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Why are businesses still scared to admit that they outsource?

Employees
(Image credit: Image source: Shutterstock/gpointstudio)

At the start of last year, the global outsourcing market was estimated to be worth $92.5 billion. It has been growing at pace, too; the market’s value rose by over $15 billion between 2016 and 2019.

The proliferation of business technology has been a key contributor to this growth. From cloud computing and collaboration tools through to instant messaging platforms and video conferencing, readily available tech has dramatically reduced the complexity of two businesses on different continents working together.

In fact, a recent study by YouGov found that 70 percent of UK businesses have outsourced (or do outsource) services to an external partner. Over a third (34 percent) have outsourced IT support, while 21 percent have outsourced tech and software development.

So, why is outsourcing so commonplace, particularly when it comes to tech development?

The same YouGov research identified some key reasons: one of the most common was that it is difficult to hire qualified and skilled staff to do the job internally, with 48 percent citing this as the main motivating factor for them outsourcing. This correlates closely to the well-documented ‘tech skills shortage’ in the UK; 71 percent of technology employers expect to face at least a moderate skills shortage in the coming year, according to Totaljobs.

Elsewhere, 30 percent said outsourcing delivers better results than they could achieve themselves. The same number (30 percent) said it is cheaper. And 28 percent said it is more efficient.

Three criticisms of outsourcing

Clearly, then, outsourcing is both extremely common and there are numerous factors that motivate businesses to outsource. And yet this practice still has a murky reputation – businesses do not readily admit to outsourcing particular operations, favoring the pretense that ‘all our work is done in house’.

Outsourcing’s negative reputation is a difficult thing to unpick. However, I believe there are three key beliefs to address:

  1. Outsourcing goes against national economic interests
  2. The quality of work is lower when outsourced
  3. A business relinquishes control if it outsources important operations

These are views that must be challenged if we are to fully accept and embrace the benefits that outsourcing can deliver for businesses today.

Against national interests?

A study by the Global Sourcing Association (GSA) found that 80 percent of the British public do not think the outsourcing industry is helping the UK economy. Over a fifth (22 percent) of people dislike the practice and 53 percent consider it a method of cutting jobs.

The extent to which outsourcing helps or hinders economic growth and employment has long been a debate within the public, private and academic sectors. And it is crucial to see the bigger picture.

In the short-term, outsourcing operations to overseas partners rather than hiring an internal team will naturally impact on the domestic job market. However, one of the greatest benefits of outsourcing is that it allows companies to be more competitive on the global market.

The aforementioned statistics from YouGov’s survey illustrate that many British businesses achieve cost savings and efficiency gains through outsourcing. In turn, these businesses are in a better position to fuel growth. This growth ought to mean that more internal jobs are created in the future, while the state should receive higher tax receipts from a more profitable business. A 2016 study examining the impact that outsourcing to India has had on the US economy came to this same conclusion.

The stigma surrounding quality and control

In decades gone by, negative experiences of outsourcing will have tainted the views of both consumers and businesses. Take tech development in India; when in the earlier parts of the 21st Century thousands of UK businesses began to outsource the development of apps and websites to India, many had their proverbial fingers burnt when they received a sub-adequate product in return.

Further to that, there is a general sense that control is lost when a business outsources. They cannot oversee the entire process; the same checks and balances are not in place; they cannot make guarantees around specific practices.

However, in truth, these views have quickly become outdated.

Significant advances in technology – as mentioned at the start of this article – has helped address issues around quality and control when outsourcing. Communication between the business and its chosen third party can continue as if they were part of the same business; the pandemic has indisputably proven that not being in the same physical space should not be a major roadblock for business functionality.

Perhaps more important, though, is the realization that there are new specialist hubs around the world. Take Eastern Europe and the Balkans, for instance – countries in these regions boast advanced ecosystems of tech developers, with infrastructure and skilled personnel that exceeds what the UK can offer. And, of course, with cheaper overheads, they can deliver services for more competitive rates.

The outsourcing market has evolved

The outsourcing market – particularly when it comes to technology development – has become far more sophisticated and mature over recent years.

More and more high-quality companies exist that can demonstrate track-records of building market-leading tech. Moreover, the barriers of working with such firms have lowered considerably, with Covid-19 having shattered illusions that businesses operate at their best when all their staff are in the same building.

As British businesses prepare their routes out of the pandemic, it is important they consider the benefits of outsourcing. More generally, though, we must challenge the outdated view that outsourcing is a questionable practice – rather, it is time to embrace this business model and focus on building successful partnerships that will help companies to flourish in the years to come.

Richard Leslie, CEO, The Sourcing Hub

Richard Leslie is CEO of The Sourcing Hub, a business development consultancy helping UK firms