21 Big Advantages and Disadvantages of Outsourcing

A business of any size can take advantage of the benefits of outsourcing because of how interconnected we are today through the Internet. The disadvantages of this practice can also make it so that a company ends up filing for bankruptcy prematurely due to the outcomes that were generated.

Whether you are in sales, marketing, or product development, there are a variety of unique benefits that are possible when you take the outsourcing approach. This relationship allows you to hand over specific tasks to someone outside of your organization without compromising the quality of the work being accomplished.

About 300,000 positions get outsourced every year in the United States, and the global market for this activity has a value that is approaching $100 billion. Almost 60% of companies use this practice as a way to reduce their expenses.

Although the government and defense sectors are the largest suppliers of opportunities in this area, it is still advantageous for anyone with a business to consider the advantages and disadvantages of outsourcing right now.

List of the Advantages of Outsourcing

1. Outsourcing provides you with an opportunity to gain immediate expertise.
The most significant advantage that a business can gain by approaching the outsourcing process is an increase in expertise access. Your C-Suite and core team members are fantastic in their areas of education and experience, but it is impossible to be an expert at everything. Instead of trying to force a square peg into a round hole, outsourcing gives a business the opportunity to improve their overall performance by drawing on the specific skills of other experts in various industries.

Although outsourcing is often debated because of the number of jobs that get sent to foreign countries, companies can also look for freelancers at home who can provide this necessary expertise.

2. Projects can get completed faster through the outsourcing process.
Small business owners often look to the processes of outsourcing as a way to complete work because the tasks can get finished sooner. When your company has a limited number of employees, then there are only so many hours in the day when your group of people can be productive. If you partner with other agencies or freelancers to complete these tasks, then a project can get done a lot faster.

You can take advantage of the time zone differences around the world to outsource time-consuming tasks to external agencies. It creates a scenario where your business can become productive around the clock.

3. Outsourcing allows your company to focus on what matters.
An enhanced level of freedom becomes available when companies begin to work with external agencies or freelancers. When you pass along projects or tasks that consume a significant portion of your time, then you can return to your strengths and skills. That means your leadership team can work on enhancing internal core processes to ensure that your agency remains healthy over time.

4. Companies can share some risk factors through the outsourcing process.
Risk assessment and analysis is an integral component of any project planning experience. If your company is going to tackle a project by itself, then all of the rest sits in your lap. The outsourcing process allows you to take specific campaigns or processes to industry experts in their respective fields. It is an advantage that allows you to benefit from those enhanced abilities to mitigate the potential problems that can develop while working.

Outsourcing does have a unique set of risks that must be managed through the contract, but it is possible to reduce problems in this area by taking a proactive look at all of the terms and conditions that govern these relationships.

5. You can save money when you can outsource specific tasks.
Companies can save a significant amount of money when they outsource specific tasks to partner agencies or individual freelancers. Five specific areas of focus with this advantage can help to make these relationships start to pay off almost immediately.

  • The average business spends over $1,200 to train each worker during their first days of employment. Outsourcing can reduce the cost by 50%.
  • When you work with freelancers or outside agencies, then you don’t have to pay the cost of benefits in addition to the salary responsibilities.
  • Employee opportunity costs are lower because you aren’t paying people to clean their desks, perform data entry, or complete other mundane tasks.
  • Tech support functions can save a significant amount in labor costs.
  • Telecommuting gives a business several ways to reduce overhead expenses without disrupting productivity.

6. Outsourcing allows an agency to stay productive 24/7.
Companies that embrace the art of outsourcing can enhance their productivity levels immediately with these relationships. Multiple time zones from around the world make it possible for a business to stay productive all day, every day. Although this benefit requires strategic thinking and a little luck when finding the needed expertise in each location, the logistics of accomplishing this task is worth the work that it takes.

When you get this advantage of outsourcing right, then it effectively means that your business continues to operate even when you are asleep, taking a vacation, or running errands with your family.

7. It simplifies project management approaches.
You can choose from a variety of specialist freelance websites or online services to begin the outsourcing process as a small business owner. You will find that several dynamic platforms offer intuitive approaches that can take your productivity levels to the next level. This benefit helps you to effectively manage what is being done, when it is due for review, and how it will get paid. Many of these processes can benefit from automation.

