Why do companies outsource

Why do companies outsource

Outsourcing is the subcontracting of an internal work to a third party organization to get the work done quickly and efficiently. The practice of subletting operations to a third party is quite common in the modern economy. The outsourcing comprises both foreign and domestic subletting of a business process, which at times comprises offshoring, means that the work is being transferred to another country. Many big companies in developing nations outsource their work to third party organizations in developing nations, for it helps in cutting down the expenses by a huge margin. Following are some of the main reasons for outsourcing work to a third party organization:

Cost cutting:

Cost cutting of a business process is one of the major reasons for outsourcing the work to developing or Third World counties. Labor, both salaried and contractual, in developed countries is very high in comparison to their developing or underdeveloped counterparts. Therefore, large companies or business outsource some, and at time entire, operations to reduce their operational cost.

Less/No Regulatory Costs:

In developing countries, there are very high regulatory costs of employing a local employee, for employees have to ensure Social Security, Medicare, unemployment insurance and many more government-imposed regulations to their workers, which make hiring a local worker unappealing than to outsource the operations oversees without worrying about regulatory costs.

Freedom to upsize or downsize the workforce:

Outsourcing gives the freedom of upsizing or downsizing the workforce to the company and that too without facing damaging lawsuits, which have been on the rise nowadays, as employees are becoming more aware about their rights and employment law. Usually, employers refrain from downsizing or sacking local employees from their job, unless there is no way out, to avoid legal conflicts and damaging lawsuits.

Faster Turnaround Time

To build an in-house team is not only expansive but it also takes a lot of time. For the companies have to recruit, interview and train the inexperience workers to build a whole new team. Usually, it takes too long to settle down a new team, which neither startups nor established can afford. Therefore, outsourcing cuts down the turnaround time by a great margin as employers simply assign the work to a third party organization with a timeline which they have to complete and submit within the allotted time to avoid any penalties.