You may wonder why companies choose to outsource work. Software development can be costly, but imagine creating the next big software without blowing your budget. How? By choosing to outsource work.
Here’s the reality: If you’re open to hiring remotely within the US, why not consider talent from across the globe if the results are just as good? Besides, you only invest a fraction of the cost of hiring locally, if I may add.
As a result, tech giants like Apple, Google, and Microsoft are outsourcing for this reason. In this article, I’ll share eleven compelling reasons, drawn from our experience at CoDev, why outsourcing is a game-changer for companies.
Let’s dive in!
11 Jaw-Dropping Reasons Why Companies Outsource Work
We’ve been asked this question frequently: “Why do companies choose to outsource work?”
So, we compiled this list of reasons to answer your questions. y
Here are the eleven eye-opening reasons why companies choose to outsource work:
1) Saves Labor and Operational Costs
A Deloitte survey showed that 70% of executives chose to outsource to save on costs. As a result, you’re reading this article because you want to save, and who can blame you?
Inflation costs are rising through the roof, and consequently, labor and operational costs hasn’t gone down either. At this stage, businesses will do anything to cut costs in our inflation-heavy world.
Moreover, a study done by Reuters reports that “labor costs increased 4.2% on a year-on-year basis.”
But here’s the secret sauce of why companies outsource: Saving on hiring costs is the primary reason companies choose to outsource work. Furthermore, outsourcing developers can dramatically reduce labor and operational costs for businesses by up to 70%.
Companies can leverage lower wage standards by hiring developers from countries like the Philippines, resulting in reducing salary expenses without lowering quality.
Additionally, employment-related costs such as benefits, taxes, and insurance are often significantly lower in these regions, helping lower costs, reduce labor expenses, and minimize overhead.
Indeed, these reasons make it a cost-effective strategy for businesses looking to maximize budgets.
2) Saves Time and Effort
For many companies, time is money.
Leveraging talent from countries with booming tech industries allows you to scale your development teams depending on project needs. As a result, you can scale up during peak times and scale down during down times, helping you save time and effort.
Therefore, outsourcing also allows you to operate in different time zones, enabling 24/7 productivity and faster time to market, which helps you save time and effort.
Outsourcing can additionally reduce the burden of recruitment, onboarding, and training, allowing your internal team to focus on core business activities. The next point explains more about that.
3) Helps You Focus on Core Work
The larger your company, the more to-do’s there are, including many mundane tasks. Because you can delegate these tasks, outsourcing helps make a company more productive, increasing operational efficiency by 45-65%.
Outsourcing helps companies concentrate on core business functions by taking over time-consuming tasks, allowing them to focus on tasks that help them reach their goals.
For example, by delegating software development tasks to offshore teams, businesses free up their in-house team to focus on innovation and customer service.
This division of labor ensures that the company’s primary goals and mission receive the attention it deserves while the offshore team handles the technical aspects. As a result, businesses can boost their productivity and drive growth by doing what they do best.
4) Get Access to Global Talent
Are you looking to tap into the bright minds of the global workforce to unlock never-before-seen innovation?
Outsourcing provides businesses with access to a unique pool of global talent. By tapping into international markets, companies can leverage unique skills that may not be available locally.
As a result, accessing this worldwide talent pool helps companies stay competitive by integrating diverse perspectives and techniques from different parts of the world, leading to world-class innovation.
It’s no wonder top companies have been outsourcing work for years.
5) Gain New Insights
If you lack fresh ideas to propel your company forward, then outsourcing is what you need.
Outsourcing can bring fresh perspectives and innovation to your projects. Collaborating with international teams exposes your business to different cultural and technical approaches, fostering creativity and problem-solving.
These new insights can lead to the development of unique solutions that can give your company that extra oomph. By leveraging diverse viewpoints to gain new insights, companies can stay ahead of the game and adapt to changing market demands, driving continuous growth.
6) Gives You Flexibility
Outsourcing can provide the flexibility you need if you’re sick of rigid methodologies. By outsourcing, companies get greater flexibility in scaling their operations. Whether you need to quickly expand your team for a large project or scale down during slower periods, outsourcing allows much flexibility.
Flexibility helps businesses respond quickly to market changes, project demands, and client needs without the commitment associated with hiring full-time, in-house staff.
7) Helps Manage Risks
Outsourcing can be a strategic approach to managing risks in your business. By distributing tasks across different locations, companies can mitigate risks with local disruptions associated with natural disasters or political instability.
Additionally, because you’ve tapped into a broader talent pool, you’re not dependent on a limited number of local in-house workers.
Outsourcing firms like CoDev can provide you with detailed processes and proven methodologies, enhancing project stability and reducing the likelihood of costly mistakes and delays.
8) Get Quality Service
Outsourced workers often offer high-quality service by bringing expertise and experience to your projects.
Many outsourcing companies possess the latest technologies and industry best practices, so you receive top-notch solutions. Moreover, most outsourcing companies have dedicated QA teams to ensure quality standards.
