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Why Do Companies Engage in Outsourcing? Unveiling Insights!

By Lorraine O.

Updated on July 8, 2024

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Ever wondered why “why do companies engage in outsourcing?” is a question on many business leaders’ minds? In Deloitte’s Global Outsourcing Survey, 63% point to cost-cutting as a key outsourcing benefit. It’s not just about saving money, although that’s a major benefit, but there’s much more to the story.

What makes it so popular? We’ll look at the top reasons why companies turn to outsourcing. Whether running a big company or just starting, understanding these benefits can help you make smart choices for your business. 


The Benefits of Why Do Companies Engage in Outsourcing

While cost reduction is a popular reason why do companies engage in outsourcing, the benefits of outsourcing extend far beyond, and here are some of them:

1. Unlocking New Markets

Outsourcing helps companies promote and sell their products and services in new places. Working with an outsourcing company gives access to local market knowledge about that area, making it easier to adapt the rules and regulations in building new ventures. Companies can take advantage of new opportunities without spending a lot to set up their own offices.

2. Embracing Cultural Diversity

Outsourcing lets companies work with people from many countries. This brings in new ideas. By incorporating diverse viewpoints, businesses can develop new ideas, products, and solutions that cater to a broader market and stay relevant in a globalized world.

3. Fostering Collaborative Innovation

Teaming up with skilled outsourcing companies can lead to new ideas. Companies can mix their knowledge with the outsourcing company’s experience. This can create new and better ways of doing things. It helps companies stay ahead of others and always try to improve.

4. Better Backup Plans

Outsourcing certain functions can create a redundancy plan if work disruptions occur due to natural disasters. A team in another place ensures business continuity, reducing downtime and helping the company recover faster.

5. Innovation and Continuous Improvement

Outsourcing providers often specialize in specific areas and stay updated on industry trends and technologies. By partnering with an experienced provider, companies can gain access to innovative solutions and benefit from continuous process improvement methodologies, fostering a culture of innovation within their organization.

companies engage in outsourcing

What are the Drawbacks When Outsourcing?

Outsourcing presents businesses with significant advantages and pitfalls they must be aware of before using.

1. Complex Legal Issues

When a company outsources work to different countries, it must follow the laws of each place. This can be very difficult because each country has rules about data protection, worker rights, and business practices. These laws often change, making it hard for companies to keep up. For example, a company might need to change how it handles customer data in one country but not in another. If not managed carefully, this can lead to mistakes, fines, or legal problems.

2. Too Much Dependence

When a company works with one outsourcing partner for a long time, it can become very reliant on that partner. The outsourcing partner might handle important tasks or have special knowledge about the company’s work. If the company wants to change partners or do the work itself again, it can be very hard. The company might need the right tools, knowledge, or people to take over the work quickly. This can leave the company stuck with a partner even if they’re unhappy with the service or if prices increase.

3. Worried Employees

When a company starts outsourcing, the workers who are already there often get scared. They might think their jobs will be given to someone else, even if that’s not the plan. This fear can make them unhappy at work and not do their best. They might start looking for new jobs, meaning good workers leave. 

4. Brand Consistency Problems

When a company lets another company handle tasks that involve talking to customers, keeping the company’s image the same everywhere can be hard. Outsourced and in-house employees might need help understanding the company’s values or way of doing things. This can lead to differences in how customers are treated or how the company’s message is shared. 

For example, handling customer service might differ, or marketing materials might have different styles or tones. This can be confusing to customers and weaken the company’s brand.


Outsourcing Myths

If you’re a business owner still deciding if outsourcing is the right move, you may encounter these myths that make it harder to decide. Let’s take a look at these myths and the realities behind them.

Myth #1: Only large companies can benefit from outsourcing.

Reality: Businesses of all sizes can benefit from outsourcing. Startups and SMEs can gain access to expertise they might not otherwise afford, allowing them to compete on a larger scale.

“At Magellan Solutions, Small and Medium Enterprises (SMEs) typically look to us to manage their customer engagement. This includes customer support, order taking, reservations, booking, and answering telephone queries”, explains Fred Chua, CEO of Magellan Solutions. 

He continues, “For businesses venturing into e-commerce, addressing customer complaints and inquiries and managing orders are paramount. Technical support becomes critical when dealing with technical products or services. Meanwhile, startups often prioritize lead generation, appointment setting, and telemarketing to expand their customer base.”

Myth #2: Communication and cultural differences make outsourcing impractical.

Reality: Technological advancements and a globalized workforce make communication easier.  Many outsourcing companies have teams with strong English language skills and experience working with diverse clients.

Myth #3: Outsourcing is a short-term solution.

Reality: Outsourcing can be a long-term strategic partnership.  The right partner can adapt and grow with your business needs, providing ongoing support and expertise.

Myth #4: There’s no control over outsourced work.

Reality:  Control lies in choosing the right partner and establishing clear communication protocols. Use project management tools, regular progress reports, and clearly defined milestones to maintain control.


Is Outsourcing Right For You?

Here are some things to consider to help you decide if outsourcing is right for your business:

Is there a task for which you don’t have in-house expertise?  This could be anything from social media marketing to accounting to graphic design. Outsourcing allows you to tap into a talent pool you might not otherwise have access to.

Are you overloaded with work and struggling to keep up? Outsourcing can help you free up time and bandwidth to focus on more strategic tasks.

Are you looking to cut costs? Outsourcing can sometimes be cheaper than hiring full-time employees, especially for tasks that require little oversight.


Here are some red flags to watch out for when considering outsourcing:

  • The task is core to your business and requires a lot of confidential information. You’ll want to be careful about outsourcing anything that could give a competitor a leg up.
  • Communication will take a lot of work. If you’re outsourcing to a different time zone or country, be mindful of the time difference and potential language barriers.
  • You need a clear idea of what you need. Before you outsource anything, it’s essential to have a clear understanding of the project’s scope and your expectations.

If you’re considering outsourcing, it’s crucial to do your research and find a reputable provider. Be sure to get quotes from several different companies and ask for references.  You should also have a clear contract outlining the scope of work, pricing, and deadlines.


Magellan Solutions is Your Go-To Reliable Outsourcing Partner!

Many companies outsource to free up their internal resources and gain a competitive edge; this may be a common answer to the question of why do companies engage in outsourcing. Magellan Solutions can be your partner in this journey, and we can help you explore more reasons why outsourcing can be your valuable business strategy. 

As our CEO Fred Chua reiterates, “Our customized approach makes Magellan stand out from the crowd of “one-size-fits-all” outsourcing companies. We commit to providing quantifiable results based on customer requirements while adapting their knowledge to various circumstances. Magellan’s strategic outsourcing model is top-notch, prioritizing understanding and trust amidst dynamic operations.”

With over 18 years of experience helping SMEs and startups, we specialize in creating customized outsourcing solutions that fit your needs. We’ll help you identify tasks that can be effectively outsourced, find the perfect talent pool, and ensure seamless integration into your existing workflows. 

The result? More time for your team to focus on core business strategies and innovation that propel your company forward. Contact us today for a free consultation and unlock the power of outsourcing!

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      Why Do Companies Engage in Outsourcing? Unveiling Insights!

      Lorraine O.

      Lorraine, the creative force behind Magellan Solutions' content, is a seasoned writer with years of experience in the outsourcing industry. She stays up-to-date on new global outsourcing trends and ideas, bringing a fresh perspective to her writing. As a strategic collaborator, she enjoys turning complex outsourcing topics into clear, engaging stories that are easy to understand.

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