In 2007, Standard & Poor’s reports that companies spent some US$150 billion on international outsourcing. Market research firm IDC sees that amount rising 65% to $250 billion by 2012.

Technology-based outsourcing is one of the fastest growing trends in international trade. However, operational outsourcing involves tradeoffs between client cost-savings and loss of control on the outsourced activities or functions.

Advantages of International Outsourcing

An international outsourcing firm can save the high maintenance costs and the specialized attention demanded by back-office operations like electronic securities transaction processing. Freed from the ongoing burden of daily back-office tasks, clients are able to focus on core competencies such as sales and new business underwriting.

According to third-party systems provider Cyber Futuristics, companies that outsource non-core operations also enjoy the following advantages.

  • Outsourcing specialists have the technological resources, expertise and mandate to invest in new technologies that would otherwise be much more costly and risky for a client company to continuously manage on its own.
  • By outsourcing to a team of technology experts, client companies access skills and training expertise not internally available while saving on human resource costs. The latter ranges from recruitment, training and performance incentives to employee group benefits.
  • Ideally, highly skilled outsourcers increase their client company’s productivity while lowering costs.

Disadvantages of International Outsourcing

One of the most publicized potential disadvantages to outsourcing is poor quality control. Case in point is last year’s melamine-laced pet food crisis, caused by a Chinese outsourcer overly focused on cost-savings.

Other disadvantages include:

  • Lengthy bid and negotiation processes to find an appropriate outsourcer.
  • Difficulty selecting the best outsourcer for specific business needs because differences among service providers are unclear.
  • Outsourcers often demand longer term contracts, which can decrease company flexibility.
  • Loss of strategic alignment with client company goals once operations are outsourced.

Within the client company, fear of losing jobs to outsourcers negatively affects employee attitudes. Employee morale and motivation falls, just as company loyalty decreases.