What is outsourcing and how does it work?

There are many reasons why companies decide to outsource qualified activities and this is a common practice among large, small and medium-sized companies; where outsourcing is sometimes the only option to get things done. Some of the top reasons companies outsource skills or products may include:

  • The inability to develop the product or obtain the service internally.
  • The need to reduce costs.
  • The goal of expanding capacity.
  • The short-term need for personnel or product.
  • The need for specialized and scarce resources.

Some of the benefits of outsourcing are:

  • Cost savings: Outsourcing activities typically reduce costs as there is no need to invest in additional software, hiring costs, and direct costs related to having employees and their benefits.
  • Time saving: By outsourcing tasks, things can be done faster and more efficiently.
  • flexibility: Since the resources are external, you can bring them based on your specific needs, for as long as you need them (even for short periods of time)
  • High efficiency: Outsourcing non-core activities to outside resources allows you to focus on your core business activities.
  • Access to scarce talent: Having access to talent that may be in short supply or very expensive is an advantage when outsourcing. For example, for US companies, outsourcing their software development needs is a common practice with multiple benefits, especially when done in a Nearshore model to countries like Costa Rica, which is very close to the US, it works in a similar time zone, they have a strong alignment in terms of company culture and the way they do business, while also having the benefit of lower cost for highly talented resources.

How does it work?

Outsourcing is a strategy that companies use to improve their competitiveness, but in many cases, the company knows that it needs help but is not sure what. This is when it is key to clearly define what must be done, what are the necessary skills and knowledge, and the specific requirements that the company has for the work to be carried out (use of technology, tools, methodology, etc.)

Choosing the right outsourcing partner can be challenging and the best approach is to first define the end result and your expectations of the outsourcing relationship.

Before choosing an outsourcing partner, ask yourself the following questions.

  • Does the selected foreign partner have experience in the particular service you wish to outsource?
  • Has the outsourcing service provider you selected been able to provide quality services to other businesses like yours?
  • Does your chosen business partner use the best in technology, software and infrastructure?
  • Does your outsourcing provider have experienced, trained and qualified professionals who can handle your projects efficiently?

Asking these questions and validating the answers you get from multiple potential vendors will help you make the best decision.

Once you have chosen your partner:

Just as important as choosing the right partner, creating the right business relationship is just as important. Once you have made your decision, make sure you work on the following aspects:

  1. Establish open communication and a close relationship: Whether in person or via video conferencing tools, it’s important that you and your new business partner see and hear each other. Organizing overseas office visits to meet the people you’ve partnered with and the employees performing your duties can make a big difference to your bottom line.
  2. Define business roles and responsibilities: Discuss the details of the partnership, such as budget allocations, goals, and other plans for the future. You should also define business roles so that both companies understand the scope of their responsibilities and streamline work processes.
  3. Define the success criteria: Make sure all parties involved are on the same page in terms of expectations and how success and alignment to your goals will be measured.
  4. Create an environment based on trust: Establish a healthy relationship based on trust. You may need to strike a balance where you keep an eye on your partner while providing a healthy distance to give them enough room to grow, innovate, and exceed their expectations.

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