Business ventures can be found all over the world and they exist in different categories depending on their respective turnover or headcount limits and the kind of business being carried out. This categorization, however, may vary from one country to another or within different industries. Small and Medium Enterprises, otherwise known as SMEs or Small and Medium Businesses, SMBs, are part of the categories that have significantly varying definitions (Root and Koenig, 2003). In the United States, for instance, the term small and medium businesses or otherwise SMBs is commonly used. The standardized definition of an SME in the European Union refers to companies having a total number of employees lying between 10 and 250. In the United States, a small business refers to a company with less than 100 employees while a medium-sized company refers to those with employees less than 500 in number (Applegate, 2002). In most developed economies, a greater percentage of businesses are small enterprises and are responsible for driving the competition and innovation in the business sector. On a global dimension, SMEs do account for about 99% of the total number of businesses and contribute between 40% and 50% of the Gross Domestic Product, GDP (Analoui & Karami, 2003). These businesses rely mainly on outsourcing agreements for most of their businesses. This paper seeks to focus on the dangers of SMEs relying fully or partly on an outsourcing partner for most of their business operations. It will also propose the factors necessary for consideration when planning for an Outsourcing Agreement as well as mention the importance of networking for a small business manager.
Outsourcing refers to the practice where a company contracts with a different company in order to offer services that the in-house employees might have otherwise performed (Applegate, 2003). In recent times, many of the large companies have resorted to outsourcing some of the jobs such as e-mail services, payroll, and call center services. All of these jobs are surrendered to other separate companies which specialize in specific services. In most instances, these companies are located overseas. The most driving force behind outsourcing is the objective to save money since there will be no benefits to be offered unlike if the employees were allowed to perform these tasks (Asheim, 2003).
However, there are a number of dangers associated with outsourcing some or all of the services by a company. Outsourcing, in most cases, facilitates the elimination of one-to-one communication between a given company and its clients (Hallberg, 2000). This impairs a company’s capability to bond with its customers and even to create more. This often results in some degree of dissatisfaction with either party. For instance, poor language skills by the contracted call center will annoy the clients. The other danger is the fact that the company will not be in direct control of some of its aspects. This may result in communication breakdown and hence delayed implementation of projects. A company always deals with very sensitive issues with the clients and the companies over reliance on outsourcing providers could be detrimental (Meyanathan, 1994). This may happen, for instance, if the outsource providers suddenly decide to terminate their contract. Furthermore, outsourcing contributes directly to unemployment and the killing of local investment especially in the case of offshore outsourcing of some business functions by companies.
Any company should be careful when outsourcing some of its services (Applegate, 1995). Before entering an Outsourcing Agreement, it has to evaluate the capability of the company to provide quality services. This is because anything less than a perfect service provider will cost the outsourcing company very highly. A company should also consider the possibility of going global so that its outsourced function could be overseas or else there is no need to go for the overseas option. The company should also analyze the impact of outsourcing on the relationship between the company and its clients. Outsourcing should not lead to significant isolation.
Strong networking, on the other hand, can contribute positively to enhancing the performance of a small business despite its being small. Internet networking, for instance, Facebook, Twitter, Linkedln, YouTube, and other sites helps the SME manager to contract freelancers globally in order to get certain projects done effectively and yet at a very low cost on wages as well as the prices of the property needed. Through the same channel of social networking, businesses have benefited from the element of scalability where they are able to outsource tasks dealing with information technology to numerous workers across the internet. This opportunity to network all over the world enables SMBs to compete favorably with their counterparts, the larger corporations (Perry, 1999, 24). Interacting with people and professionals who run similar small businesses can be so fruitful since the shared experiences will make each one be like an extension of the other. There will be full knowledge of each one’s merit and integrity. There will be the reaping of mutual benefits since all will share contacts of everyone with prospective clients. According to Fayole (2000), networking boosts reputation and enables the gathering of new and great ideas.
In this paper, we have learned that in spite of the fact that there could be several advantages of outsourcing some or part of a small and medium business function, there are key dangers associated with this venture. There are, as pointed out, precautionary measures that need to be observed before entering an Outsourcing Agreement.
We have also elaborated on the benefits of networking to an SMB manager.
References
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Applegate, J. 2003 The Businessperson’s Desk Reference: The Solutions for Your Small Business. Princeton, NJ. Bloomberg Press.
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Applegate, J. 1995 Key Strategies for Small Business Success. Plume.
Asheim, T. 2003 The Enhancement Policy for Small and Medium Businesses. Northampton: Edward Elgar Plc.
Fayolle, A. 2007 Entrepreneurship Education: A Researcher’s Handbook. Northampton: Edward Elgar Plc.
Hallberg, K. 2000 Market-Oriented Strategies for Small and Medium Scale Businesses. World Bank Plc., vol.40 (40).
Meyanathan, S. D. 1994 The Development and Industrial Structures of Small and Medium Businesses. The University of California Press.
Perry, M. 1999 Small Companies and Network Economies. London: Routledge, vol.6 (6) pp. 4-48.
Root, H. and Koenig, S. 2003 The Guide to Starting a Small Business. 3rd ed. Sourcebooks, Inc.