July 21, 2016 Jonathan Koralnik

The Rise of Outsourcing: Benefits and Challenges

Outsourcing, a business practice in which companies delegate tasks to people outside the

organization, is on the rise. Estimates suggest that one in six jobs in the United States – or

almost 20 million positions – are subcontracted. 1 This blog post explores the advantages

that outsourcing offers and describes the biggest challenges of this approach.


The benefits of outsourcing

Why do companies outsource? Outsourcing helps businesses get the most out of their

employees, as delegating tasks to an outside agency enables employees to focus on what

they excel at, while external workers complete the tasks that employees aren’t equipped

to handle. Outsourcing is especially useful when a company needs a one-time service,

such as launching a marketing campaign; in these situations, it does not make sense to

hire a new employee just to complete the task. Most importantly, outsourcing a service is

cheaper than paying employees to perform that function: the salary of in-house

employees is higher, they require benefits such as insurance and paid vacations, and

necessitate expenses such as education, computers, and other office supplies. 2


The social costs of outsourcing

While outsourcing can be a boon to businesses looking to save money and increase

efficiency, the practice has dramatically damaged middle class workers. For instance, in

America, many occupations are outsourced not only to cheap-labor countries like China

but also to third party contractors in the US. This trend of outsourcing has led to

numerous layoffs of workers and has generally driven down the cost of labor. Thus, the

growth of outsourcing is a major contributor to the decline of the American middle class,

which has recently fallen from 61% of the population in the 1970’s to below 50%. 3


The risks of outsourcing

Outsourcing can benefit companies in a variety of ways, but there is also a significant

amount of risk involved with delegating tasks to third-party contractors. Agents of a third

party are often given access to company data and may not be trustworthy; they are liable

to mismanage or even steal this sensitive information. In fact, according to the 2013

Trustwave Global Security Report, third-party IT staffs were responsible for 63% of data

breaches. 4 In order to avoid data breaches caused – directly or indirectly – by outsourcing

companies, businesses must choose third-party partners carefully. Moreover, it is crucial

for outsourcing companies to monitor their employees’ computer activity to ensure that

they are not intentionally pilfering data or unintentionally making it vulnerable for

exploitation by hackers.

  1. http://www.latimes.com/business/la-fi- outsourcing-middle- class-jobs- 20160630-snap-story.html
  2. http://www.business.com/management/7-signs- that-its- time-to- try-outsourcing/
  3. http://www.latimes.com/business/la-fi- outsourcing-middle- class-jobs- 20160630-snap-story.html
  4. http://www.computerweekly.com/news/2240178104/Bad-outsourcing- decisions-cause-63-of- data-breaches

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