What is outsourcing?

Outsourcing is simply subcontracting a process, task, or an activity such as product design or manufacturing, to a third-party company or even a to a single person. If you’ve seen videos or news about a company in China manufacturing toys of a famous US toy brand, that’s outsourcing. If you tried calling a customer support 1-800 number and perhaps somebody with an Indian accent answers your call, that’s probably an outsourced call center support service.

The rise of globalization has brought about the need for finding ways to cut down on operations costs or figure out methods on how to produce a certain product for the least amount of money and therefore maximizing profit potential.

Why outsource?

There are many reasons why companies and small business outsource.

a. Cost Savings – Thanks to the internet and free communication services like yahoo messenger and skype, the geographical bounds of different countries and continents is no longer an issue. One can communicate with another person halfway around the globe for FREE.

The cool part is that, somewhere out there, somebody or some company can do the same job for less money. Cost savings is one of the primary driving factor for outsourcing. You might heard of stories of factory workers producing goods and getting paid a few dollars a day.

b. Focus on Core Business – Let’s face it, some business functions are there to support you core business. Like if you are into retail and you sell electronic products like PCs or cellphones, you got to have a customer support number where people can ask presale or after sale questions.

Would you rather spend on training customer support agents on phone ethics, objection management, handling rude customers, closing sales, and all these call center related skills? Or would you rather outsource that whole function to a call center company in the Philippines whose primary expertise is in providing excellent customer service?

c. Cost Restructuring – Still on the customer support example, if you’re one of those bigger companies that needs tens or hundreds of customer support agents, if you would like to do it in-house, you will definitely need to spend thousands of dollars in capital expenditure for buying expensive telecoms equipment and servers and automatic call distribution systems. With outsourcing, you can just pay a small variable monthly cost of the call center service.

d. Knowledge – We all know that each of us are not experts of everything. Some people are better than us in terms of talent or skill. With outsourcing you can “tap” into this knowledge or skill.

So if you have an internet business and you would need to create an ecommerce website, there are 2 ways to make an ecommerce website. One is to spend lots of time researching on how to do it yourself, or you can just post a job in elance.com and have people bid on the project?

There are many other benefits but the bottom line is this….

Somewhere out there are people who can do the job better than you which costs way way lower than the price to pay for the same work or service compared to people doing it in your local area.

Unfortunately, you can’t outsource a landscaping or plumbing job to somebody in another country. Imagine if somebody can do your lawn for $2 an hour.

**Next section in Start Up School teaches you where to outsource click here to hop on over.