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What are the disadvantages of outsourcing?

Outsourcing is a hot trend in business nowadays. While outsourcing is one of the few genuine solutions to today‘s challenging economic times, companies wanting to outsource should first analyse the situation and look into the disadvantages and risks involve in outsourcing. This article details out the disadvantages of outsourcing.

What exactly is outsourcing?

Definition of outsourcing Outsourcing refers to the passing of a company's business processes and operations to third parties, usually independent contractors or freelancers. Outsourcing can be advantageous, especially to small businesses which lack funds to operate and hire full-time workers. Outsourcing also gives companies the opportunity to concentrate on their core strengths and competencies while passing a particular task to third parties who are more efficient and effective in doing the task. Nevertheless, despite the many advantages of outsourcing, there are still a couple of things that companies which outsource should look into. The following are some of the most obvious disadvantages of outsourcing.

Outsourcing negatively impacts on a country's employment rate

In a macroeconomic point of view, outsourcing can be disadvantageous. Outsourcing takes away jobs from a particular region and transfers them to a region where labour is cheaper. The economic disadvantages of outsourcing is observable in Western countries, particularly in the United Kingdom and the United States. Both UK and US companies transfer their business processes to countries like China, Philippines and India, where salaries and wages are significantly lower. Unfortunately, outsourcing impacts negatively on the employment rates of the UK and the US, hence, posing serious threats to the economy.

Risks of low quality products

Another disadvantage of outsourcing is the risk of having low quality products. Companies wanting to outsource their operations should understand that outsourcing is not a guarantee of quality nor expertise. Needless to say, it is nearly impossible to set up a quality control system or to monitor the work of independent contractors.

Loss of centralised management control

Companies which have outsourced their operations may also realise the loss of a centralised management control. In outsourcing, companies transfer their managerial functions to an independent firm.

Loss of confidentiality and trade secrets

Another risk of outsourcing is the loss of confidentiality or even trade secrets. In an awkward situation, a company is bound to share trade secrets to its independent contractors. Outsourcing can be a double-edged sword which can serve as an advantage or a disadvantage. Before outsourcing, it is imperative that you carefully examine each of the many advantages and disadvantages of outsourcing.

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