'Outsourcing' is an act of one company, entering into an agreement with another company to provide products or services that might otherwise be performed by in-house employees. It is an important financial strategy open to a business that will help it make a superior return on the funds invested. Outsourcing has many benefits for a new business and for an established one for that matter. Still there are some inherent dangers in 'outsourcing'. Some pros and cons of 'Outsourcing':-
Pros
Pros
- Access to expertise: It can be alomost impossible for a small firm, especially in the start-up phase, to have a team onboard with the latest expertise. It is easier for larger established firms to attract the best staff and ot have the latest equipment. That, in turn, means you as a new entrant can have access to state-of-the-art products and services from the outset.
- Greater Scalability: It just is not cost-effective to have production resources on hand from the outset to meet possible future demand. By outsourcing to one or more suppliers you can have, in effect, any level of output you want, all at a variable cost rather than a fixed cost.
- More predictable costs: While outside suppliers and manufacturers can sometimes provide products and services at a lower cost than doing it yourself, you can make costs more predictable and establish a smoother cash flow.
- Free-up your time: Turning over non-core functions leaves you and your team free to concentrate on strategic development and core business functions.
- Economies o Scale: As fixed costs of supplier are spread over more than one client and part of that benefit can be availed in lower prices. That means better negotiating leverage, lower material prices and better equipment utilization.
- Confidentiality of Data: Confidentiality is a fundamental concern for any business. If you outsource anything involving company secrets ensure that basic contractual provisions, including intellectual property rights and non-disclosure agreements, are established to protect confidential information.
- Quality Control: Quality Assurance & Quality Control are strategies issues when it comes to outsourcing and an emerging danger with the arrival of 'socially minded customer' in which people are looking more closely at companies and their products before buying from them. So while outsourcing plays a vital role in operations, it still has to be managed and to conform to corporate ethical standards. There are a number of well-regarded India & International Quality
Standards that can ensure that operating procedures deliver a consistent and acceptable standard of products or services.
- Loss of Control: Although you can change outsource suppliers, as long as an activity is bought in, you will have full control over it. You will also find it difficult to develop the skills needed to keep abreast of changes in the field.