In today’s fast-paced business landscape, finding ways to cut costs without compromising quality is the biggest concern for companies looking to scale up.
One of the key aspects that affect the costs is hiring people for non-core business functions. When expanding business operations, companies must employ a workforce that can handle admin and support services, customer services, and other non-core tasks to keep up with expansion.
Since technology has made it easier to hire talent from different parts of the world, Companies all over the world are turning to outsourcing talent to significantly reduce labor expenses while improving business efficiency.
According to an article published in Forbes, global spending on outsourcing was estimated to reach $731 billion in 2023.
In this blog, we will uncover the secrets of saving money while working with a talented network of professionals by partnering with a reputable outsourcing company.
Why Do You Need to Outsource?
Traditional hiring may feel intuitive, but it will put an extra financial load on your company. When you are hiring in-house, you are paying more salaries and are responsible for offering employment benefits, including health insurance, retirement contributions, and more.
Additionally, recruitment, employee training programs, office space, and extra equipment purchases are all overhead costs that pile up, making your in-house team more expensive than it may appear on paper.
Let’s discuss this in detail!
Higher Wage Cost
According to talent.com, the entry-level average salary in the US for an office-based company is around $36,085 per year ($17.35 per hour).
For this amount, you can outsource an entire team because the outsourcing companies mostly hire top talent from regions with a much lower cost of living and wage range.
The Ringelmann Effect
In 1913, Maximilien Ringelmann, a French agricultural professor, performed a simple experiment. He asked a group of volunteers to pull on a rope and gradually increased the number of volunteers.
He concluded that as the number of volunteers increased, force exerted by an individual participant decreased. He named the phenome
If we apply the same concept in a workplace, it would mean that if we hire a huge team, the individual efficiency of employees will go down significantly.
More Employees Need More Space
One of the most significant costs associated with expanding is renting or buying a bigger office space to accommodate your team. In addition to the cost of renting or purchasing this bigger office, other inevitable expenses quickly pile up, which include new furniture, office accessories, higher energy bills, insurance expenses, and other variable costs.
Moreover, you will also be required to bear the cost of extra admin and support services to manage the extensive infrastructure.
Never-Ending Cycle of Hiring
Recruiting new talent is no easy task and requires investing time, money, and resources. On the other hand, outsourcing companies handle recruitment by leveraging their own networks to hire top talent. Moreover, they can also scale up or down depending on your needs.
How Outsourcing Reduces Labor Costs?
As discussed above, the biggest advantage of outsourcing is cutting on your labor cost by a huge margin.
But how does this work?
Most of the outsourcing companies hire talent from regions that have lower costs of living, which allows the outsourcing company to pay them significantly lower compared to the US market while still providing their employees with a decent livable wage.
The benefit is then passed on to the companies that are looking to outsource in the form of low-cost labor. Additionally, this gives the company easy access to a global talent pool, enabling them to connect and hire skilled professional individuals who may not be available or affordable in their own region.
Let’s look at an example!
Companies that outsource work to the Philippines can cut their labor costs by up to 70% – and 90% in some cases. The average annual salary of a web developer in the Philippines is $8,000, while the salary for the same profession in the US is around $80,000.
This means you can pay %90 less to a web developer based in the Philippines for doing the same job!
Advantages of Outsourcing
Outsourcing is a far better alternative to the traditional in-house hiring.
By partnering with a professional outsourcing company in the US, you can connect with skilled professionals globally and save your company from unnecessary overhead costs.
But wait, there are more advantages of outsourcing that are equally important.
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Focus on Your Core Business Activities
By outsourcing non-core business tasks, you boost employee productivity, allowing your team to focus on what is important: business growth and innovation.
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Scale Your Business Quickly
The outsourcing partners provide great flexibility when it comes to scaling up or down as per your business needs, unburdening you from the hassle of hiring and firing.
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Easy Access to Specialized Skills
By partnering with an outsourcing agency, you get access to a wide range of specialized skilled individuals who might not be readily available in-house.
Challenges You May Face
While outsourcing talent offers multiple financial benefits, it also comes with some challenges you need to consider. Proper management is essential to navigate these challenges as they can affect the outcome of your outsourcing strategy.
Communication Barriers
The entire idea of outsourcing is based on working with talent across different regions. This means you will be working with teams in different time zones having diverse cultural backgrounds. In such scenarios, having effective communication can be a challenge.
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Solution
Leverage transparent communication channels for navigating communication challenges. Tools like video conferencing, project management software, and regular progress reports can greatly help the cause.
In addition, a dedicated relationship manager can also facilitate clear communication between the outsourcing company and the vendor.
Quality Control
The difference between operational standards and processes between the company and the outsourced team can lead to inconsistent work output. Ensuring that the outsourced team is meeting the standards of your company requires constant monitoring and management.
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Solution
Clearly define the standard of work required in the contract. In addition, it is crucial to implement a quality assurance process, including daily reviews, audits, and feedback.
Data Security and Privacy
Sharing confidential company information with your outsourced team naturally raises the risk of potential data breaches or unauthorized access.
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Solution
Implement strict security measures, including encryption, firewalls, and access controls. Moreover, add a data confidentiality clause in the contract and carry out regular security audits to ensure the protection of your sensitive company data at all times.
Wrapping Up
Outsourcing is not a one-size-fits-all solution and requires careful strategic planning, which includes analyzing your business needs and goals.
However, partnering with the right talent outsourcing company can be a game changer for businesses looking to cut labor costs, increase business efficiency, and have access to top global talent.
At OWL, we always prioritize your success because outsourcing is not just about cutting costs but optimizing your resources for long-term business objectives.
If you are looking to save on business operations and gain a competitive edge, contact us now for a free consultation.
