What are the advantages and disadvantages of outsourcing?
First off, I notice that you have tagged this question with “cheap labour.” This implies that you are asking not about outsourcing, but about offshoring. People often conflate these two ideas, but there is a difference. Outsourcing is the process by which a company takes some of its operations and hires another company to perform them rather than doing it themselves. For example, if an automaker closes its own legal department and instead hires a law firm to take care of its legal business, it is outsourcing. Offshoring, occurs when certain parts of a firm’s business are moved to another country. Thus, if the automaker moves its production to another country, it is offshoring. Offshoring can also involve outsourcing (if the firm pays a company in another country to perform the work) but it does not have to.
The advantages and disadvantages of offshoring and outsourcing are similar, though not identical. I will address offshoring in this question.
The major advantage of offshoring is that it drives costs down. When a firm “offshores” it is typically sending work to be done in a country where labor costs are lower. This is the major reason why (for example) so much of the clothing industry uses factories in Bangladesh. Labor is cheaper and safety standards are cheaper, as has been so tragically proven this year. Because costs are lower, many businesses offshore.
There are some disadvantages, though those have not yet outweighed the advantages. There is the possible damage to a firm’s reputation. The firms whose clothes have been found in the wreckage of the collapsed factory in Bangladesh have felt this. There is also a loss of control over the processes that are offshored. Finally, there is a loss in “agility.” When product is being made thousands of miles away, and shipping times are long, a firm cannot respond as quickly to changes in demand as it would be able to if it were producing its goods in its own country.
Outsourcing provides many advantages.
If you are a solo-professional or business owner, you can outsource tasks so that you can spend time on revenue-generating activities. For example, answering phone calls and responding to emails can take a lot of time.
However, these activities do not necessarily bring in money. If
you outsource these tasks, you can spend more time doing activities which make money.
Outsourcing also allows you to bring in expertise, for a fraction of the cost. You cannot be an expert at everything, so it is good to hire those with the expertise you need. However, hiring an employee can be expensive. By outsourcing it to a specialty firm, you don't have to worry about hiring a long-term employee.
There are disadvantages of outsourcing. The first is that you are trusting an outside source with potentially confidential information. This could cause your clients or customers to lose trust in your organization.
Another disadvantage is that you lose control over key areas. For example, the firm you outsource to may not have the same quality standards that you have. If they make a mistake, it can harm your business.
On another note, outsourcing is not just limited to business activities. On a personal note, there are many things that can be outsourced. Some people choose to outsource the cleaning of their house, or they outsource grocery shopping by paying for grocery delivery. Many families outsource childcare.
So overall, outsourcing can save time and money. However, it is not always seen in a favorable light.