9) Get Access to Modern Technology
Outsourcing gives you access to the latest technology and tools. Companies often benefit from partnering with offshore companies that stay updated on advancements in software development, infrastructure, and digital marketing.
By providing the tools needed to succeed, businesses can leverage state-of-the-art solutions and tools that may not be readily available locally. Whether that’s the latest marketing software, the latest coding AI software, or the latest code editors, outsourcing companies ensure you get the best of the best tools available.
Using modern technology, companies can accelerate innovation and gain a competitive edge in their market.
10) Grow Their Company
If your company’s growth has been stagnant for a long time, outsourcing can accelerate it.
By offloading repetitive tasks, scaling development efforts, and cutting costs, businesses can focus their resources on strategic initiatives that drive growth and market penetration. With an offshore team that brings unique skills and global perspectives, companies can innovate faster, enter new markets, and increase customer satisfaction.
Without a doubt, the strategic use of resources fosters scalability, positioning businesses for growth and advantage in a dynamic global marketplace.
11) Gain Round-the-Clock Productivity
Have you ever wondered if 24/7 operations were possible? Imagine having an offshore team in the Philippines that can work on projects after business hours. This advantage ensures continuous progress and faster time to market. The 24/7 capability allows businesses to accelerate project timelines, meet tight deadlines, and enhance efficiency.
Leveraging work across time zones helps companies maximize resources and maintain workflow continuity, improving productivity and achieving remarkable business outcomes.
Why Outsourcing Work is Needed
It’s clear that outsourcing work is essential in today’s global economy. Companies should take advantage of this opportunity to gain the benefits we mentioned.
Our world is becoming more globalized, and the internet has given us access to skilled global talent. There’s no reason companies should stay stuck in finding talent locally when they have the whole world as their oyster.
Not only that, but you can build great products, boost productivity, scale your operations, and save on costs simultaneously.
Let’s learn the types of outsourcing in the next section.
Types of Outsourcing
There are many forms of outsourcing, each catering to different business needs and objectives. The type of outsourcing you choose will depend on your needs.
Here are some of the most common types you should know to help get you started.
IT Outsourcing
IT outsourcing involves contracting third-party vendors or hiring an offshore team to handle information technology functions such as software development, infrastructure management, technical support, and cybersecurity.
Outsourcing your IT processes allows companies to leverage specialized technical expertise and technology without the headache of maintaining in-house IT departments.
Business Process Outsourcing (BPO)
BPO, which stands for Business Process Outsourcing, focuses on outsourcing non-core business processes like customer service, payroll, human resources, and accounting. In other words, the “boring, repetitive tasks.”
By outsourcing these routine tasks, businesses can streamline operations, reduce costs, and focus on growth initiatives.
Knowledge Process Outsourcing (KPO)
KPO involves outsourcing knowledge-intensive tasks requiring specialized skills and expertise, such as market research, data analysis, legal services, and financial consulting. KPO providers offer deep expertise, helping companies make informed decisions and improve their competitive edge in the marketplace.
Manufacturing Outsourcing
Manufacturing outsourcing refers to contracting external manufacturers to produce goods or components. As a result, this approach can reduce production costs, increase efficiency, and allow companies to focus on product design, marketing, and distribution.
Human Resources Outsourcing (HRO)
HRO involves outsourcing HR functions such as recruitment, employee benefits administration, training, and compliance management. Outsourcing human resources enables businesses to efficiently manage their workforce while ensuring compliance with regulations and industry standards.
Outsourcing of Sales and Marketing
Marketing and sales functions include everything from market research and lead generation to digital marketing and sales strategy. Outsourcing these functions to an offshore team allows businesses to tap into expert resources to boost their market presence and drive revenue growth.
Ultimately, each type of outsourcing offers unique benefits, allowing businesses to choose the most suitable option based on their specific needs and goals.
What Are the Disadvantages of Outsourcing?
Indeed, nothing is perfect. While outsourcing offers numerous benefits, it also comes with potential drawbacks that businesses must consider. However, one should never be intimidated by this list because there are ways to overcome these challenges.
Here are some of the disadvantages of outsourcing:
Loss of Control
Outsourcing might lead to a loss of control over specific business processes.
When contractors, freelancers, or offshore teams handle tasks, companies may need help managing and overseeing these functions as closely as in-house operations. If the vendor doesn’t meet the expected standards, this can result in quality issues or delays.
Communication Barriers
Working with offshore teams often involves language and cultural differences, leading to misunderstandings and miscommunications. Additionally, different time zones can also complicate coordination and collaboration, potentially slowing project timelines and affecting overall productivity.
Security and Privacy Risks
Outsourcing can expose companies to security and privacy risks, especially when sensitive data is involved. Ensuring that external vendors comply with stringent data protection regulations and maintaining robust security measures is crucial to mitigating the risk of data breaches and intellectual property theft.
At CoDev, we became SOC 2 compliant to better protect our client’s data and privacy.