New algorithms that embrace concepts from artificial intelligence and machine learning can simplify this process even more by automatically matching specific tasks to providers. That means even more of your time gets freed up so that you can focus on other essential tasks.

8. You can start the process of simplifying work relationships.
Have you ever heard someone say that it is never a good idea to work with family or friends? Although most small business teams involve family operations or are part of a tight-knit group of long-term friends and this can be a good thing, it can also lead to problems when the work isn’t being done up to a specific standard. When you outsource the tasks, then you can minimize whatever personal relationship issues develop in a professional environment because you are managing simple contracts.

This benefit doesn’t mean that you can remove all personal conflicts from the workplace. It does give you an opportunity to salvage relationships when a professional standard might not be present.

9. Outsourcing allows you to target specific processes or efforts.
The process of outsourcing allows companies of any size to execute targeted campaigns or projects that they would otherwise be unable to manage. You can access expertise from any geographic location or industry background because of these processes. It is a benefit that gives your company the chance to explore new risks, target additional markets, or experiment with unique approaches.

It is almost impossible for a company to grow today without the desire to take on at least some level of risk. Although it is beneficial to stay in a comfort zone for a little while when profits are coming in, outsourcing creates a safety net where new ideas can get tried without putting everything at risk.

10. Your company can have higher peace of mind.
Outsourcing can seem like a scary situation when you first approach this idea. If you choose a reliable freelancer or external agency with a reputation of success, then you can have the peace of mind in knowing that the tasks are being handled appropriately. Your company gets to take advantage of outside expertise while barely lifting a finger to accomplish specific tasks or goals.

Although you can always find bad actors and false reviews out there that can put some agencies in a bit of trouble, the same risk applies to the hiring process when you bring in new workers.

11. Outsourcing can apply to almost any leadership level in an organization.
IT positions are usually the first ones to be considered for outsourcing because of the significant differences in salary expectations. An entry-level employee in the United States might earn $40,000 per year, while someone in China with more expertise earns about $7,000 annually. Companies can go to India to pay someone $8,400. Some Silicon Valley agencies are reportedly even offering temporary work visas as part of the payment package.

High-level leadership tends to be the most expensive area of salary expense that companies manage. You need to pay people to bring their experience to your agency. Outsourcing changes that dynamic because you can now take advantage of the global perspective when approaching the need for C-Suite assistance.

List of the Disadvantages of Outsourcing

1. Companies lose some control over their work processes with outsourcing.
When a business decides that outsourcing is the correct approach to use for a project or a specific need, then there is some control lost over the processes involved. When you form a relationship with an external agency or a freelancer, then you don’t have as much control over how tasks are completed and monitored. That is why it is essential for a relationship to form because it is imperative for you to know and trust the company or people you’ve brought on through the outsourcing process.

2. Outsourcing always has hidden costs to consider.
The practice of outsourcing is popular because it offers a way to complete specific tasks for a lower labor cost. What many businesses discover after getting into this relationship is that there could be several hidden costs that are unaccounted for during the initial setup phases of this relationship. You must read the terms and conditions of any contracts thoroughly before agreeing to anything. Outsourcing agencies typically ask freelancers and small business owners to sign lengthy agreements with a significant amount of fine print. If you aren’t reviewing those terms carefully, then unexpected costs could be coming your way.

3. Security risks exist in even the best outsourcing relationships.
Businesses must always exercise caution when using customer-related data in this current era of information protection. If you plan to outsource processes or procedures that require the sharing of personal info, then you could be placing the privacy of others at risk in your effort to find a simpler solution. This disadvantage can also apply to the intellectual property that your company currently owns.

New laws are requiring businesses to take extraordinary measures to prevent data loss. When you create new pathways for information sharing, then there are more opportunities for hackers to get their hands on this critical asset.

4. Outsourcing can reduce quality control measures.
It is not unusual to see outsourcing companies, and some freelancers, motivated more by their profit margin than an ability to complete projects to the best of their ability. This disadvantage is often seen when you receive work back quickly. It might meet your deadlines and get the basics right, but the project may also not conform to the standards or quality that your customers have come to expect when working with your brand.

Outsourcing requires you to trust the people you hired to complete these tasks. Make sure that your contract allows for a revision of the work you receive to add a layer of protection against this particular disadvantage.

