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What is Outsourcing?

Is it a good idea for businesses?

If you notice a yellow highlight on the page, hover over it for the definition!

Congress recently passed a bill that would make companies reveal how many workers they have outside the U.S. This move was in response to the bank Wells Fargo laying off thousands of American workers and shifting some tasks offshore. Why are companies outsourcing their work to other countries?

What is Outsourcing?

Outsourcing is a process of sending jobs, operations, and basic workplace tasks to be performed by a third-party workforce. That workforce could be in the same country or a different one. Essentially, a company hires another business or contractor to do some of its work. Often, outsourcing involves hiring workers in another country to do certain tasks. Let’s take a look at the pros and cons of outsourcing.

Pros

The main reason for outsourcing is to save on labor costs. By hiring other companies to handle customer support calls, clerical tasks, or data analytics, businesses can save money. The biggest money-saver is if they hire firms in low-wage markets, such as India, Bangladesh, or the Philippines.

If employers can’t find enough workers, they may have no choice but to outsource.

In today’s hyper-connected global economy, employers have access to an enormous talent pool. By outsourcing, they can work with people around the world.

Businesses may have short-term projects. In this situation, it makes more economic sense to hire an outsourced team of workers because the business does not need to spend time, money, and other resources to train employees who will only be needed for a short time.

Finally, staff does not need to be taken away from more important assignments to perform basic tasks. By hiring an outsourcing firm that can do the boring stuff, a company’s main team can focus on other work.

Cons

If you are outsourcing to a foreign market, then your reputation could take a hit. Wells Fargo tried to justify its decision by noting that employees abroad are needed to meet demands like round-the-clock customer support, but that still did not prevent lawmakers from criticizing the bank.

Outsourcing can trigger communication problems, especially if the other workers are in another time zone.

Another major drawback to outsourcing is the possibility of low-quality work. Workers in low-wage workforces, especially, may not have the same education, experience, or skills as the company’s main employees. Plus, a business that outsources will inevitably lose some control of its processes, which means it might also be impacted by poor quality.

Security is one major factor that is starting to discourage outsourcing. Sure, one company may have top-notch digital security, but what about the contractor? What if its security technology is inferior and lacks the same security measures? As technology becomes central to many companies’ operations, security is more of an issue.

Andrew Moran

Economics Correspondent at LibertyNation.com and LNGenZ.com. Andrew has written extensively on economics, business, and political subjects for the last decade. He also writes about economics at Economic Collapse News and commodities at EarnForex.com. He is the author of “The War on Cash.” You can learn more at AndrewMoran.net.

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