Redefining Outsourcing: Liberating Small Scale Businesses from Costly Overhead

This story originally appeared here in the July issue of Business Review Australia magazine.

Written by Paul Bradley

Mr Bradley is the Executive Consultant of 363 Think Tank, a corporation that provides expert solutions to overwhelming organizational problems. He has more than 30 years of experience working in Retail, Banking and several market-focused private corporations.

Over the years, outsourcing has played a dramatic role in modifying the seemingly unalterable economic structure between nations, wherein underprivileged countries become more inferior while wealthy and influential countries become wealthier. The advent of outsourcing has made possible the availability of multiple opportunities to improve the socio-economic status of inferior countries as wealthier nations share portions of their wealth to them. Moreover, outsourcing has made major changes as to how companies manage their affairs, mete out their investments and organise their operations. It has definitely impacted the socio-economic situations of various nations, industries and industry players as well.

While attentions are generally focused on major scale outsourcing with the overstated presence of gigantic BPOs and Call Centres everywhere, few have realised how small businesses can also take advantage of this phenomenon. In fact, businessmen are now gradually starting to clearly see the advantages of this strategy, especially for those with limited resources or lesser capital. Even if potential drawbacks are still evident, it is established that if managed well, outsourcing will work wonders for any businesses, regardless of its nature and size.

The Deal with Small Scale Outsourcing

Outsourcing on a small scale process involves getting the services of individuals on either per function, per project, per need or on an hourly basis. Often, these services may be administrative in function, IT-related tasks, writing, marketing and researching. Cost is the major reason to outsource. Saving expenses on labour, operational overheads and taxes is enough motivation to consider the strategy. Also, delegating secondary or less important functions to a contractor allows your internal staff to focus on your core business making them more competent on important matters.

Businessmen considered outsourcing tasks that require expertise and specific skill set because getting it internally requires costly compensation. Being required only on certain periods, paying on a per-need basis is definitely a lot more cost-effective than getting an in-house employee. Lawyers, accountants, bookkeepers and web designers are examples of these jobs. Quality of work is also guaranteed, as there is an unlimited availability of experienced professionals that may be outsourced with expertise on different industries and with varying level of competencies.

Focusing on Cost-Saving 

Local operation requires allocating a portion of your investment money on setting up a physical office to accommodate all your employees. Bear in mind that there is a required security, sanitary and safety regulation in an office fit-out as mandated by local and national government. Observing all these regulations will be a huge cut-out from your initial capital. Aside from actual office space, you also need to spend on office furniture and electronic equipment such as computers and telecommunication devices. Additionally, it is essential to adhere to the country’s standard employee salary structure, including the mandatory benefits, insurance and government taxes. While this can have a tremendous impact on your initial resources, having to maintain all these expenses is yet another costly requirement.

Outsourcing can help you save a lot of money as you’re able to dramatically narrow down your start-up expenses by as much as 75 per cent of the cost. Depending on the outsourcing model you decide to utilise, you can totally eliminate the need to set up an actual office. There are a lot of businessmen who successfully operate in their basement while managing a virtual office. With a personal computer on hand and a reliable internet connection, you can practically do business without having to leave the comforts of your home. Finally, with the profuse availability of professionals and contract workers that can perform various tasks online while offering their services at an unimaginable rate, there is simply no reason not to consider using this strategy.

Getting Some Issues Out of the Way

Even though outsourcing is considered one business model that delivers its promise, it also carries with it certain issues that have received different reactions and have stirred extreme sentiments among participants from various sectors of business, members of the government – even from social activists. Ongoing debates and consultations as to whether outsourcing is an admissible business strategy still exist.  In fact, the uncertainties of these assessments are perhaps the chief reasons why some businessmen are still in apprehension about becoming adherents of this practice.

• Exploitation. Part of the saving businesses get from outsourcing is through paying a lower labour cost. Often, the savings is ten times less than hiring locally and/or internally. People argue that since you are compensating someone for less than the real value of their work, is a form of exploitation. In reality, they are being paid based on the value of their work computed using the value of their country’s currency and cost of living. In the case of some third world countries, for example, where their local minimum wage roughly amounts to about AU$10 per day, being paid two to three times this value can be acceptable.
• Neglect of Patriotic Responsibilities. Providing jobs for locals is a responsibility that must be taken seriously by local companies. As companies distribute jobs outside the country, there seem to be scarcity of available jobs for their citizens. However, the overhead costs of business led the businessmen to choose between discharging employees while distributing jobs elsewhere or eventually losing the business. To be able to provide more jobs for the locals later on, it is practical to save and grow the business first.   
• Distressed Local Economy. Instead of the money being dispensed inside the country, the economy is suffering because apparently it is spread all over the globe. Take note however, that having a lower overhead cost allows companies to lower the prices of their products and services. This means that consumers are being offered a higher value for their money, thus a sign of better economy.

On Choosing an Outsourcing Model

There are, in fact, several outsourcing models that a company can choose for their own operation. The key is to find out which model fits your business best. The two major considerations you need to focus on are these:

• First, how many processes or policies are you willing to change, regulate or expand to be able to meet your goals and business requirements; and
• Secondly, what is the most comforting level of relationship can you tolerate with your service provider.

Once you have these two sorted out, it will be easier to focus on finding a model that will work best for you and a provider that can provide you with your exact business needs. Remember, just like any other business model, outsourcing may not work unless managed and monitored very well.