3 reasons why you need to outsource and the benefits in-store

“36% of companies that outsource are innovators and 37% are growth-seekers, using outsourcing as one of their tools to optimize their businesses” – IBM market research [1]

Outsourcing may be the missing component for business operations as they look to grow.

Hiring employees is an expensive proposition for many companies, especially in the west. Having to pay an employee’s salary, additional expenses like healthcare benefits and in certain cases, unemployment insurance can be a costly affair. In addition to expensive hiring costs, there is a shortage of talent, especially in the European and US tech industry. The combination of these two factors make outsourcing a tempting prospect for many western tech companies as they look to optimise their potential.

Here are three of the common reasons for companies to choose outsourcing.

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  1. Not enough talent

This is a worldwide problem, with the US suffering a severe shortage of tech workers as 100,000 software engineers graduate every year, but 180,000 job openings are created. Whilst the in the UK according to Hugh Millward, the director of corporate affairs at Microsoft stated:

In the software industry alone there are 20,000 graduate vacancies a year, and only 7,500 computer science graduates to fill them.” [1]

As a result of this problem tech companies need to look outside of the normal sphere of recruitment to fill the skills gap, so they turn to outsourcing.

You may be wondering why there is such a large skills gap developing in such a short time. The answer lies in the fact that manufacturing and finance are integrating technology into their value chain, driving up the demand for data scientists and software engineers. Therefore, when companies cannot find the right people to fill their vacancies, they outsource the work.

  1. Cut Operation Costs

In 2015, the US government counted 100,000 software companies operating in the country and this number has rapidly expanded since. In such a competitive industry, companies are required to find innovative means to maintain/enhance the quality of their offering whilst containing the inflation of operational costs. As the salaries for employees continues to increase, more and more business turn to outsourcing and offshoring to keep costs under control. In the UK there has been a 11.88% increase in median salary percentage change year-on-year in the six-month leading up to June 2018 [2] for permanent employees. As a result, outsourcing is clearly becoming the cheaper alternative because businesses do not have to pay for all the expenses that come with hiring an employee. Another option that companies turn to is building their own offshore development team that provides skilled developers for the company, but at a much lower cost.

III. Allocating Resources

Whether your goals are in line with business growth or producing world class work, as businesses thrive to compete and retain their competitive edge, managing operational efficiencies becomes a crucial necessity. Finding the right person for the right job is vital, however this can be a rather taxing affair, especially when the demand continues to rise as the talent pools thin out. With outsourcing, companies are able to entrust the provision of their required resources to a third party who will not only be held liable for meeting the expected quality of the required resource, but also strive for success in fulfilling the requirement. This also reduces the risk of hiring a resource that would not work out, along with the expenses that come with it.  Companies can therefore increase their production power at a much lower cost and risk than hiring resources directly. Furthermore, as running a business involves administrative, legal and marketing, outsourcing operations to a third party means resources are not spread too thinly.  With majority of the resources being channelled into their core business functions, companies can grow and increase profit margins.

The tech industry is incredibly competitive with well over 100,000 companies trying to become the next Google or Alibaba or WhatsApp that will revolutionise the industry.  However, many of these companies are hampered by a lack of talent, high employee costs, and scarce resources to become this. Hence, companies often find the best solution is to outsource work to third-party or an offshore team.

Works Cited 

 [1] M. Duo, "Codeable," 18 April 2017. [Online]. Available: https://codeable.io/top-companies-outsourced-development/. [Accessed 28 June 2018].
 [2] R. d. l. Bedoyere, "The Complete University Guide," 28 June 2018. [Online]. Available: https://www.thecompleteuniversityguide.co.uk/news/uk-job-market-experiencing-digital-skills-shortage/.
 [3] "IT Jobs Watch," [Online]. Available: https://www.itjobswatch.co.uk/jobs/uk/software%20developer.do. [Accessed 28 June 2018].