What Does Outsourcing Mean in Business & How Does It Work?

09.28,2022

Not every company nowadays has enough employees to take on tasks that are not their expertise. For example, when start-ups lack specialists in the IT department, it’s about time they looked for IT services for small business. Some require experts in Marketing, Finance, Business Development industry, etc. One of the most common solutions for tackling this is hiring outsourcing companies. So what does outsourcing mean? How does it work? And Why does a business need outsourcing? All of these questions will be unveiled by Rikkeisoft in this article below. So read on to learn more about what outsourcing means in business and its incredible benefits.

What is Meant By Outsourcing? 

Outsourcing is a business practice used to recruit a third party to perform tasks or services or create goods usually performed by in-house staff or employees. 

There are many ways to outsource a business process, and one may be preferable over another, depending on the process. In addition, there are several types of relationships based on the distance between the two members of the association. Some types of outsourcing are listed below:

  • Onshoring outsourcing: Relocating work or services to a lower-cost location within the same country.
  • Offshoring outsourcing: Relocating work or services to third-party providers in another country.
  • Nearshoring outsourcing. Relocating work or services to nearby, frequently bordering regions and countries.

To help you have a basic understanding of what outsourcing means in business, take logistics outsourcing as an example. Many years ago, businesses had to invest significant money in training and maintaining large teams responsible for coordinating transport and warehouse processes. 

Nowadays, you don’t need to keep a separate transportation department. Instead, you can hire a logistics outsourcing company to perform this service. Logistic companies can offer not only transportation but also stock storage. Plus, you don’t need to search and hire warehouses and be concerned about the safety of your products. Take notice of their reviews, service prices, and execution rate before selecting the best logistics service provider. You also pay attention to product features, the volume of freight, and delivery frequency. 

How Does Outsourcing Work? 

To put it simply, when a company uses outsourcing, it enlists the assistance of non-affiliated outside organizations to complete specific tasks. In addition, outside organizations usually have different compensation structures with their employees than the outsourcing company, thus allowing these organizations to complete the work for less money.

For a business to outsource effectively, it must focus on business partnerships and logistics. Outsourcing is a partnership, not a purchasing project. And it is about managing relationships rather than service-level agreements. Maintaining and securing a trustworthy relationship is critical in outsourcing efforts, and it is more complex than establishing service levels and relationships.

Some experts advise emphasizing the service contract’s exit clause. Businesses must understand when the contractual agreement will inevitably expire and ensure that all parties involved fulfill their responsibilities and stick around until the contract ends.

Some factors you need to carefully think of before choosing an outsourcing company include the followings:

How Does Outsourcing Work
  • Pricing: It is recommended that outsourcing is a way to cut costs while making it easier for an organization to focus on its core. Therefore, compare the pricing structure/quotation of a group of vendors before making a decision. 
  • Reliability: You need a background check on your outsourcing company to confirm their address, history, staff strength, and financial standing. You can also search for reviews or testimonials to help you determine their capabilities and level of reliability. 
  • The ability to meet deadlines: You must ensure that your outsourcing company meets the quality and timeline expectations. Discuss beforehand and constantly remind them about the project’s timeline to avoid unexpected situations in which they fail to meet deadlines.

Why Companies Outsourcing is Needed?

Now you know the definition of outsourcing as well as how it works, let’s talk about the reasons why companies outsourcing is needed.

Why Companies Outsourcing Is Needed
  • Cut labor costs and operational costs: To illustrate, a company may want to cut the cost of labor by hiring freelancers who do not receive benefits or require office space and thus may be cheaper than full-time employees. Companies can also cut labor costs by outsourcing operations to locations with lower wages. Regarding operational costs, the outsourcing firm hired will also take care of the necessary equipment and space for your entire process. 
  • Concentrate on the target aspects of the business. Outsourcing non-core activities can boost efficiency and productivity because another entity can perform these smaller tasks better than the company. This strategy may also result in faster turnaround times, increase industry competitiveness, and lower overall operational costs.
  • Save time and effort: Allow your top talent to concentrate on a single task to improve the quality of their work and productivity. Outsourcing these repetitive tasks frees up your team’s time, allowing them to focus on the more essential aspects of their roles.
  • Increase efficiency: Outsourcing companies can help businesses save time and focus on essential tasks. Combining in-house staff and employees from outside companies helps keep up with the project progress and improves performance, thus increasing efficiency.
  • Benefit from top experts: Your in-house team may be excellent at what they do, but some tasks require specialized skills, expertise, or knowledge that your in-house team cannot provide. Outsourcing allows you to access experts or talents in your industry. As a result, it helps reduce costs and improve quality output in your business.

When Should a Company Outsource? 

How does a company decide which tasks and functions to outsource? Keep reading to discover four signs you should know before looking for outsourcing companies. 

  • Not having enough time to grow your core product or business. It is worth outsourcing a task in case you want to devote more time to developing your goods and services.
  • Seem to be behind the deadline: When the deadline is approaching, and you feel like you will miss the deadline, consider outsourcing your project. You have to determine the most needed tasks for outsourcing and focus on the rest you can do well. The more time you have to focus on the task, the better your chances of meeting your deadline. If outsourcing is beneficial after the project, you can use it to free up more time in the long run.
  • Run out of budget: Hiring in-house staff is often more expensive than recruiting employees from outside companies. With a high salary and other allowances, you should consider outsourced workers when your company’s budget is on a tightrope.
  • Not able to handle specialized tasks: For some tasks beyond your capabilities, such as collecting and analyzing data, writing content to attract customers or transporting goods overseas, etc., outsourcing is a great way to address problems hindering you. When some tasks take your internal teams too long to complete, opt for external teams to outsource.

