Outsourcing: When is it Financially Beneficial for your Business?

Fri, Jul 31, 2015

Financial Advice, Financial News

When automotive firm General Motors decided to bring an estimated 10,000 IT jobs back to the U.S. in 2013, it seemed to herald the end of global outsourcing. This was a trend that first emerged during the great recession, as internationally active brands looked to reduce operational costs by relocating I.T and manufacturing projects to nations such as China.

While the battle between outsourcing and insourcing has raged for nearly a decade, however, it seems to miss the most important point of all. More specifically, the viability of outsourcing as a business model varies depending on the project in question; meaning that while it may deliver financial benefit in some respects it can actively reduce long-term revenue in others.

When is Outsourcing Financially Viable for your Firm? The Key Considerations

Ultimately, both small and large businesses require insourcing and outsourcing if they are to boost long-term revenue and profit. The key is to understand when outsourcing is a viable option and utilise it selectively throughout your business. To do this, you will need to consider the following factors: –

Your Capability and Resources

This is the first and most important consideration, as outsourcing may be your only viable option in the quest to execute a specific goal. Let’s take funding your business venture, for example, as you may lack the necessary capital to implement your vision while traditional investors are increasingly wary to back small and independent ventures in a changeable economic climate.

In this instance, you have little choice but to embrace outsourced and anonymous financial solutions such as crowdfunding, where a high volume of online investors commit small amounts of required capital in exchange for a fixed equity stake. While it requires you to take a leap of faith and essentially distribute equity to strangers, it may be the only way of launching your business idea.

Expertise and Global Reach

In some instances, your decision may be made harder by the fact that your infrastructure and resources enables you to complete specific business tasks. Take distribution, for example, where even small businesses with minimal resources can establish a basic commercial fleet and ship products and merchandise.

At this juncture, it is important to consider the quality and reach of the service you can deliver. While you can save money in the short-term by insourcing distribution projects, a poor quality service or failure to meet deadlines could ultimately cost your venture long-term business. In contrast, expert service providers such as TNT Business Solutions offer you affordable access to a global distribution network that can be scaled alongside your businesses growth. Ultimately, this would be a move that focuses on maximising profit rather than annual turnover.

Business Model and Cash Flow

The same principle can also be applied to LED lighting specialists and solar PV installers, as investing in these outlets requires an initial financial commitment that translates into long-term savings and gains. Your ability to do this depends on your underlying business model and cash flow, however, as ventures that do not hold considerable amounts in the company may be unable to fund specific projects at certain times.

Similarly, you may not be able to invest in a permanent team of staff that boasts all of the employee skills that you require. In instances such as this, you must consider outsourcing as a way of employing talented workers on the basis of each individual project. This enables you to minimise long-term and annual salary costs without compromising on total turnover (while also driving greater profitability).

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