Starting back in 1989, outsourcing has become an integral part of corporate practice for major companies across the USA, and over the last four decades, it has percolated down to become part of small to mid-size businesses as well. Despite the rise in outsourcing within the U.S., there are still many who debate for and against it with no clear result as to which side is legitimate.
Outsourcing remains to be a hot-button topic with strong arguments for each side. If you’re considering outsourcing, it is important to educate yourself in order to make the best decision for you and your business. According to the Population Reference Bureau, Offshoring is the movement of jobs and tasks from one country to another, usually from high-cost countries, such as the United States, to low-cost countries where wages are significantly lower. Offshoring is often confused with outsourcing, which is instead the movement of jobs and tasks from within a company to a supplier firm. The offshoring of manufacturing jobs has been occurring for decades, but the offshoring of service-sector jobs is an incipient phenomenon, emerging in substantial numbers since 2002 and growing rapidly.
From the early research on offshoring, a primary motivation was to explain the inequality in the earnings of labor. Evidence from the United States and other countries showed that during the 1980s the relative wages shifted towards more-skilled workers so that a “wage gap” developed between those with higher and lower skills. The story for the 1990s and later is quite different. There has continued to be an increase in the relative wage of skilled workers in U.S. manufacturing, but the relative employment of these workers has sometimes fallen. That finding is strongly suggestive of the offshoring of service activities, whereby the more routine service activities are sent overseas.
Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company’s own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.
Here are some surprising statistics about outsourcing that you should know:
- 29% of businesses with fewer than 50 employees outsource, compared to 66% with 50 or more employees. – Larger scale businesses tend to outsource more than mid-lower scale businesses. This is because smaller businesses are less inclined to spend money on outsourcing due to the fact that they traditionally hold on to the belief system that it is better to keep their money “within the organization.”
- Approximately 24% of small businesses outsource to improve efficiency. – Efficiency is extremely important for all businesses but is the highest priority for smaller-scale businesses. What could be a small error to a larger company could be devastating for a smaller one. United States outsourcing statistics show that another common reason (18%) that a small business turns to outsource is to increase available expertise and seek expert assistance.
- The global outsourced customer experience market in 2018 was estimated at $75.1 billion. – Outsourcing statistics by year demonstrate that customer service is among the most outsourced processes among large companies and financial organizations. Since most businesses believe that improving customer experience is a top priority, it is not surprising that growth is projected to continue throughout 2020. By then, the value of the market is projected to increase to $82.6 billion.
- 71% of financial service executives outsource or offshore some of their services. – One of the top industries that outsource the most is finance. About 70% of retail and transportation firms do the same, while job outsourcing statistics show that the top spot remains reserved for pharmaceutical companies. Roughly 82% outsource services.
- Saving money is a major motivation for outsourcing. – One of the most core reasons for outsourcing is to free up resources such as money and most especially time. Saving money is secondary, but still a top priority. About 45% of companies outsourcing business functions say that their business process outsources projects are meant to save money. About 46% say outsourcing lets them access skillsets that aren’t available in-house.
- Over 44% of chief intelligence officers say that they are more likely to use outsourcing suppliers than they were just five years ago. – Offshoring statistics from 2018 show that the IT sector is moving toward outsourced suppliers most quickly. In fact, about 64% of outsourced offshore technology functions have to do with software application development. About 51% of technology executives say they outsource application and software maintenance, and 40% outsource their data centers.
- About 300,000 jobs get outsourced out of the US each year. – US outsourcing statistics like this one make it easy to understand why so many people view outsourcing negatively. Negative sentiments are especially strong when there is a big economic crisis, and we’ve just lived through the second-largest recession in history. It is not surprising, then, that during the height of the Global Recession, 86% of Americans blamed outsourcing for exacerbating the crisis.
- According to studies, approximately 50% of the US workforce will be remote or outsourced by the year 2025. – The rise in the need to cut down costs and the changing face of the traditional workplace has brought a majority of companies to look at their hiring processes and requirements in terms of geographical location. Being open to options such as outsourcing or remote workers opens up possibilities of a wider talent pool and offers job seekers more convenient and approachable opportunities. A special analysis done by FlexJobs and Global Workplace Analytics found that there has been a major upward trend in the number of people working remotely in the U.S. In the span of one year, from 2016 to 2017, remote work grew 7.9%. Over the last five years, it grew 44% and over the previous 10 years, it grew 91%. Between 2005 to 2017, there was a 159% increase in remote work. In 2015, 3.9 million U.S. workers were working remotely. Today that number is at 4.7 million, or 3.4% of the population. This is predicted to grow even more exponentially in the coming years.
As the face of the business world constantly and rapidly changes, the reality of the practicality of outsourcing is becoming more and more evident to business owners, regardless of the size of their business. What are your thoughts on outsourcing? Would you ever consider it or if you currently are outsourcing, what advice can you give to anyone who is considering it?