Companies expected to outsource more work due to the COVID-19 pandemic

Outsourcing and/or offshoring is one of the important and key strategic approaches in complex, dynamic, and competitive global supply chains.

What is Outsourcing?

Outsourcing is a business agreement, either domestic and/or international (known as offshoring), and strategic management initiative for gaining competitive advantage of a firm by contracting out their existing internal and/or external non-value added functions, and/or value-added functions, and/or core competencies to the competent supplier(s) to produce products and/or services efficiently and effectively for the outsourcing firm.

A critical review of some empirical research articles published between 2010 and 2019 suggests that ‘outsourcing can produce positive, negative, mixed, moderated or no significant impact on the firm’. Cost-saving, improved management effectiveness and flexibility, access to market, and better product/service quality are some of the benefits of outsourcing and offshoring.

Sending work overseas has become very popular, and many companies are well aware of the benefits. All kinds of services, such as customer service, transcription, accounting, web hosting, software development, and web design, are sent offshore every year. Offshoring often offers a fast turnaround and the ability to ramp certain functions up or down and it can allow in-house staff to focus on more critical tasks.

As businesses work towards operating in a changing environment following the Covid-19 pandemic, many of them are expected to outsource more work, according to a report by technology firm NTT.

The ‘2020 Global Managed Services Report’, based on a survey of 1,250 executives in 29 countries including India, said that 45% of organizations will outsource more than insourcing in the next 18 months, with 57% citing security risks as a key challenge of managing IT in-house.

Demand for expertise in cloud infrastructure outsourced to service providers is set to increase in 18 months to 77% while new product development will be the most common impact on IT decision making in the next 12 months, said Skendrovic.

Other findings of the survey include:

- Reducing security risks is not only the biggest challenge faced by IT teams globally, it’s the top reason for service provider consideration

- 48% of business leaders already acknowledge a need to optimize the workplace environment

- Technical expertise is the number one driver for the selection of a service provider, with cloud infrastructure and security leading the demands

Pros

There are reasons many companies are sending more work offshore than ever before.

• It’s often cheaper: Sending work overseas can be substantially cheaper. Educated and experienced people in Asia, parts of Latin America, and Europe can be hired on contract for much less than people in the U.S.

• You can pay back investors faster: Businesses often must do what’s best for their investors and stakeholders. Paying less gives you more flexibility to return the profit to investors.

• Help improve developing economies: Outsourcing work can create many jobs in other countries. Developing countries in Asia and Latin America are common places that businesses from the U.S. outsource work to.

• Faster turnaround times: While you are asleep, your offshore company can work on getting your project done. Time zone differences can help when you need your work done as fast as possible.

Cons

Data security: You don’t want company or client data getting into the wrong hands, but overseas vendors may not adhere to the same data security standards as your company. Anytime companies in the medical field outsource work, for instance, they must choose vendors that comply with the Health Insurance Portability and Accountability Act.

• Communication: When speaking with nonnative English speakers, faulty communication may occur at some point. Maybe they interpret something in another way, or you agree to something assuming an entirely different intention.

If sending work offshore seems like the right move for you, there are a few questions to consider to make the best decision: Do you need fast turnaround times that you can only get by offshoring? Are you sending confidential files? Will having more room in your budget help your business pay investors sooner? Are you willing to put in the time to overcome any communication barriers? Do you have time to check every document for errors?

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