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Why Need for outsourcing

Outsourcing has grown in importance today because economic and competitive pressures globally have made it imperative for organizations of all sizes to focus on their core competencies and turn to third-parties to assume responsibility for other secondary corporate functions. These benefits and reduces costs and improve operating efficiencies.

Though the most general reason for outsourcing is expansion, some companies often miss the bus due to a compelling reason. Mostly the cost analysis of the company is proved wrong when they conclude that if the work is done internally, there will be lesser costs involved in it! And invariably, with so many tasks in hand already, it acts as a burden to the internal guys and results in a sub-standard output. So outsourcing here is important since they put in their best for a single job and are not unduly bothered by other company matters

Many businesses rely on their internal staff to carry out most if not all of their business functions. Typically these will include tasks such as accounting, manufacture, quality inspection, IT and secretarial work. The company heavily relies on the effectiveness of each of these departments to ensure the business performs effectively
However, this business model is not completely without its flaws. For example, as the company remains in business, it may soon have to replace worn out or faulty equipment in order to keep running. If a staff member leaves or retires they need to replace them and retrain new staff in the companies’ ways. Additionally, growth may mean having to source new premises in order to house a larger workforce.
The solution to these problems for many companies has been the use of outsourcing. Outsourcing involves finding an outside solution to perform a business function..

Why India

	India has the world’s largest number of scientific and technological personnel after USA.
	Experience in global sourcing: Gartner, in its research report, has declared India as the undisputed BPO king. Indian domestic vendors depend almost entirely on exports, with 92% of their revenues coming from customers outside India and only 8% within India. Hence, according to the report, vendors based in India are more experienced in global sourcing and best positioned for global expansion.
	Enjoys the confidence of global corporations: Over 30% of the Nasdaq 100 companies have operations in India as do over 60% of the Fortune 500. It is well recognised that India is now a critical hub for the technology multinational’s value chain

Today, India is a favourite destination for global outsourcing among Fortune 500 companies. In a recent global survey, over 60% of companies favored outsourcing from India, while only 36% voted for China

Significant cost advantage

One of the biggest advantages of offshoring to India is cost savings. Companies have been able to save about 30 to 40 percent for most services by outsourcing processes to India. Cost savings in India can be accounted for by savings in the following three heads

Labour cost: Indian professionals work at wages much lower than that in the US and Europe.

Capital: Infrastructure costs in India are lower thus saving significantly on capital as compare to Europe and America.

Labour management: The number of employees required during a project is not same throughout the course of the project. Hence, when a business process is carried out in-house, companies have to pay the employees and maintain office space for them, even if these employees are not working on any project. Outsourcing enables companies to do-away with the expenditure on bench labor, as the outsourcing vendor allocates the bench employees to projects for other clients or bears the cost of inefficiency

Benefits of Outsourcing

Effective use of human resources

Almost every company will start small, with a few employees. Yet, the competence needed to run a company and the many tasks and processes behind this operation is the same, whether for a small company or for a very big one. True, the size of the workload will differ sizeably, but it still remains that all these functions will need to be attended to.
Benefits of outsourcing allows for such task management while retaining the small workforce. Tasks that will take away from the main purpose of the company can be outsourced to companies that actually specialize in the given area. Employees in the company can thus focus on the main purpose of the business and their own area of expertise. Other employees are then not needed to look after the aspects that the outsourcing recipient is taking care of. No need to set up a full section/department where not necessary. Following upon the above benefit, it thus goes further to show that a company needs not go into unnecessary procedures and provisions. Where previously a whole department might have been needed, some of the benefits of outsourcing allows for not needing the proposed department any longer. This goes a long way in reducing costs, whether fixed costs attached to running a department, investment in infrastructure, and overhead costs. The job entrusted in outsourcing will also be dealt with by a team that specializes in the task, thus providing top-notch results and efficiency.

Limited training

One thing that hampers a lot of companies is the need to train new employees, especially when setting up a new department. If the work is outsourced, there is then no need to train new staff, which goes further in reducing costs. This just adds to the benefits of outsourcing here is that employees do not need to be trained constantly, as a specialized team will be dealing with matters and the employees themselves need only focus on their core competence.

Economies of scale

Other benefits of outsourcing are that it allows a company to have access to economies of scale. Where previously it might have taken a long time to run a department efficiently, allowing economies of scale over a long period, outsourcing means the company immediately has access to a trained team who are only waiting for the signal to tackle the project.

Professional expertise

One major reason to go for outsourcing is to get some quality resources which the company does not have in its internal environment. This need may arise due to many reasons like a new venture that the company may have entered into, or due to any Acquisition of new product strategies. So expertise from other sources plays a vital role for the company in getting what they need. But as outsiders are involved here, proper protection of important information of internal matters of the company is needed prior to the commencement of work which involves the outsourcing job.

The build-up of new resources

Another reason why outsourcing is needed is because of many great teams that can undertake a particular task efficiently. Mostly, companies choose to get the work done through outsourcing since it reduces the costs, and additionally, they are let off the burden of the repetitions that may arise otherwise.