Should I Outsource Part of My Business?

If you are running a small business, there are just so many hours in the day. Comparing staffing costs to productivity is common today. From the largest multinationals to the sole proprietorship, hiring or subcontracting the outside services of another company to either deliver part or an entire product or service is becoming the "standard operating procedure" known as outsourcing. As a part of shift toward globalization, outsourcing is a topic in the news, in seminars, and now even in business school curricula. The practice has both advantages and disadvantages both in terms of quality as well as economic well being for entire countries; not just local small or home-based businesses. There are those who even suggest that this globalization affects our very culture and our future as a society.

Outsourcing is good
Much debate and alarm has been heard about outsourcing in countries across the entire range of economic development.

In the United States, such discussions, especially leading to calls to "buy only American-made", may however be more indicative of fears associated with a recessionary business cycle rather than specific criticism of subcontracting and may disappear as business cycles improve. One undeniable advantage is in reducing production costs while expanding market share. Home-based businesses oftentimes must outsource at least part of their business in order to scale their "deliverables" up or down in response to demand in order to compete with larger operations. Outsourcing is sometimes no different from seasonal or part-time help. SOHO businesses alternatively benefit when larger firms seek out specialists, freelancers, or boutique operations that deliver specialized services. One business hands off collateral or "non-core" services to another with that particular specialization.

Outsourcing provides a safety margin allowing for example, excess or specialized demand to flow into the hands of other people producing specialty services or high quality goods. Sometimes, a business has no choice but to downsize their own services while hopefully retaining their revenue base as a last resort in order to survive. The fundamental explanation for outsourcing is usually in terms of dollars and cents. Outsourcing can reduce costs by allowing subcontractors to soak overflow demand or deliver niche services in a more cost-effective manner. Subcontracting businesses leverage cheaper though hopefully more efficient, qualified labor. The risk is in the quality of work the subcontractors provide.

Disadvantages in Outsourcing
There are several major disadvantages to outsourcing. Fundamental to subcontracting is relying on the third-party to deliver goods or services that are of the same value or quality. A business's brand name and reputation are entrusted to third-party management. Confidentiality regarding how systems or parts are integrated into some final product is also compromised when subcontractors are hired to deliver goods or services. A major concern in subcontracting to foreign businesses is the difference in government regulation and supervision of manufacturing standards. If for example there is no government regulations and a foreign subcontractor in turn either outsources or uses inferior grade resources to maximize their own profits, more than brand name reputation could be jeopardized. Substitution of ingredients outlawed in this country in for example food supplements and the use of sub-grade parts in machinery can lead to catastrophic situations as globalization gains in popularity.

Subcontracting is here to stay
The fact that many of us outsource appears to be inevitable. Few companies today have the money or size to control the entire life-cycle of their goods or services. Even the home-based business or your local dentist needs to outsource some services whether it is nightly cleaning or data communications. The key factor is your trust in what a subcontractor promises. Our world requires too many goods and services that are the sum total of many parts, resources, and skills of people from all over the world. The fundamental question in globalization and outsourcing is how much do we gain or compromise in value.