Published On: Wed, Mar 15th, 2017

Why the Outsourcing Industry is Growing so Fast

Outsourcing is not a new concept. Yet over the last decade it has consistently grabbed the headlines and caught the attention of everyone from politicians to companies and the everyday, average worker. Outsourcing has both been praised and vilified. It has been identified as an engine of economic growth and an enemy of jobs creation. Regardless of where you stand, one thing remains certain: the outsourcing industry is growing fast.

The growth of outsourcing can be traced as far back as the earliest innovations which allowed countries to explore growth opportunities in other regions.

You can even go as far back as the invention of the railroad which represented an evolution beginning from turnpikes then moving on to canals. The railroad made it easier and faster to acquire goods and services in other countries that could produce them cheaper and in greater quantities.

The innovation in transportation made it more efficient for nations to overcome scarcity of resources by entering into agreements with service providers that had a comparative advantage.

Outsourcing Industry is Growing so Fast

Thus, it can said that outsourcing grew out of a need to improve economic conditions. You can go as far as to say its growth was natural and organic. Back then in the 1800’s when city states where subsidizing and incentivizing the building of railroads, they may have referred to the process merely as “trading” instead of outsourcing. But the principle has remained the same:

Outsourcing is the process of delegating, transferring or re-aligning tasks, functions and responsibilities to third parties whereby a comparative economic advantage exists.

If outsourcing is used as a process to improve the economic condition, why then have some sectors labeled it as “evil”, “destructive” or the “bad guy”? Why then is US President Donald J. Trump seem hell-bent on punishing US companies that outsource to other countries?

Trump’s fiery rhetoric on “Making America Great” by keeping jobs within its borders has consequences on other regions; particularly popular outsourcing destinations such as the Philippines and India.

Politics and business are a combustible mix. Politicians will say what the voters want to hear so they can secure the mandate. Most of the vitriol on outsourcing is largely due to ignorance on what it can do, how it can revitalize an economy and why you can’t stop it.

What Outsourcing Can Do

Outsourcing will benefit all businesses regardless of size, type and industry. It gives businesses a proven option to scale up operations while mitigating risk factors. It’s a cost effective solution that consistently delivers results:

  • Improve Quality of Goods and Services – Third party service providers whether they are virtual assistants, telecommuters or contracted agency workers are highly- experienced, well- trained and have the required competencies to do a great job.

Look at the case of Silicon Valley in the 1990’s. US IT companies realized that outsourcing to India did not only lower cost but also improved the quality of work and final deliverables.

Time spent managing administrative and other non-essential tasks are best applied to functions that shore up your bottom- line.

  • Provide Flexible Solutions – For a time, attrition was a big concern not just for US companies but for other businesses around the world. Employee disengagement was estimated at 70{e88244077211f5cf386568f3ad5b57103e4615e1fa16c8b0cbbe056d2742b3e9} and this impacted heavily on productivity.

By outsourcing work to home- based workers, companies were able to reduce attrition rate while lowering operating costs and increasing productivity.

How It Can Revitalize an Economy

The global outsourcing industry grew exponentially in the new millennium. The year 2000 was ushered in by the threat of a virus then consequently punctuated by events that have forever changed history.

These events included 9/11, the crash of global equities markets in 2003, global warming, the Iraq Invasion of 2003, the Euro Zone crisis of 2009, threat of a US bankruptcy and periods of recession in Greece, Japan and the United Kingdom.

The after effect of 9/11 cascaded through the collapse of regional stock markets and property markets. The devastation left companies wading through bankruptcies, closures and massive layoffs.

Companies that outsourced were not just able to survive but thrive during this period:

  • Reduced Costs – An extra unit of full-time labor can have a cost multiplier equivalent to 3x the basic salary. By outsourcing work to low cost regions, companies were able to reduce operating costs by at least 30{e88244077211f5cf386568f3ad5b57103e4615e1fa16c8b0cbbe056d2742b3e9}.
  • Introduced Efficiency – Functions such as marketing, research and development are crucial to a company’s success. Unfortunately, funding for these departments are the first to go in the event of economic turbulence. The best solution would be to outsource these functions and negotiate flexible pricing arrangements.
  • Stimulated Demand – When goods are made in a low cost country like China, companies can maintain healthy profit margins and keep prices low for customers. A profitable company can hire more people and generate employment.

Why You Can’t Stop Outsourcing

As discussed earlier, outsourcing is a by-product of innovation and the constant evolution of technology. The Cold War ended in the early 1990’s; barriers have come down and oceans can be bridged via the Internet.

The world is now truly globalized. And outsourcing best represents globalization; a coming together of regions for the purpose of economic advancement.

No one can stop globalization. It is like trying to get people to throw away their smart phones and revert back to the pocket beepers. Technological advances in communication will continue to spur globalization. It makes life and work easier, more convenient, efficient, productive and ultimately profitable.

As the history of US manufacturing has shown, you cannot create jobs for the long term by sourcing talent locally. Cost- Benefit Analysis will necessitate automation as the viable option over hiring human resources.

A good case study is the city of Montana. A long time ago, it had a booming economy that prospered on mining. But increasing labor cost eventually pushed the mining companies to take their business to Chile where comparative advantages existed.

The only reminder of Montana’s glory days is a cesspool of toxic waste leftover from long- shuttered mining activities.

Despite challenges from what seems like a new world order, the outsourcing industry will continue to grow in the next few years. Businesses are put up for the purpose of generating profit. Outsourcing has a track record encompassing hundreds of years that it is a proven way for businesses to remain profitable even during times of economic turmoil.

About the Author