Outsourcing can save money but companies must consider risks such as cultural/language issues, information security, loss of control, and impact on the local economy. Offshore outsourcing also poses risks such as unstable governments and information leakage. The initial investment can also be expensive and there may be job losses.
Much has been and has been said about the benefits of outsourcing. First, it can save a company a great deal of money, creating better returns for shareholders and allowing a company to focus on a few key areas. There is also a significant amount written out of risks in outsourcing and companies are duly advised to consider these carefully before breaking down departments and allowing other companies to take over the task of dealing with them. Some outsourcing risks that might be considered include cultural/language issues, poor interaction with other regions, information security, upfront investment in information transfer, loss of control, and the effect of outsourcing on the core country where the business operates.
Often, outsourcing means offshore outsourcing and one of the problems with this practice is the degree to which cultural misunderstandings or language issues can affect work or customer service. Even when another country has many speakers from the company’s native area, there can be issues that arise from cultural differences and this could disrupt workflow or create a bad impression of a company’s customer service. In fact, there are some companies that initially outsourced things like customer service lines and have since found that one of the big risks of outsourcing is consumer dissatisfaction with this practice due to language barriers or cultural issues. To that end, some companies have returned that work to native countries, and if they’ve outsourced it, they’ve done it to speakers who are more likely to understand callers.
Offshore outsourcing risks include those associated with running a business in a country that has different laws or an unstable government. Many prime outsourcing locations are not in the most stable of governments, and large cash losses could accrue if political situations worsen. Sudden changes in leaders could also prove to be a problem, and coups could end up with the country’s outsourcing company owned by a new leader. A lower level of maintenance, particularly in third world countries, could lead to unforeseen closures, such as due to natural disasters, which cannot be immediately attended to by municipal or other governments.
One aspect that is of great importance in outsourcing risk assessment is the security of many different types of information, including proprietary knowledge or things like personal statistics and employee or customer tracking. Given that the parent company may rarely micromanage the outsourced area, the degree of information leakage is not always known. There have been cases of thefts of things like credit cards, social security numbers, and proprietary material, and these must give the company pause.
While outsourcing often saves money, the initial investment can be very expensive. Employees may need to travel to an outsourced location to set up operations, train workers, and others. Sometimes this transition is seamless, but other times it is characterized by many bumps in the road or ongoing challenges in managing outsourced work efficiently.
Even this loss of control requires reflection. In some cases, another company becomes the de facto representative of the parent company and may not have the same ethics and goals. The degree of control retained often depends on whether the company has a contract with another or manages the outsourced company. In the latter case, there is less control over the results, although companies can always fire the current outsourcer and hire another. This will take time and money.
Companies and their employees are members of the country where they work. One of the risks of outsourcing that must be considered is the gradual impact of this practice on the world in which the company and the employees live. Outsourcing has contributed to significant job losses in some industries and this creates problems in a number of ways. It can keep a group of skilled workers out of work, eventually diminishing that skill group to the point where it may be difficult not to outsource. Higher unemployment can also be traced to higher public need, and this could raise taxes on individuals and businesses, especially those that have partially created the need.
Companies are unlikely to see the risks of outsourcing as reasons to avoid it. As mentioned, many industries now routinely do this to some extent because they find it saves money. However, it’s important to note that it’s not always easy or successful, and saving money could end up costing you more money in taxes.
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