Companies worldwide are now outsourcing services and projects to expand their operations and cut labor costs. The global market size of outsourced services reached $85.6 billion in 2018. This practice can streamline your day-to-day tasks and free up your time so you can focus on the core aspects of your business. Apple, IBM and Cisco Systems are just a few of the companies that outsource customer support, production, web development and other services.
Types of Outsourcing Services
From increased productivity to lower costs, there are plenty of reasons to work with contractors rather than hiring an in-house team. Business process outsourcing gives you access to intellectual capital and helps simplify your operations. It also makes it easier to manage your expenses and maintain financial flexibility.
Let's say you're a digital advertising agency. Some of your employees specialize in social media marketing, while others know the ins and outs of pay-per-click advertising and branding. However, they may not have the skills and expertise to write sales copy, blog posts and other types of content. In this case, you have two options – you can either hire a copywriter or outsource this task. The latter, though, is more cost effective.
Depending on your needs and type of business, you may outsource manufacturing services, operational services, process-specific services or professional services such as accounting and IT support. For example, your advertising agency could outsource bookkeeping, web design or customer service. If you don't want to commit to a long-term contract, you can only hire contractors for projects where specific skills are needed. Research popular companies that outsource services so you can better understand how this process works.
Nike's Outsourcing Strategy
Nike was an early adopter of outsourcing manufacturing services to Vietnam, South Korea, China and other countries. The company began using this practice back in the 1970s to cut costs. Today, most of its clothing and footwear is produced outside the U.S.
It's fair to say that outsourcing contributed to Nike's success. By keeping its labor and production costs low, the company grew from a small-scale importer of sports shoes to an industry-leading manufacturer and supplier of athletic apparel, footwear and equipment. In 2017, it had a 47 percent market share, which was significantly more compared to New Balance, Converse, Reebok and other major competitors.
IBM's Approach to Outsourcing
In 2017, the New York Times published a controversial article stating that IBM had more employees in India than in the U.S. Back then, more than 130,000 Indian professionals were working for IBM. Microsoft, by comparison, had only 8,000 employees in India.
IBM outsources software development to maintain a competitive advantage, improve operating margins and keep its costs low. However, not all of its efforts in this area are successful. Some sources say that its $2.3 billion outsourcing contract with Aecom has negatively affected customer service quality.
WhatsApp Outsources Software Development
The popular messaging app has been outsourcing software development services since its beginnings. When WhatsApp was launched, it had only 35 employees. Yet, it became one of the most popular companies worldwide. Its success is largely due to outsourcing.
The company turned to Russia to attract top talent and keep development costs low. Igor Solomennikov, its first iOS engineer, started out as an independent contractor in 2009 and moved to California four years later to join WhatsApp as a full-time employee.
Google, GiftHub, Alibaba, Slack and Microsoft are other examples of successful companies that outsource. This business model allows them to drive innovation and grow while reducing their operational costs. It also gives them access to a large pool of talent with global experience. As a small business owner, you can leverage the power of outsourcing to develop better products and services, expand your reach and stay on top of the latest trends in your industry.
- Statista: Global Market Size of Outsourced Services from 2000 to 2018
- nibusinessinfo.co.uk: Outsourcing
- Outsourcing Insight: Types Of Outsourcing Which Will Help You Succeed
- Outsource Accelerator: Nike’s Approach to Outsourcing
- Business Insider: One Stunning Stat That Shows How Nike Changed the Shoe Industry Forever
- The New York Times: IBM Now Has More Employees in India Than in the U.S.
- computing.co.uk: IBM Outsourcing Deal with Aecom 'a mess' and the CIO Is 'On His Way Out', Claims Insider
- Facebook Careers: Meet WhatsApp's First iOS Engineer, Igor S.
- Justin Sullivan/Getty Images News/Getty Images