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Outsourcing Of Business – Potential Pitfalls

Today’s globalization, increased competition and rapid technological changes have led most companies to view outsourcing of business as the solution to staying competitive. However despite the fact that outsourcing reduces operational costs and in some cases can help the organization increase its efficiency; it also has negative long term effects that could affect not just the company but the society it operates in as well. A few of the risks and negative impacts that outsourcing exposes organizations to include; unmonitored competition, increased unemployment, unscrupulous providers and possible organizational failure in the long run.

Increased unemployment
Outsourcing of business processes is a relatively new phenomenon that was sparked off by the advent of internet business. As such the full impact of the practice is as of yet unknown, nevertheless it is not the win-win situation that most economists point it out to be. The first major problem of outsourcing can be attributed to the government’s lack of a clear and concise policy that governs the practice. This has bred unchecked and unfair competition among companies in the industry. The tenets of free market economies state that governments should let market forces govern the market, however there is also a need for guidelines that safeguard the existence of small and emerging enterprises. A need that is being largely overlooked thanks to the cut throat competition brought about by outsourcing.

Impact on the local job market
One of the other reasons that organizations give in a bid to justify outsourcing of business to offshore locations is that the labor force is not only cheaper but more educated than the domestic labor market. While this may be beneficial to the third world countries; such as the Philippines and India that get most of the outsourcing work, the impact on the domestic job market is drastic. This has led to company employees being unsure of their current job security and has resulted in low morale levels in organizations. In addition there is the possibility of employees who have lost their jobs going to work for the competition.

Unscrupulous providers
The outsourcing revolution has led most companies to believe that there is no other alternative. So in most cases small companies that can’t afford to set up their own outsourcing departments have to rely on the services of outsourcing companies. However these outsourcing companies handle the business processes for a number of companies, including organizations that may be rivals. In such a situation outsourcing of business may lead to organizations unwittingly exposing their operational secrets. Unscrupulous outsourcing providers may also sell organizational secrets to competing companies or collate the data and use it to start their own business.

Aside from the reasons mentioned above outsourcing may also contribute to changes in the way certain organizational processes are conducted. This leads to a decrease in the efficiency of the company, due to time lapses and delays occasioned by poor coordination which could result in potential conflicts between the company and consumers, the company and the employees or the company and its outsourcing providers. Though outsourcing of business is being touted as the solution for reducing organizational costs, it should also be noted that in some cases the overall cost of the practice may be more than the additional costs that would have been incurred.

Daven Michaels Author of the book Outsource This!

9 Responses to “Outsourcing Of Business – Potential Pitfalls”

  1. Charla says:

    There are always risks in business from the decision to start a particular business, taking on partners, or deciding to outsource. The important thing is that you do your research and make sure you are well informed before you decide if outsourcing is right for your business.

  2. Wesley says:

    Good information Daven!

  3. Gloria says:

    Quite true and honest!

  4. Ricky says:

    This is a good list but I believe there is more to it. I also run an outsourcing business, and I must confess, there are some rules never to be broken, or else as Daven said, you’ll live to regret it.

  5. Geoff says:

    Life is about rules and those who succeed are the ones that can adhere to them. Perhaps sometime, Daven would give us a more comprehensive list; thanks anyway.

  6. Larry says:

    My company outsources all admin support work to foreigners, and I must say that they are doing quite well. I highly recommended it too.

  7. George says:

    I own a small business marketing firm and work with graphic designers, researchers, VAs, etc., apart from my personal secretary, every other person on my payroll is working virtually; very cool if you asked me.

  8. trek Oñatse says:

    Thanks for this info Daven, very insightful!

  9. jhoelle says:

    This was really great!!! keep on inspiring business-minded people like me!!!

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