

“It’s about survival… if a company cannot move 100 jobs, it could lose all 900.”

Despite this, there are some who remain skeptical about this business move.

But in order to grasp the value of the outsourcing of services, business executives should look at it from a different viewpoint.

As long as they choose the right partner and follow the correct outsourcing process, economists believe that outsourcing can be a strategic move that does more good than harm.

A paper published by the Center for Economic Performance found out that:

“Despite the widely held belief that immigration and offshoring are reducing the job opportunities of U.S. natives, we have found instead that, during our period of observation, manufacturing industries with a large increase in global exposure (through offshoring and immigration) fared better than those with lagging exposure in terms of native employment growth.”

Moving jobs and expanding the market reach to another country also saves the business.

The Lego Group, for instance, is one of the companies that actually thrive during the recession. How did the toy company do it when American mothers were saving money?

The answer is simple: Lego did not stay in America. Instead, the company looked for a new market across Asia and intensified its sales effort in the European region.

How to get the most out of outsourcing?

If outsourcing is really a strategic move, how can businesses get the most out of it? Why do some outsourcing partnerships succeed while others fail?

Here are some pointers to remember that can help business executives get the most out of their outsourced provider.

  1. It’s a partnership
  2. Evaluate your needs first, then the list of service providers
  3. Define the scope and purpose of the relationship
  4. Clear and consistent communication is a necessity
  5. Price is not always the basis
  6. Start small
  7. Establish a sense of accountability


It’s a partnership

Achieving success in outsourcing is difficult if the business executive will look at it solely as an instrument to lower down their expenses. Service providers are partners for growth and should, therefore, share the same values with the company they are working with.

Having this mindset is especially helpful if the economy is fluctuating. Outsourcing does not only minimize costs, but it also manages risks.


Evaluate your needs first, then the list of service providers

Outsourcing wouldn’t work if you do it just because you feel like it.

The need to carry out this business practice should begin with a real internal need.

Why do you need to outsource? Do you lack personnel to do the job? Do you need to free up your resources? Does it have something to do with the assistance that an outsourcing company can provide? What functions can you possibly outsource?

By knowing what your business needs, it will be easier for you to filter the providers that can help you grow your business.

Once you have a list of the providers that can possibly assist you, evaluate them based on their capability to bridge the gap in your business.


Define the scope and purpose of the relationship

Knowing the scope and purpose of this business relationship is really important in the long run. Determine the time frame for the relationship? Is it for a temporary project or a long-time partnership? This is helpful in knowing the smaller points that need to be accomplished.


Clear and consistent communication is a necessity

One of the challenges that can immediately occur when outsourcing, particularly from offshore locations, is miscommunication.

Keeping a clear and consistent communication with the outsourced provider not only in the beginning but throughout the partnership allows everyone to maintain focus and accountability in achieving their goals.


Price is not always the basis

The quality of service and output should never be compromised by the desire to lower expenses. There are many outsourcing companies that offer top-notch services at a lower cost — you just need to look and examine that company very carefully.


Start small

Don’t rush through outsourcing. Take your time, especially if it’s your first time doing this. This will give you sufficient time to adjust and learn the necessary things about this business setting. Remember, you might need to have some trials and errors before you find the right outsourcing strategy that would work for your business.


Establish a sense of accountability

Both the business establishment and the outsourced service providers should become each other’s, accountability partners. Remember, if the outsourced company is successful in doing their job, the business will be as well — and vice versa.


Can outsourcing work for small businesses?

Most Fortune 500 companies outsource their manufacturing processes and other related tasks to offshore locations. While it is easy for them because they have tons of budget for it (and because it will help them save up more money), outsourcing can be a challenge and a risk for smaller businesses.

But can it really work for them?

As long as they follow the right procedures, they can also see the benefits of outsourcing.

Outsourcing, in general, can help them fill the gaps in their business, which they can have difficulty resolving due to their limited resources.

The market is also more integrated today, which is advantageous because it is easier to have an instant support infrastructure that can assist in tasks such as payrolls, accounting procedures, customer service, local regulations, et cetera. Through this rapid access to the service of the offshore service provider, small business owners can have the capability to make faster informed and crucial decisions.

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Magellan Solutions
Magellan Solutions
Magellan Solutions is a Filipino-owned outsourcing company. It provides inbound and outbound contact center services as well as other business process outsourcing (BPO) services that cover finance and accounting, healthcare, sales and marketing, engineering, architecture, design, data management, human resources, legal, and IT. Combining years of experience; unrivaled expertise; and capabilities across industries and business functions, Magellan Solutions bring optimum approaches to strategies of business operations by delivering customizable BPO and customer management solutions to any type and any size of business.