If your organization has one of these signs, it is time for you to consider choosing to outsource. Using them as your compass to determine whether to outsource a task and which tasks need to be outsourced. 

Do you know how to choose IT Services For Small Business?

How to Find Outsourcing Companies? 

Looking for outsourcing companies? Below is the guide to help you choose a vendor for your outsourcing.

How To Find Outsourcing Companies

Step 1: Determine your goal clearly

You have to understand what you’re looking for. Knowing exactly what type of work you want a contractor to do makes finding the right person for the job easier. Before you begin your search, make your goals and objectives as clear as possible. This ensures a more positive experience for you and the person you hire.

Step 2: Decide what types of outsourcing services you need

In addition to choosing between onshore, nearshore, or offshore outsourcing, you need to consider other factors such as time zone, communication channel, pay rate, project size, timeline, etc.

Step 3: Make a list of potential vendors for your company and shortlist them

Now that you’ve decided on the types and models of outsourcing, it’s time to look for potential partners. First, list at least 5 to 7 potential outsourcing firms. Then conduct online research about these companies by reading reviews or testimonials. Or you can also ask for referrals or recommendations from friends or if they have partnered with these outsourcing companies. Following this, shortlist them to choose the best one that meets your expectations. 

Step 4: Contact your final potential partner

After choosing the final potential outsourcing partners, you can contact them and book a consultation with a representative of their company. Discuss your requirements with them, and ensure you both have a clear understanding of the project, assigned task, pricing, timeline, communication channel, contract stipulation, etc.

Types of Outsourcing Services 

IT (Information Technology)

IT outsourcing is the practice of operating a third-party service provider to deliver IT-enabled business processes, application resources, and technology services to run a profitable business. Different industries choose different types of IT outsourcing services. Some notable examples of IT outsourcing types are web application development, software development, Tech support, Data management, Web maintenance and Telecommunications, and so forth.

If you are looking for an IT outsourcing vendor, Rikkeisoft is one of your best choice. Based in Vietnam, we strive to meet the world’s standards & beyond by constantly raising our quality standard & technical expertise while increasing time-to-market. We provide world-class software development services, and fully managed IT services of maintaining, supporting and IT infrastructure.

Human Resource

The process of receiving work previously completed by corporate personnel from sources outside the company is known as HR outsourcing. HR outsourcing services generally consist of Hiring & Recruitment, Payroll & Compensation Management, Specialized Consultancy, Background checks, etc. It helps to lower costs, simplify HR management and boost business efficiency.

Marketing

Marketing outsourcing is believed to be among the preferred outsourcing services. There are some types of marketing tasks you should outsource, including:

  • Content marketing
  • Email marketing
  • Digital PR
  • Social media marketing
  • Influencer marketing
  • Marketing Analytics

Keep in mind that you don’t need to have all these types outsourced. Instead, when deciding which aspects of your marketing could and should be outsourced, consider your in-house workload, skill sets, timelines, and other factors.

Finance

Financial outsourcing is a business strategy that entails contracting with third-party providers to perform various financial and accounting functions. The first common form of financial outsourcing is payroll functions. Bill collection is another type of financial outsourcing. In addition to payroll and bill collection, hiring professionals to manage accounts payable and receivable records is prevalent nowadays. Many companies take advantage of this form of outsourcing to reduce costs while still taking care of essential accounting functions.

Freelancer Hiring vs Outsourcing Company 

About Freelancer Hiring 

The advantage of Freelancer Hiring is that it’s easy to find and work with. The cost to be able to hire freelancers is also very cheap compared to hiring companies today. You will not need to pay additional staffing fees or company management fees.

However, working with a freelancer can also expose you to many unwanted risks. Specifically, if you don’t survey the market, you may end up hiring a “low-quality” freelancer. They can charge very high prices but the product’s quality is very poor. You even have to fix it many times. So if you hire a freelancer, make sure you choose a good freelancer.

About Outsourcing Company

Outsourcing the company will save a lot of costs compared to hiring staff to work at the company. An outsourcing company can guarantee you prestige as well as product quality, which helps you save a lot of time and staff training costs. Thereby, outsourcing companies can bring more efficiency and quality products than hiring freelancers.

Rikkeisoft It Outsourcing Company

However, when working with an outsourcing company, there are also some disadvantages that you need to be aware of. The first is product learning time. With a company’s products or services, it can take a long time for them to get the hang of it.

Conclusion 

Currently, outsourcing is one of the most effective tried-and-tested business models. It is a successful long-term competitive strategy that helps companies reduce costs, save time and effort, and find top international talents at a reasonable discount to create or enhance their existing team. 

We hope that now you have a clear understanding of outsourcing and how outsourcing works. With the help of outsourcing, it helps you to fuel your business growth and take your business to the next level. So, it is time to start your business journey by finding the best outsourcing service.

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