5. You are sharing your financial wellbeing with another company.
Outsourcing requires a company to trust the financial status of their partner when they begin this cooperative relationship. If the freelancer or agency goes out of business in the middle of a contract, then it can leave you in an uncomfortable position. Make sure that you spell out all of the terms and conditions in plain language regarding what an outcome will be if the outsourcing agency goes out of business in the middle of your project. You don’t want to be stuck in the position of taking a financial hit should they fail to deliver on their promises.

6. Outsourcing can be a PR nightmare for some agencies.
When you take your work overseas through outsourcing, then it is possible for your company to receive a significant level of domestic backlash. Every job that gets completed through this process is an employment opportunity taken away from someone in the local community. This disadvantage means that you can run into adverse feelings regarding your decisions from your consumer base. Some people have taken a moral stance against outsourcing behaviors.

You will also find that criticism will come your way if your products or services are priced too high because you are using local labor. For better or for worse, there will always be criticism. It is up to you to determine what the right course of action is to take for your company.

7. You might have timing issues develop in an outsourcing relationship.
When you outsource a specific task to an outsourcing agency or freelancer, then you need to create synchronicity with your timing expectations. Your partners could very well be marching to the beat of a different timing drum. Trying to get your schedules to match up so that customers can receive what was promised to them on a reliable timeline can sometimes feel like an impossible task to complete.

One of the reasons for this disadvantage is the timing differences that exist in different cultures around the world. The United States experiences this issue when a company from the East Coast hires a freelancer who lives on the West Coast. The three hours of difference between the two time zones can create a scheduling headache at the beginning or the ending of the working day.

8. Outsourcing can cause your company to start losing its focus.
When a company begins to outsource multiple projects to varying agencies and freelancers, then the individuals involved in monitoring this work maybe putting in more hours to verify the quality of what they receive then if they did the work by themselves. Most outsourcing agencies tend to service multiple clients at the same time, which also means that your work may not always receive the focus that you believe it deserves. There are times when this lack of focus on both sides of the aisle can be extremely detrimental to the health of your business.

9. Things get lost in translation when you work with other people and agencies.
Essential instructions often get lost in translation when you start communicating with remote workers and agencies by telephone or email. Even if you attempt to avoid this disadvantage by having an in-person meeting or a video conference call, people can interpret different words and phrases and unique and unexpected ways.

It is imperative for any company that pursues outsourcing to verify that every instruction given is heard or understood so that everyone is on the same page. When miscommunication happens, it can cost all parties a serious amount of money, time, and stress.

10. Outsourcing can create moral dilemmas for some agencies.
The United States has one of the most valuable economies in the world today. That means the standard of living is quite high. When a company considers outsourcing to a firm in Asia, then this fact changes. Lower salary costs might support a living wage on the other side of the Pacific. Paying someone less than $2 per hour for something that you’d pay someone $20 per hour to complete at home can force some executives into a unique conundrum.

Then there is the reality of internal growth. When you begin to expand domestic operations, then you start to build new opportunities for your agency. Sending jobs to an outsourcing agency will help that firm grow more instead of your own.

Conclusion

Most industries use outsourcing to find the best talent possible for every project or circumstance. Although information technology and marketing tend to lead the way in this area, you will find numerous opportunities in payroll management, human resources, manufacturing, and government needs.

Some of the largest companies in the world, including Apple and Walmart, use outsourcing processes to improve the quality of their work and their overall efficiency levels. Small businesses use freelancers through websites like Fiverr for the same reasons.

When is it time to consider the advantages and disadvantages of outsourcing? For most agencies, it is when there is a need to cut labor expenses. Some executives feel that this approach helps them focus on their core business. It can also be a way to resolve capacity problems that develop. The bottom line is this: if you don’t have the talent or time to complete a specific task right now, then partnering with someone who can is a decision that makes a lot of sense.


Blog Post Author Credentials
Natalie Regoli, Esq. is the author of this post and the editor-in-chief of our blog. She received her B.A. in Economics from the University of Washington and her Masters in Law from The University of Texas School of Law. In addition to being a seasoned writer, Natalie has almost two decades of experience as a lawyer and banker. If you would like to contact Natalie, then go here to send her a message.