Different companies have different reasons for outsourcing their business functions. Following are the top 10 reasons from among many as to why companies choose to outsource.
1) Low wages
Low wages as compared to developed countries is an important factor that drives companies to outsource their business functions to developing countries such as India. This helps companies to get their work done at lower wages, and hence save money. In India, the per capita income is USD 1,371, which makes it 133rd in the world. US market occupies 10th position in terms of per capita income with $ USD 46,860. This helps companies to achieve significant cost reduction.
2) Concentrate on core business function
Outsourcing helps management to concentrate on their core business activity by freeing up their time from unproductive non core business activities. By outsourcing non core functions such as finance and accounting, Information Technology, Payroll administration, etc, executives and managers can work on matters that are critical for the business, i.e. core business function.
3) Reduced regulatory cost
In addition to the lower wages paid to the workers with the outsourcing service provider, outsourcing presents another benefit of reduced regulatory costs. In most of the developing countries, programs such as social security, Medicare and unemployment insurance is not common, which reduces the cost further.
4) Lower Tax rates
By outsourcing business functions to a location where the corporate taxes are low will have a significant impact on the company’s revenue. Such locations include Singapore, Ireland, Hong Kong, and Taiwan.
5) Quality of service
The quality of the service is improved by outsourcing. In addition to freeing up managers and executives, the experience and expertise of the outsourcing service providers will help in accomplishing the non core activities. This will lead to increased quality of service provided to the customer in terms of the customer service offered by outsourcing service providers.
6) Managing risk
Maintaining a huge workforce in developed countries does not help companies in managing risk if the product or service they offer does not perform in the market. But with outsourcing companies will be able to fine tune the operations to meet the increasing demands or in case the product fails.
7) Availability of internal resources
With outsourcing companies will be able to free up their internal resources to perform core business functions. Men and money are becoming scare resources in organizations. So by spending money and men on core functions will help any organization to move forward successfully.
8) Relieved of tension
Companies are often relieved from tension with the signing of outsourcing contract. The company no longer needs to deal with in house employs, which can be at times disturbing. Both the parties are protected under the contract, where both of them will have the opportunity to for legal proceedings in the case of non performance or negligence.
As the companies are relieved of the task of hiring and training people to perform the task in house, resources can be spend on productive tasks which improves the efficiency.
Outsourcing makes the companies flexible by helping them to adapt to any situation of increase or decrease in demand.