In the early 1990s, American businesses experienced an “outsourcing mania.” In their attempt to cut costs, they outsourced just about everything apart from the core aspects of their businesses.
In some cases, extreme outsourcing had negative consequences for companies. They learned the hard way that outsourcing too much of their business could prove more detrimental than not outsourcing at all.
Nonetheless, outsourcing comes with many benefits. Many of today’s most successful entrepreneurs and large corporations understand the importance of finding this outsourcing “sweet spot.”
These businesses have a deep knowledge of how outsourcing can benefit their organizations. They use this knowledge to outsource in ways that support the development of strategic partnerships.
Read on to learn more about what wise outsourcing looks like and how to reap five long-term benefits of outsourcing for small companies.
What Is Outsourcing?
The term “outsourcing” has gotten a bad rap over the years for a variety of reasons. Some see outsourcing as a job killer. Or, harmful to the American economy.
But the truth is, outsourcing remains a valuable tool that all small business owners should consider using.
What exactly is outsourcing? Outsourcing refers to the process of obtaining services or goods from a foreign supplier.
It proves a powerful resource for industries that suffer from a general shortage of labor and for companies where the cost of labor remains too high.
Now that you have a better understanding of what outsourcing is, let’s explore how to outsource and some of its advantages.
1. Increasing Efficiency
Wise outsourcing can do wonders for your small business. Why? It allows you to rely on the expertise of companies who focus on specific niches within a given industry.
This could be anything from payroll processing to distribution or even medical storage.
What can you expect to gain from outsourcing some of your business operations? First and foremost, you’ll see a marked increase in your company’s efficiency.
When a company tries to do everything for itself, this results in much higher costs in areas such as:
- Marketing
- Development
- Distribution
- Maintenance
These costs get passed along to your customers. In other words, your products lose a competitive edge due to a higher price tag.
But when you outsource, you increase the overall efficiency of your business operations, which can translate into lower sticker prices and happier customers.
2. Lowering Capital Costs
Outsourcing can also help you to keep capital costs from spiraling out of control.
How? Because outsourcing converts fixed costs into variable ones. It frees up capital for investment in other areas of your company.
It means fewer large expenditures upfront. This will help your small business find its financial legs more quickly.
And you know what else it can do for your company? By lowering capital costs, you can make your organization more attractive to potential investors.
3. Reducing Labor Costs
Labor costs represent a major component of any small business’s expenses. Like capital costs, you might think that they are largely fixed.
But you can make them variable through outsourcing. Especially when we’re talking about short-term staff for peripheral projects.
Let’s face it, hiring and training temporary staff proves expensive. To add insult to injury, many temporary employees don’t meet the expectations of their employers. This can lead to decreased efficiency and a variety of other negative outcomes.
When you outsource these functions, you can reduce your labor costs. What’s more, you can take back control of your human resources, allowing them to focus their attention where they can make the most positive impact.
Besides reducing your labor costs, outsourcing also puts you in a better position to start new projects quickly. That way, you’ll never feel hamstrung by lack of employees with specialized knowledge.
Because of the nature of outsourcing, these providers can also offer you more specialized workers. For example, small business IT often gets outsourced with great success.
Beyond IT, there are other outsourcing providers that can help your business in ways you may have never considered.
Another example? Providers who maintain medical-grade freezers. Learn more about this unique service.
Outsourcing providers offer expertise that equates to quicker launches for new projects, especially since you won’t have to wait for your in-house staff to get on board. You won’t have to deal with any employee resistance to change either.
4. Leveling the Playing Field
As a small business owner, you understand that every organization has limited resources. Outsourcing can help small businesses shift their focus away from peripheral issues towards activities that support customers.
It can help your managers set customer-centric priorities. And all while still resting assured that your outsourced activities are being done in a professional, satisfactory manner.
In essence, outsourcing allows small businesses to level the playing field when it comes to competing with large companies. Most small businesses can’t pay for the same in-house support the largest companies enjoy.
But outsourcing can provide you with that additional support at a price tag that you can manage.
5. Reducing Your Small Business’s Risk
As a small business owner, I’m sure you’re well aware that every new investment comes with a certain degree of risk. What’s more, things can change quickly.
From competition to markets, government regulations to financial conditions, the environment in which your company operates is ever-fluctuating. And that’s not to mention the biggest game-changer and disruptor of all, technology.
Instead of bearing all of this risk on your shoulders, reduce it through outsourcing.
Outsourcing providers shoulder and manage some of this risk for you. And because they’re dealing in areas of specialization and expertise, they prove better at deciding how to avoid risk in the first place.
One of the most important long-term benefits of outsourcing? Peace of mind.
Small Companies and the Benefits of Outsourcing
As you can see, outsourcing allows small business owners to level the playing field and gain peace of mind. Outsourcing providers can help you cut capital costs and labor costs while still providing the highest levels of service.
Ready for more tips to help small companies thrive in a global economy? Browse our blog for all of the resources you need to gain and sustain a competitive edge.
