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Should you outsource some of your business activities?

Is it smart to move your operations abroad and if so, which parts and where to? Historically, important towns were built on rivers or ports, giving access to water transport and other places. As infrastructure developed, being connected by rail, road and air became vital, then along came the Internet, which, in the early days, was referred to as the super-highway. This enabled people to give the appearance of being a large, professional company from a small office or even from home but also to set up a production plant in Bangladesh and a call centre in Hungary. The world is your oyster and businesses these days are almost spoilt for choice in outsourcing possibilities but how do you decide which parts of your business, if any, to move? First, let’s look at some key terms and options and their merits:

Outsourcing options, pros and cons:

Term Definition Pros Cons
Outsourcing Transferring work to an external supplier. It could be on an ongoing basis for the running of an aspect of an operation or a fixed-term contract for a specific project.
  • Cost saving
  • Increase efficiency
  • Can focus on core business
  • Meet capacity demands
  • Obtain skills that are unavailable or too costly in-house, without large inward investment
  • Access intellectual capital
  • Contribute to broader business transformation
  • Time required to source and select suppliers
  • Contracting issues and costs
  • Dealing with different national legislations
  • Potential loss of control and unmanageable delays
  • Concerns about confidentiality
Business Process Outsourcing Transferring to an external supplier or suppliers a set of tasks that when completed result in the delivery of a service or product
  • As above, plus
  • Potential review of systems for more efficient methods involving fewer stages
  • Gaining external expertise and new insights on ways of working
  • As above
  • Concerns about continuity during process transfer
Offshoring Transferring delivery of a service to another country As above As above
Nearshoring Transferring an activity to a neighbouring country, or one within the region – e.g. CEE
  • Affordable and convenient transport connections for physical meetings
  • Likely similarity in culture and working conventions
  • Usually can find a skilled and well-qualified workforce
  • same time zone
  • Depending on the country, cost savings may not be significant
Farshoring Transferring services to a country further away - often India, Bangladesh and China Larger savings to be gained
  • Skill pool may be smaller
  • Greater travelling costs and with products, transportation costs
  • Potential cultural, language and communication difficulties
  • Culture of corruption in some third-world countries
  • totally different time zone affecting communication and speed of decision-making

Advisor advises

The Deloitte report suggests that it’s important to spend time carefully sourcing your supplier, so how should you go about it?

What kinds of businesses and services is outsourcing used for?

You might be thinking, it pays for a large global brand to locate some of their activities abroad in a lower labour cost country but does it make sense for SMEs? All sorts of businesses use offshoring; over half are made up of consumer and industrial products and financial services. Others include life sciences, healthcare, media, telecommunications and technology. The bottom line is that there are no barriers to entry for any type of business, so what kinds of activities do companies outsource? Top of the list is IT which is outsourced by 70 percent of companies who contract out some of their services. Other activities delivered by external suppliers include legal, accountancy and finance, customer services, logistics and procurement, real estate and facility management and human resources. If your business involves any of those activities then you have the potential to utilise and take advantage of outsourcing. However, cost-benefits aside, the key driver in outsourcing is the move to greater use of robotic and cognitive processing automation. Companies are looking to create smart systems that not only do things more efficiently but, for example, remodel offers based on buyer behaviour. The outsourcing imperative has moved from just doing things more cheaply to doing better things in real-time in an agile manner. Thus, the rewards are not only cost savings but added value in innovation and competitiveness.

How do you ensure finding a trustworthy supplier when offshoring?

Of course, as when hiring any contractor, there are potential risks involved but these can be mitigated. Firstly, the outsourcing market is no longer in its infancy and has become mature and professional. According to a recent Deloitte survey, companies using outsourcing are finding significantly fewer poor quality service issues, greater innovation and responsiveness to customer requests. Poland in particular, in the past few years has become the ‘go to’ country on account of the rare combination of low cost and high skill. The Deloitte report suggests that it’s important to spend time carefully sourcing your supplier, so how should you go about it? Many companies use an RFP or request for proposal. In this way, you can get a number of offers from different companies and see which one comes closest to your budget and requirements. But buyer beware - all that glistens isn’t gold and the cheapest offer isn’t necessarily the best. Cheap offers are often delivered by cutting corners or making promises that can’t be fulfilled. It’s worth spending time checking references and testimonials and building a dialogue with a potential supplier to make sure not only that they can deliver but that their working culture and values are compatible with your own. If those elements are consistent and claims are backed up by hard evidence, then it looks like you’ve found your supplier. If you would like to explore how we could help you to outsource and streamline an aspect of your business, then we would be delighted to offer our advice, experience and expertise. We’re ready to take your call.


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