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Why is outsourcing still a dirty word?

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Industry and public alike need to reassess the widely held belief that getting specialist organisations overseas to handle key business operations poses a threat to jobs and leads to lower quality.

Over recent decades, as the proliferation of business technology has broken down the barriers to working with companies around the world, there has been a significant rise in outsourcing. However, as a practice it remains shrouded in confusion and, in many instances, negativity.

According to Statista, the global outsourcing market was worth $92.5 billion in 2019 – a rise of over $15 billion compared to 2016. Put another way, it’s a huge market that’s growing rapidly.

From lead generation and data entry to tech development and content writing, the vast majority of businesses today outsource key operations and processes to third parties. In fact, recent research by YouGov found that 70 per cent of UK businesses have outsourced (or do outsource) services to an external partner.

Why do organisations outsource? Well, there are various benefits, which will likely be determined by the part of the business that is being outsourced.

For instance, 34 per cent of UK businesses have outsourced IT support to a third party, while 21 per cent have outsourced tech and software development. The most common reason cited was struggling to access qualified and skilled staff in the UK to do the job internally: 48 per cent said this was the main motivating factor for them outsourcing. Three in ten (30 per cent) said outsourcing delivers better results, the same number say it is cheaper, and 28 per cent say it is more efficient.

And yet outsourcing remains something of a dirty word. Indeed, many businesses hide the fact that one or more elements of their operations are outsourced.

A study by the Global Sourcing Association [PDF] goes a long way to explaining why this is the case. It found that 80 per cent of the British public do not think the outsourcing industry is helping the UK economy. More than a fifth (22 per cent) of people went even further, claiming they dislike the practice – the majority (53 per cent) consider it a method of cutting jobs.

This is certainly one of the key issues. There is evidently a widely held view that by outsourcing, or more specifically outsourcing offshore, UK companies are denying UK nationals job opportunities. In turn, it is preventing the growth of the economy.

Then comes the stigma surrounding quality. Many consumers and businesses will feel that if they are buying a product or service that is – even if only partially – built and developed by a third party overseas, the quality will be inferior. Customers may feel that training, quality controls or resources cannot match that which we boast here in the UK.

Poor past experiences will have only exacerbated this issue. In years gone by, examples of websites and apps that have been poorly built in India have tarnished the reputation of outsourcing. More seriously, the plight of labourers involved in manufacturing consumer goods in Asia has also raised grave concerns regarding exploitation and human rights.

A third factor to consider is control. A business will quite rightly want to portray itself as being in control of its entire operation: that it can dictate every detail of what is done, how it is done, and when it is done. In many people’s minds, outsourcing requires a business to relinquish control to a third party, in turn meaning that businesses cannot make certain guarantees around the product or service that is delivered.

These three widely held beliefs – that outsourcing means ignoring national interests, accepting lower quality and handing over control – are why the practice is burdened with negative connotations. It is why some businesses are reluctant to outsource and, more commonly, it is why many businesses shy away from acknowledging that they are part of the 70 per cent of firms that do it.

In truth, many of these views no longer stand up under scrutiny.

First, the idea that outsourcing hinders economic growth. In the short-term, outsourcing operations to overseas partners rather than building an internal, onshore team may have an impact on the domestic job market. However, the bigger picture is that one of the greatest benefits of outsourcing is that it allows companies to be more competitive on a global scale.

The YouGov poll mentioned above shows us that UK businesses achieve cost savings and efficiency gains by outsourcing. This, in turn, enables them to deliver products and services at a cheaper rate, which can fuel international growth.

This growth will result not only in higher tax receipts to the state, but also job creation for all the elements of the business that remain onshore. A 2016 study [PDF] examining the impact that outsourcing to India has had on the US economy underlines these points.

As for quality and control, the significant advances in technology – from cloud computing to video conferencing – have broken down barriers when outsourcing work. Communication between the business and its chosen third party can continue as if they were part of the same business; the Covid-19 pandemic has indisputably proven that not being in the same physical space should not be a major roadblock for business functionality.

The proliferation of advanced technology also means that outsourcing companies are able to better train their workers. Further, the workers themselves are better equipped to execute their jobs to a high standard and without delays.

In reality, there are countries in Eastern Europe, for example, that are able to develop software just as skilfully as companies can in the UK. Their staff are as well (if not better) trained and use the same technology as a team in any British city would. But as the Eastern European firms face lower overheads, they are able to deliver the work for a fraction of the cost.

Covid-19 has shattered illusions that businesses operate at their best when all their staff are in the same building. Rather, with today’s more fluid ways of working, now is the time to embrace the benefits of outsourcing.

There are specialists located around the world that can deliver key business services in a more efficient and effective manner. British companies can instead focus their efforts on innovation, product development, expansion into new markets and support both their employees and existing customers.

We must normalise the conversation around outsourcing and the benefits it can bring. It is a vital tool that can help both startups and enterprises to flourish, so why not celebrate this practice and focus on how to do it effectively?

Richard Leslie is CEO of business development consultancy The Sourcing Hub.

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