Introduction
In early July, 2010, British prime minister, David Cameron highlighted on the importance of outsourcing to the economy of his country. In a speech delivered to the civil service, he called upon every policy maker to increase the dynamic of competition by embracing the new generation of service providers. Outsourcing, he said, was one of the best approaches to this objective. However, do his allegations hold any water or are they non-founded notions that would lead to no benefit?
The dynamism involved in successful running of a business organization calls for creativity and flexibility in order to attain a cutting edge over competitors. As a result, involvement in all the relevant facets of daily operations can lead to tedium which will eventually have a long-term negative effect on the organization. However, outsourcing can offer a viable solution to this. With the advent of ICT, some of these jobs can be done through subcontracting them to other companies. This process is the real meaning of outsourcing.
The profit margin of any organization is highly dependent on the correlation between overall sales and the expenses incurred. This clearly indicates that the profit margin will go higher if the cost of expenses is reduced while production is increased. As a result, outsourcing plays an integral role in reducing the costs and increasing the total sales. The expenses are reduced through reduced employee benefits like holidays, weekly salaries and medical cover, waived office expenses including the relevant assets required for daily running of the business, the infrastructural requirements of the assets like machines, repair and maintenance, et cetera. With an increased profit margin, the company can increase its productivity. Put together, the profit margin increases hence its profitability.
The importance of outsourcing in small businesses
Outsourcing also provides a solution to otherwise expensive and knowledge intensive needs of an organization. Knowledge Processing Outsourcing (KPO) can be the bedrock to any organizational development strategy. This is especially true considering the aspects of the business processes that are attached to it. KPO spearheads the knowledge related needs relevant for success. Market research, for example will help the organization have a clear understanding of how to position their products. Other business activities benefiting from it are business research, legal services and business management. Without adequate knowledge in this field, success would remain a pipe dream.
In the recent past, there has been a notable increment in the outsourcing field by many companies. These companies specialize in different areas of production as well as different businesses ranging from small kiosks to big corporations. A small business operator is therefore at liberty to get whatever service he or she wants from any outsourcing company or individual he or she wants. These services are normally offered by the experienced service providers or managers in their different areas and specialties.
Operational costs in this sense, could be determined the driving factor that leads to skyrocketing interests in outsourcing. An article in the LA Times identified that some Chinese entrepreneurs were investing in America just to take advantage of the reduced costs of setting up a similar business in China as compared to America. One investor from Shanxi Province in China resorted to undertake an investment worth $ 10,000,000 in Palmetto State in South Carolina. His main concern to engage in this outsourcing business was to save set up cost where he would only need $500,000 to buy land worth 7 acres in Spartanburg. This was only a quarter of what he could have spent on a similar piece of land in his home city of Donnguan. In addition to this, electricity costs in South Carolina were four times lower in the US as compared to those in China. This was coupled up with the reliability of the same. Again he could not experience consistent black-outs as those in China. This means that through outsourcing in America, he was able to cut on operational costs thus increasing his profitability.
Outsourcing helps companies to increase their efficiency and quality of production. Small enterprises can only attain a level playing ground with established ones through the outsourcing process. It is evident that best players within a market sector will only work for established organizations thus leaving less efficient workers for the small organizations. However, this does not condemn small organizations to doom. In fact, it could be deemed a blessing in disguise as the organizations will be able to access similar level of expertise through outsourcing. They will therefore attain quality work and save on the cost of permanently having the service providers as their employees. This means that the playing field, in terms of knowledge, becomes level with the small organizations spending less but benefitting equally.
When operating a small business, one is required to have a large number of his or her staff carrying out different duties and activities in different fields of their expertise. This is done so that the business can realize a steady growth. For a small business again, subcontracting these activities to external bodies with experience, will enable it to avoid having a bloated staff and hence increase on the efficiency in production at the same level as big companies. On the other hand, overworking which leads to tedium can be avoided through outsources. For instance small businesses can subcontract companies or individuals from countries with great experience but less costly i.e. China and Japan which would eventually offer quality services at less cost as compared to similar services from the UK or US.
Great minds in the business realms underscore the importance of time as the fundamental resource within an organization. Outsourcing, therefore, takes advantage of differences in time zones thus allowing organizations to work on a twenty four hour basis. Outsourced assistance allows workers of a given organization to concentrate on important matters of the organization while other tasks are assigned to outsourced workforce that might do them overnight allowing the organization’s workers to get the day’s work readily set for them.
Business success depends heavily on the knowledge on both the micro and macro environment. While an organization could be adept in the micro environment, failure to understand the macro environment could lead the organization to go belly-up. One of the most important areas in the macro environment is the legal environment. When one decides to get into any kind of business, the legal specifications within the area of operation must be considered intensively. Required standards of quality and control must be observed before getting into production. There is also the need for an expert’s knowledge on the part of a small business owner in order to succeed in the chosen line of business. Outsourcing services for the business from experienced companies or individuals will help the business produce products or services which comply with the set standards. This again saves one time and money in the process.
For small businesses planning to venture into complicated projects, outsourcing experienced project planners and managers is vital due to the lack of expertise in the particular fields. These experts will manage the projects for the business from the onset up to completion. Therefore, this saves the businessman from the hustles of having to do all the hard work. Availability of these experts is also guaranteed due to the competition that is currently witnessed on the internet and in the world as a whole. Therefore, these experts will be working as consultants for the business owner as well working for the business itself.
Conclusion
Basing on the mentioned aspects outsourcing, it is therefore, fundamental that organizations understand the rules of the game in order to stand up shoulder high in this competitive age. Failure to embrace outsourcing could lead to deficiencies in very important aspects of production like the lack expertise in particular fields. However, a good understanding of the same will lead to leveled competition platform, good management of time, access to top of the game services from experienced providers, cost effectiveness and self sufficiency. In the long run the businesses gain a reputation and have a steady growth rate as compared to other established organizations.