Hidden Costs
While outsourcing can save you money, hidden costs can make you prone to spend more than you desire. These include expenses related to contract management, employee equipment, quality control, and communication tools. Be sure to ask your partner offshore company about all the hidden costs.
Also, resolving issues with an outsourcing partner might be time-consuming and costly, so be sure to select a partner who is concerned about your and your company’s welfare.
Dependency on External Vendors
Relying heavily on outsourcing can make a company dependent on external vendors. If the vendor experiences problems, such as financial instability or service disruptions, these issues can directly impact the company’s operations.
This dependency on external vendors like freelancers or other outsourced workers can also limit the company’s flexibility to quickly adapt to changing business needs.
Impact on Employee Morale
Outsourcing certain functions can lead to job losses or reduced opportunities for in-house staff, potentially affecting your company’s employee morale and loyalty. Remaining employees might feel insecure about their job stability, leading to decreased motivation and productivity.
Quality Control Issues
Maintaining consistent quality can be challenging when outsourcing. Differences in standards and practices between the company and the vendor can lead to discrepancies in output quality. Continuous monitoring and quality assurance are essential to ensure the vendor’s work meets the company’s expectations.
While outsourcing can provide significant advantages, businesses should weigh these potential disadvantages carefully.
Thorough planning, clear communication, and robust management strategies can help mitigate these risks and ensure successful outsourcing partnerships.
What to Consider When Outsourcing
Outsourcing can be a strategic move for businesses, but it’s essential to evaluate several factors to ensure a successful partnership carefully.
Here are key considerations:
Define Your Objectives
Clearly outline the goals and objectives you aim to achieve through outsourcing. Whether it’s cost reduction, access to specialized skills, or increasing efficiency, having well-defined goals and objectives will guide your selection of the right outsourcing partner and help measure the success of your partnership.
Vendor Selection
Choosing the right outsourcing partner is crucial. Conduct thorough research to assess potential vendors’ expertise, experience, reputation, and track record. Look for partners with a proven history of delivering quality services in your industry. Request references and case studies to evaluate their performance and reliability.
Cost Analysis
While cost savings are often a primary driver for companies looking to outsource, performing a comprehensive cost analysis is essential. Consider all expenses, including hidden costs such as management, transition, and communication expenses. Ensure that the financial benefits align with your overall budget and expectations.
Quality Assurance
Establish clear quality standards and performance metrics. Define service level agreements (SLAs) that specify the expected quality, timelines, and deliverables. You must regularly monitor the outsourcing company’s performance to ensure it meets these standards and promptly addresses any issues.
Monitoring your offshore workers to ensure they’re keeping up to standard is also a good idea, so look for offshore companies who take care of this task.
Communication and Collaboration
Effective communication is critical to the success of an outsourcing relationship. Establish clear channels and protocols for communication, considering time zone differences and language barriers. Afterwards, conducting regular meetings can help maintain alignment and address issues quickly.
Data Security and Privacy
Cybersecurity and privacy are essential in our digitalized world.
Ensure that the outsourcing partner adheres to stringent data security and privacy protocols. Verify the company’s compliance with relevant regulations and standards to protect sensitive information.
In addition, look for security certifications or awards and include specific security requirements and confidentiality clauses in your contract.
Cultural Compatibility
Consider the cultural compatibility between your organization and the outsourcing partner. Differences in business practices, work ethics, and communication styles can impact collaboration, so be sure to do your homework. Understanding and respecting cultural differences can enhance the partnership’s effectiveness.
Risk Management
Identify potential risks associated with outsourcing and develop strategies to mitigate these risks. Your risk management assessment should include assessing the outsourcing company’s financial stability, potential geopolitical risks, and the impact of any service disruptions. Most of all, have contingency plans in place if things go south.
Employee Impact
Evaluate how outsourcing will affect your current employees. Accordingly, providing transparent communication about the reasons for outsourcing and how it will impact the team can help manage concerns and maintain morale.
Take care of your current employees by considering opportunities for redeployment or upskilling for affected employees. Many companies miss out on the opportunities wrought by upskilling or redeploying their employees because they choose to let them go so soon.
Legal and Compliance Issues
Ensure that the outsourcing agreement complies with all relevant laws and regulations. Compliance checks include labor laws, intellectual property rights, and industry-specific regulations. Additionally, clearly outline the legal responsibilities and liabilities of both parties in the contract.
By thoroughly considering these factors, businesses can make informed decisions and establish robust and productive outsourcing partnerships that align with their strategic goals and deliver tangible benefits.
How to Start Outsourcing with CoDev
There are many reasons why companies choose to outsource work.
If you think choosing to outsource work will take your business to new heights, do your part and thoroughly research more about outsourcing.
Find a reliable offshore outsourcing partner and ask them the hard questions. At CoDev, we’re always ready to help you with any doubts you might have.
Want to learn more about unlocking up to 70% savings when hiring developers? Book a free call here, and we’ll gladly assist you.
