EFFECTS OF OUTSOURCING STRATEGIES ON SMALL AND MEDIUM SCALE ENTERPRISES

Outsourcing (also referred to as contracting out) includes shifting of tasks, operations, jobs or processes to an external workforce, by contracting with a third party for a significant period of time.

Mostly it’s objective is to reduce costs or improve efficiency.

Outsourced functions can be performed by the third party either on-site or off-site of the business.

At times companies such a growth rate that cannot be supported sufficiently by the existing internal staff.

To keep up the pace, firms have an option to choose to hire a pre-trained workforce from a third party firm, to deploy as needed and where needed in it’s operations without causing an interruption in the business flow.

Additionally, a company might have processes that take place only for a short period of time, making it a bit more efficient to hire a temporary, outsourced team of workers for completion.

If the company does implement a new process, it can outsource the work to trained workers, instead of investing the time, money as well as efforts required to train and maintain internal workers.

Along with this, outsourcing companies also provide management-level employees along with their work teams, which then frees up internal employees to take on other work.

Firstly talking about what small scale industries and medium scale industries are ; small scale industries are those partnerships, corporations or sole proprietor ships that function at a low scale, employ a lower workforce and generate less revenue than normal sized businesses.

Medium scale industries are the ones that emerge from the slow and steady growth of small scale industries.

As the revenue of a company starts increasing, it starts to keep aside the capital required for buildings, equipment and recruitment of more employees.

Outsourcing can prove to be quite beneficial to small scale as well as medium scale businesses.

Outsourcing helps businesses in cost cutting. To better understand this, let’s consider a situation where a business needs an entire new mechanism or employees skilled in a new field to complete a certain task but it lacks the above required facilities.

Now, installation of an entire new system and training employees according to it would incur a huge cost to the company both in terms of money as well as time. Therefore in such a case, outsourcing helps in cost reduction.

Then outsourcing also helps in improving the efficiency. A company won’t necessarily have all the resources for various operations ; especially in the case of small scale industries.

Such companies can contact outsourcing firms to complete the particular tasks within time, with lower cost and more efficiency.

The manager of every company can devote limited time and attention to the operations of the company.

Outsourcing helps a company to shift its focus from secondary activities toward tasks that help in providing improved services to the customers.

In addition to this, it isn’t feasible and affordable for small scale and medium scale industries to match the in-house support services like large companies.

Outsourcing helps these companies in doing so by making similar economies of scale, efficiency and expertise like those of larger companies accessible to small and medium industries.

There is a certain risk involved with every business investment due to constant changes in technology, government regulations, financial conditions, markets etc.

Outsourcing providers assume and manage these risks for the companies and usually are much better at making decisions to avoid risks in their areas of expertise.

But like every thing has two aspects to it, even outsourcing has both advantages as well as disadvantages for small and medium scale industries.

The first drawback of outsourcing is loss of control. When the work is outsourced to an external firm, the company loses control of how the tasks are to be monitored and performed.

The risk to privacy comes as another threat that companies might have to face due to outsourcing. This is the age of data protection. If the company is planning to outsource the processes that require personal information, the company might be placing the privacy of others as well as security of it’s own at risk by passing it on to others.

There is also a possibility of the fact that the outsourcing company might be profit driven rather than being motivated by a job well done. This implies that the work you send may come out quickly but it also may lack standard as well as quality that your customers expect from you.

Even though it may seem nice to share risks with expert agencies, it might turn out to be dangerous for the company’sv own well being as you may have to take a financial hit if they fail to deliver.

If you take the work overseas, there is a chance that your business would have to face ill will from consumers that take a moral stance against outsourcing. Right or wrong, or for better or worse, some form of criticism is often inevitable.

Another major disadvantage of outsourcing a particular task is the difficulty that may rise in synchronization of schedules in order to ensure that the customers receive what is promised to them on a reliable time.

Not only this, outsourcing companies tend to serve more than one or even multiple clients at once and due to this your work might not receive the right amount of focus which can prove to be detrimental to a business.

These companies also impose hidden charges sometimes along with the overall contract.

Any additional services or products you need from outsourcing firm are generally not included in the agreed initial work and may carry extra charges for the business.

So to conclude, outsourcing strategies have both positive as well as negative effects on small scale and medium scale industries.

It is up to the business to evaluate it’s options wisely to avoid the drawbacks and make most of the benefits provided.