In today's fast-paced society, industries have continuously grown and improved. While there are well-established businesses that have trained their in-house staff to do quality work, there are some businesses that aren't as better equipped as the others. To simply put it, these businesses are short-staffed and have little to no access to resources.
This is where outsourcing and freelancing come in the picture. These two third-party services enable enterprises to find the manpower they need to build a great team who can produce high-quality results—all at economical rates.
However, as in all business decisions, it is important to be well-informed first about the advantages and disadvantages of partnering with these two third-party services. Making an informed decision is always better than rushing and going in blind.
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What is Outsourcing?
Outsourcing, as defined by Investopedia, is a business practice in which an organisation or enterprise hires a third-party team or company that offers specific services. These services supplement the former's operations or augment it to further improve it.
For the outsourcing provider's part, they offer their own resources and workforce for a specified period to aid their clients in fulfilling particular tasks or projects and meeting certain goals.
The services offered by outsourcing companies vary depending on the industry they cater to. They essentially fill any position. These include non-fundamental roles that provide support to the central infrastructure of the company or help in the day-to-day operations.
Here are some of the predominant functions and tasks that are outsourced, to name a few:
- Business processes (e.g. payroll, accounting, telemarketing, customer support, social media marketing)
- Information Technology (e.g. software/application/web development, technical support, application support, database development or management)
- Research and Development (R&D)
Why do companies outsource? Following the basic concepts of economics, the low supply of local experts and professionals is accompanied by increasing salaries, making it difficult for some companies to hire and retain skilled in-house workers.
Another reason is that outsourcing is an advantageous and strategic means to improve the team's performance and boost the business' profit margins. To put it simply, it is a cost-effective move that helps businesses save resources without sacrificing product quality.
It's important to note that this allows companies to choose more economical third-party outsourcing providers. Simply put, the same amount of work and quality produced in one city or country differs from one another. As such, companies continually outsource their operations to even far-flung countries because the benefits often trump any potential drawbacks.
Here's a breakdown of why both small companies and enterprises continue to outsource:
- They get to reduce or control costs.
- They gain access to manpower and resources unavailable domestically.
- The in-house team and internal resources are freed up to focus on core functions.
- They get to improve their business or customer focus.
- They are able to accelerate company reorganisation or transformation.
- They get-go complete tasks and projects faster.
- They significantly reduce time to market.
With all of these said, here are the advantages and disadvantages of outsourcing that companies and organisations must consider.
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Advantages of Outsourcing
Outsourcing is advantageous to businesses because it helps them reduce their labour costs by a significant margin. When a company utilises a third-party's services, it enlists the help of professionals to complete certain tasks that are done better in comparison to the in-house capabilities of the company.
Aside from cost savings, outsourcing enables businesses to strategise their time and wisely utilise their resources to concentrate on the critical aspects of the business, resulting in further growth and improvement.
Lastly, companies also improve their efficiency and productivity, especially when outsourcing non-core operations and functions. Professionals with experience and specialised skills in these non-core operations may be better-equipped and more effective to perform the task than the in-house team because it is their area of expertise.
Related Article: 4 Advantages of Outsourcing Your Startup
Disadvantages of Outsourcing
While there are a number of benefits that businesses can gain from outsourcing, outsourcing still has a few disadvantages. However, this is only possible if one does not partner with a reliable outsourcing provider.
One of the disadvantages is the fear that enterprises might lose control over aspects of outsourced tasks or services. Businesses might experience this in cases such as the quality of customer services or in the monitoring of a project's development. In these cases, it is a lot more challenging to enforce quality and even address correction in comparison to an in-house team member with the same functions or tasks.
Another disadvantage that businesses see is the possibility of security risks for utilising a third-party's IT related services. An enterprise's proprietary information or sensitive data could be misused, mishandled or unintentionally exposed if the third-party provider is not careful.
One last disadvantage would be communication, or the lack thereof. Companies think that outsourcing makes them at risk of encountering problems and obstacles that come with the distance between the outsourced team and the in-house team. They think it would also be difficult to communicate and collaborate when troubleshooting issues.
Related Article: Benefits of Working with an IT Outsourcing Service Provider
What is Freelancing?
Freelancing, as defined by Investopedia, is an independent profession wherein an enterprising individual earns money on a per-project basis and usually for a short term contract. A freelancer differs from an outsourcing company as they are not employees of a firm, but are in fact, functioning as a one-man enterprise and are at liberty to complete different jobs concurrently for a diverse clientele of individuals and firms.
Freelancers fulfil their tasks as to what is stated in their contracts and are paid based on the time expended and effort needed to complete the client's needed tasks. Payment for their services can be at a flat rate, at a per-hour basis, on a per-day basis, or even on a per-project basis.
There are different services offered by individual freelancers, but a large portion of them usually offer services listed below:
- Video editing and production
- Web development
- Computer programming
- Language translations
They are individuals that are available to be hired as long as their clients need their services, so it is the norm that they are contracted for temporary work. Freelancers are able to find jobs through classified ads (both offline and online), or temporary staffing agencies. There are also those who make freelancing their sole and sustainable source of income—creating and maintaining good working relationships with their clients to be hired again for another project or to be recommended to an interested party.
It's important to note that the freelancing economy, or the gig economy, has seen a boom in recent years and are directly correlated to the advancements in technology. Today, anyone can freelance in some form or another so long as their time and resources permit it. Popular examples of these would be online platforms such as Upwork, and enterprises such as Airbnb, and ridesharing apps like Uber and Grab.
That said, here are the advantages and disadvantages of freelancing that enterprises need to consider.
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Advantages of Freelancing
Some businesses prefer to hire freelancers instead because they can dedicate more time and resources to the client's tasks as they can opt to work from home. This flexibility in their work schedule and convenience in the location allows freelancers to work in their possible working environment enabling them to be more effective and efficient with their tasks.
Another advantage companies prefer is the temporary nature of their work. Companies can hire freelancers for a specified amount of time for certain tasks or functions, and pay their fees directly to that person. These means that there are no unnecessary resources expended in comparison to recruiting for an in-house position with the same function or tasks.
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Disadvantages of Freelancing
Freelancers are at liberty to take on tasks and functions from a varied clientele of individuals and enterprises and do so conjunctly. As freelancers are responsible for a number of contracted jobs, the quality of their output could be subpar to that of the client's specifications.
In relation to this, since freelancers have the freedom to work projects conjunctly, this poses security risks for companies that share their proprietary information or sensitive data. This could be misused, mishandled or unintentionally exposed if a freelancer is not careful.
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Outsourcing and freelancing as third-party services both have their respective advantages and disadvantages. Companies can have a lot to gain as both services offer an efficient and effective alternative to hiring local talents.
The only key difference is that an outsourcing company enables an enterprise to scale their outsourcing team in alignment to their actual needs whereas freelancing is only one person. Nonetheless, being well-informed about the possible gains and risks to either of these services will help companies to choose the right business strategy to build their team, improve their operations, and ultimately grow their business.
Already decided on outsourcing instead? Find the best talents here for your outsourcing needs. Learn how Cloud Employee works, see our Developer Pricing Guide, or talk to us. You can hire dedicated offshore developers with us across many technologies.