Outsourcing in a nutshell
Most people in business are aware of the concept of outsourcing, where a business sub-contracts a process to another business. This is a very common practice and allows the core of your business to remain focused on your central objective.
When considered in its broadest terms, anyone who uses a postal service is outsourcing. It would, of course, be possible for a member of your business to hop in their car and deliver your products by hand, but it would be woefully inefficient and expensive. By outsourcing this process to someone else you end up saving money, time, and hassle.
Other typical outsourcing jobs can include data entry, technical support, batch editing or product manufacturing… Really, any task can be outsourced and from anywhere in the world.
The potential benefits of outsourcing to small businesses
Outsourcing allows a business to get the expertise they need when they need it whilst keeping the core business intact. This avoids retraining or the reassignment of resources within the main business.
Outsourcing can be used for a variety of reasons, such as to save money, to expand the skill set of a business’ employees, to meet higher workloads or even to provide out of hours support.
One of the more popular forms of outsourcing is offshore outsourcing. The difference in labour costs and economies means that you can often save a great deal of money by having tasks completed in places such as India or China, though, as we will discuss, this can reflect badly on the image of your brand if approached wrong.
Outsourcing, though a widely used practice, still has its critics, some of whom may be your customers. There is the argument that businesses who outsource in countries with cheaper labour costs due to poor economies, are opportunistic and are profiting from the misfortune of others. Such outsourcing can be considered unethical, where the priority of making money is put before the welfare of workers.
When the term outsourcing is used it is often quickly followed by the term “sweatshops” where workers are paid very little and work in difficult and sometimes dangerous conditions. Though these such practices do still exist, even today, many businesses that practice outsourcing are highly aware of the stigma and work hard to assure customers that workers are paid well and work in good conditions.
Other customers may criticise international outsourcing on the grounds that the jobs are not being kept within the businesses territory and are therefore a drain on the local economy. For this very reason, some businesses keep all their interests in the same country such as call centres instilling the customer with the trust that this brings.
As always, even in small businesses, it is important to understand your customer base and why they come to you. For example, if it is your rock bottom prices, the issue of outsourcing in a lower income country may not be an issue. If your customers come to you because of your high ethical standards and support of local businesses, cheap outsourcing may lose that custom.
And so to ethical outsourcing.
The ethical in ethical outsourcing describes the way your business outsources. By taking responsibility for workers beyond mere pay in poorer regions and countries, you are supporting economies, education, and the overall welfare of workers…which are all good things.
With no true definition of what is ethical* when it comes to ethical outsourcing it is your customers who hold you accountable to their own moral standards. Many huge companies have been brought low by reports of poor conditions for workers.
There is the advantage of being able to tell customers about this work and inspire trust. If you are taking responsibility for your workers then, it goes without saying, you are responsible when it comes to dealing with your customers.
Why ethically outsource
When considering the advantages and disadvantages of ethical outsourcing it is important to establish why you are doing it. Sadly, noble goals rarely mix with business ideals, especially when you’re a small business. Some larger companies do engage in philanthropic work though, for the most part, this is simply an exercise in public relations.
The best way to view it, in this writer’s mind, is that you want a job done well, you want it done cheaply, but you want it done fairly so everyone benefits including your customers on price, your outsourced subcontractors on wage, and the business on its profit margins.
Though it does sound like spin, which it is in a way, you need to convince your customers that your business model is not based on greed, or cutting corners, but is a solid and responsible business that cares just as much about its employees as it does about its customers.
By supporting workers in lower income areas and developing their skill sets, you are improving the opportunities of people whilst improving your image of a caring and responsible business.
Of course, convincing your customers of this is a precarious line to walk. On one hand you are humble and say little about it but leave yourself open for criticism about using underpaid workers in poor countries as the foundation of your business empire, making you an evil and soulless overlord or, if you are open about your belief in supporting people in lower-income countries with less work and training opportunities, you appear to be a self-important pompous do-gooder…but that’s all beyond the remit of this article.
But these are just a couple of pitfalls when considering any outsourcing. Let’s take a deeper look at how outsourcing may not be the time and cost saving silver bullet that it is often made out to be.
How ethical outsourcing might impact your business negatively
Of course, there are downsides to ethical outsourcing that can affect your business.
The term “ethical” is rather subjective as are your customers own ethics. Even though you may see supporting workers in low economy countries and supporting their development as a good thing, doubtless some customers will continue to see it as opportunism, whatever way you dress it up.
Again, your control over the subcontractor is not absolute, and your objectives will differ. You will want to refine your business model to become more efficient, for example, fewer hours with the same output, whereas your outsourced subcontractor wants as many hours as possible and you coming to them and suggesting a way of them reducing those contracted hours and, essentially their pay, will not go down well.
Another aspect to consider is the linked reputations of your own business and the business to whom you’ve contracted the work. If they are found to have poor working standards for its employees, for example, that can reflect badly on your own business. These are not employees and you have neither the same level of responsibility for their welfare nor the control to correct it when issues do arise.
You also need to consider the impact of providing another business with your data or intellectual property. Not all laws are the same around the world and, even where there are laws to protect your IP, they are not always enforced. Given enough information, it is possible for an outsourced business to reverse engineer your process and go into business itself.
Over outsourcing is also a problem. Once you’ve realised the potential of passing off jobs to external businesses that you don’t have direct control of, it seems an obvious step to outsource everything and to simply work as the coordinator. The danger is that your very purpose may become redundant especially if your carefully built house of cards of processes start interacting and realising that they don’t need you at all.
Yet another issue for businesses who outsource, ethically or otherwise, is quality control. Without constant checking of what your outsourced contractors are producing, it is impossible to be certain that the work is being done to a high standard. Of course, this happens with any contractor, but when that contractor is halfway around the world and in a different time zone, a certain amount of risk must be taken before trust is built in the working relationship.
Finally, it is important to consider changes in policy and legislation in other countries. Such changes could lead to the contract being dissolved leaving you without an essential process, for all intense purposes hamstringing your business.
Outsourcing is an excellent way to supplement your business’s skill set or minimise cost however it does have its own issues. On one hand, there are the issues of quality, reliability, logistics and over-reliance on contractors. On the other hand, there are the implications regarding brand image, social responsibility and what your customers expect from you.
With the world becoming ever more connected and socially aware, it is essential that businesses hold themselves to the same high standards, even when in pursuit of more effective business models. Keeping your outsourcing ethical helps support burgeoning industries and helps to develop economies, skill sets, and quality of life for people with talent who live in lower income countries. Supporting such individuals and businesses is important and, when done right, can benefit your business, your customers and your subcontractors alike.