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Outsourcing includes both foreign and domestic subcontracting, and sometimes includes offshoring (relocating a business function to a distant country) or nearshoring (transferring a business process to a nearby country). Financial savings from lower international labor rates can provide a major motivation for outsourcing. There can be tremendous savings from lower international labor rates when outsourcing.
Two organizations may enter into a contractual agreement involving an exchange of services, expertise, and payments. Outsourcing is said to help firms to perform well in their core competencies, fuel innovation, and mitigate a shortage of skill or expertise in the areas where they want to outsource. Innovative business models have been developed to help reduce the cost for outsourcing. In particular, these business models may leverage on group bargaining power by aggregating similar outsourcing demands from various organizations when negotiating with external contractors.
It has become a common business practice that allows small and medium-sized businesses to gain services and skills they would usually find hard to develop, because of either financial or manpower restrictions, or possibly a combination of both. Meaning, one can grow his/her business as and when one needs to, without any major investment.
It also allows businesses to focus on core competencies and, more importantly, cut costs and improve efficiency, all very much hassle-free. As time has gone by over the last decade or so, business owners now realize that there are many reasons that companies, both big and small, outsource various jobs, but the most prominent advantage seems to be the fact that it saves money.
Many of the individuals or companies that provide outsourcing services are able to do the work for considerably less money, as they don’t have to provide benefits to their workers, and have fewer overhead expenses to worry about, especially if they are based in a non-Western country, such as India, China, Bangladesh, Vietnam etc.
Outsourcing also allows companies to focus on other business issues while having the details taken care of by outside experts. A perfect example would be knowing that telemarketing is the best way to get the word out in regards to a new product or service you’re launching (either locally, nationally or internationally), but admitting that it’s not really a particular company's forte. Such companies can hire an outsourcing company that provides these services, whilst they concentrate on getting ready for the influx of inquiries as a result of the campaign.
It also means that a large amount of resources and attention that might fall on the shoulders of management professionals can be used for more important, broader issues within the company – which is always a good thing! The specialized company that handles the outsourced work is often streamlined and will normally have world-class capabilities and access to new technology that a growing company simply couldn’t afford to invest in on their own. Additionally, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries, too.
Such tasks can be, but are not limited to roles such as accounting, bookkeeping, sales and marketing, design and manufacturing, development, promotions, administrative and back office assistance, customer service, web development and much more.
Nowadays, most freelancers or outsourcing providers will fall into one of the following categories, in regards to the services that they provide their clients. Some will even offer several of these:
Simply put, outsourcing will give away some of companies' business tasks that can easily be managed by an independent entity, making life easier for business owners. And most of the time, as well as being able to pass on these tasks to someone more experienced , the company will also save money, against hiring someone locally to do the same job – sometimes this can be as high as 60% !
Outsourcing has become a major trend in human resources over the past decade. It's the practice of sending certain job functions outside a company instead of handling them in house. More and more companies, large and small, are turning to outsourcing as a way to grow while restraining payroll and overhead costs. How can you make it work for your business?
First, make sure the company you're hiring can really do the job. That means getting (and checking) references. Ask former or current clients about their satisfaction with the client. Find out what industries and what type of workload the firm or individual is accustomed to handling. Can you expect your deadlines to be met, or will your small business's projects be pushed aside if a bigger client has an emergency?
Also, make sure you feel comfortable with who will be doing the work and that you can discuss your concerns and needs openly. Ask to see samples of work if appropriate (if you're using a graphic design firm, for example).
One outsourcing option is to hire independent contractors. Instead of hiring an in-house bookkeeper, for example, you might outsource the job to an independent accountant who comes in once a month or does all the work off-site. Independent contractors can be more flexible and lower in cost than outsourcing firms. As with outsourcing firms, however, before hiring an independent contractor, make sure the individual you use can do the job.
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