Outsourcing is a powerful business strategy -- so why is it frowned upon?
Outsourcing is the practice of contracting out certain business functions -- most commonly, customer support and software development.
When implemented effectively, it is a powerful business strategy that can help companies to reduce costs and increase efficiency. And as the proliferation of business technology continues to break down the geographical barriers to working with international partners, outsourcing has only become more widespread.
According to Statista, the global outsourcing market was worth $92.5 billion in 2019: a rise of over $15 billion when compared to 2016. Today, most businesses in the UK outsource one or more services to an external partner; in fact, figures from YouGov show that 70 percent of British businesses outsource key functions.
When questioned about their motivation for outsourcing, many businesses (48 percent) cited an inability to access qualified and skilled workers in the UK to do the job internally as a key motivating factor. Beyond this, 30 percent said outsourcing delivers better results, the same number say it is cheaper, and 28 percent stated it is more efficient.
Why, then, is outsourcing still commonly frowned upon?
The roots of outsourcing’s bad reputation
The perceived dark sides of outsourcing often dominate public perception. Indeed, a study by the Global Sourcing Association (GSA) found that an overwhelming majority of UK adults (80 percent) feel the outsourcing industry actually harms the UK economy, with the majority (53 percent) considering it to be a method of cutting jobs.
The common assumption is evidently that by outsourcing offshore, UK companies are denying nationals job opportunities, which is in turn hindering the potential growth of the economy.
There is also an underlying assumption that the quality of products and services provided will suffer as a result of outsourcing, leaving customers with a poor impression of a business. Many customers and businesses might feel that training, quality controls or resources of overseas service providers cannot match those of UK businesses.
It is not unsurprising that this view is so prevalent, particularly when we consider past experiences of outsourcing. Poorly developed apps and websites in outsourcing hubs like India in years gone by have highlighted the potential lack of control that businesses are exposed to when they decide to partner with low-cost external developers. Many have been led to believe that offshore companies will generally prioritize quantity over quality when tasked with producing foreign products or services.
Further, a business will rightly want to portray itself as being in control over its entire operations; it will want to show itself as being in a position to dictate every detail of what is being done. Customers might therefore assume that by relinquishing control over some aspects of these operations to a third party, firms will not be able to make certain guarantees over quality or timeliness.
Together, these factors mean that many businesses remain wary about admitting that they outsource for fear of backlash from their customers. Many of these assumptions, however, are outdated and inaccurate.
The benefits of outsourcing today
As businesses look to forge new partnerships in the increasingly interconnected digital landscape, Britain’s ability to compete on the global stage will largely be determined by its ability to leverage skills and resources wisely to deliver high-quality products and services.
The misconception that outsourcing denies nationals a job is true in some regard in the short-term. However, in the longer-term, it allows businesses to focus on core competencies and free up internal resources for more valuable purposes, with the benefits trickling back into the national economy.
Indeed, a recent study demonstrated that outsourcing is a win-win for both exporting and importing countries, both in the long and short run. Crucially, for the former it supports business growth, which results in higher tax receipts to the state and job creation for all the elements of the business that remain on short.
Partnering with a specialist company also often results in a more productive and efficient strategy. Typically, it also delivers a higher quality than can be achieved in-house. In recent years, this has been the result of enhanced communication: developments such as cloud computing and videoconferencing mean that businesses and their chosen third parties can work closely together, as though they were in the same workspace.
Where skills and training are concerned, the reality is that many countries in Eastern Europe, for instance, are able to develop software to a standard expected of companies in the UK -- or even higher. Their staff are well trained and use the same technology as any team in a British city would use. Due to facing lower overheads, however, they are able to deliver the work for a fraction of the cost.
Outsourcing in the post-COVID world
Despite, or perhaps because of the pandemic, the percentage of budgets that IT departments in the US spent on outsourcing rose to 13.6 percent in 2020. This goes to show that breaking down geographical barriers to co-working can open up a whole host of new opportunities for businesses seeking the expertise needed to grow their operations.
With today’s more flexible ways of working, UK businesses would do well to embrace the benefits of outsourcing. Indeed, there are specialists located around the world that can deliver vital services in an efficient and effective manner -- leaving British companies with greater freedom and resource to focus their efforts on innovation, product development, and expansion into new markets.
We must continue to tear down the misconceptions surrounding outsourcing. Most businesses already do it, and many will be looking to outsource as a means of achieving productivity gains in the coming months and years. It is a vital tool that can help businesses of all sizes to succeed, and we must celebrate the practice and showcase its enormous potential.
Richard Leslie is CEO of The Sourcing Hub, a business development consultancy helping UK firms to scale their tech delivery capability through its portfolio of over 30 nearshore software services providers. The Sourcing Hub evaluates your business requirements, tech stack, your desired commercial model and budget, and then matches you with the most relevant service provider to ensure a successful long-term engagement.