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Home | Blog | Why Outsourcing Is A Smart Move In Volatile Economic Times

Why Outsourcing Is A Smart Move In Volatile Economic Times

By Magellan Solutions

Updated on August 7, 2023

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How can outsourcing assist businesses during an economic downturn?

Desperate times call for desperate measures. Taking extreme steps during times of adversity is a necessary way of survival. For businesses, it happens when there’s an economic downturn, or the company is on the verge of failing or closing down. They resort to activities outside of their established procedures to save the company.
One of the practical options is the business practice called outsourcing. This arrangement lets a company transfer some of its functions, operations, and processes to another company. It includes various jobs such as customer service, back office, and manufacturing.
Companies outsource to reduce their expenses and improve their profitability. But to get the most out of it, business executives should consider outsourcing a strategic way of getting things done.


Outsourcing: Where’s the value?

During the Great Recession of 2008, many businesses outsourced to countries with cheaper workforces.
Michael Fraley, a managing director at a multinational professional services company, said cheaper labor means a more robust bottom line. Companies can save more on their strategy, research, and high-quality jobs by saving more.
“It’s about survival… if a company cannot move 100 jobs, it could lose all 900.”
Despite this, some remain skeptical about this business move. Unless they try to look at it using a different lens, they can’t grasp the actual value of outsourcing.
Economists believe outsourcing is a strategic move that does more good than harm. Of course, businesses should do their part by integrating a justifiable selection process.
A paper published by the Center for Economic Performance found 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 reaching a broader market can also save a business.
The Lego Group, for instance, is one of the companies that thrive during the recession. How can a toy company do it when American mothers are 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 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:
  1. Evaluate your needs first, then the list of service providers
  2. Define the scope and purpose of the relationship
  3. Clear and consistent communication is a necessity
  4. Price is not always the basis
  5. Start small
  6. Establish a sense of accountability

It’s a partnership.

Outsourcing is a partnership. It goes beyond being a cost-cutting tool. It means teamwork, a collaboration that requires full cooperation. Service providers are partners for growth and should 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 cut costs, but it also manages risks.

Evaluate your needs first, then the list of service providers.

Outsourcing won’t work if you do it only because you feel like it.
The need to carry out this business practice should begin with a natural internal market.
  • Why do you need to outsource?
  • Do you lack the personnel to do the job?
  • Do you need to free up your resources?
  • Does it have something to do with the help that an outsourcing company can provide?
  • What functions can you outsource?
Determining your real business needs makes trimming down your list of providers easier.
To make the best choice, assess 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 critical in the long run. Decide the time frame for the connection. Is it for a temporary project or a long-time partnership? Doing so will make it easier for you to know the scopes and limitations of this business activity.

Clear and consistent communication is a necessity.

Miscommunication is one of the stumbling blocks of outsourcing.
To avoid this, keep a clear, consistent, and reliable method of communication with your outsourced provider. If you maintain this throughout the contract, everyone can work together perfectly.

Price is not always the basis.

As mentioned, a cheaper workforce means a more robust bottom line. It is wise to look at the price. But it is wiser to check the service quality behind the price tag.
Many outsourcing companies offer top-notch services at a lower cost. All you need is to look at and scrutinize them well.

Start small

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

Establish a sense of accountability.

Take full responsibility for your action. Show your outsourced service provider you are serious about making this partnership work.
If the outsourced company successfully does its job, you will be as well — and vice versa.


Can outsourcing work for small businesses?

Most Fortune 500 companies outsource their processes and tasks to offshore locations. Outsourcing is easier for them because they have tons of budget. Moreover, it will help them save up more resources. But for smaller businesses, this could be another story.
Can it work for them?
As long as they follow the proper 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 limited resources.
The market is also more integrated today. It is easier to have an instant support infrastructure to assist in tasks like payrolls, accounting procedures, customer service, and local regulations. Through this rapid access, small business owners can have the ability to turn their business into a success.
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      Why Outsourcing Is A Smart Move In Volatile Economic Times

      Magellan Solutions

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