All successful businesses reach a point where they need more than a handful of employees. At that point, it’s time to consider outsourcing. However, it’s not a decision that should be based purely on labor costs. There are hidden costs not to overlook.
Changes Take More Time
One of the biggest pitfalls of outsourcing is that it’s hard to make changes to operations or goods once manufacturing has started. Boeing had high hopes for outsourcing the manufacturing of their 787 planes, saying that they could reduce costs from $10 billion to $6 billion. However, when problems during testing occurred, Boeing had a difficult time making changes because it cost too much money to ship the planes to the necessary testing facilities. Ultimately, Boeing brought their operations back home to save money. This goes to show you have to plan for the hidden costs.
Quality Is More Difficult to Monitor
Unless you move overseas to physically monitor your outsourced work, the quality of your goods and services will suffer. One of the most commonly outsourced jobs is customer service. However, many people in the U.S. complain that it’s difficult to understand the customer service representative because of strong accents or poor English skills. Fran Schmidt from Orasi Consulting said, “There was one Indian fellow no one could understand over the phone. It took us months to figure out what he was saying.” Poor quality goods and services will cost you more money in the long run.
Trade Secrets Are at Risk
Businesses depend on their employees to keep information about their operations and manufacturing processes secret. Outsourcing puts trade secrets at risk because it’s difficult to monitor employee training and consequences are unclear. It’s also easier for people to hack business locations that are not in the U.S., particularly electronic data. Losing trade secrets comes at a huge cost to businesses. More competition means less revenue, and that’s costly.
Branding Is More Challenging
Branding is when you create a relationship of trust with your customers so that they keep coming back. That’s more difficult when you breach the culture barrier with outsourcing. David Galbenski learned that first hand when he pioneered into outsourcing his legal team to India. There are 500 law schools in India, and the talent is clearly there. However, it’s hard to determine whether U.S. clients will trust attorneys in India with their law needs. The decision could potentially hurt Galbenski’s reputation and law firm brand. That’s an extreme cost.
Liability Is a Major Headache
Another costly problem to outsourcing is legal liability. Working conditions in other countries are notorious for being more dangerous than in the U.S. That means the risk of injury is higher and businesses must plan for higher liability costs. If someone gets injured, your business is responsible. Contracts, taxes, and other legal documentation are also a headache for businesses that choose to outsource. It costs additional lawyer fees to get all of the legal paperwork taken care of.
As you can see, outsourcing is not always as smart as it first appears. Yes, workers tend to be cheaper, but there are hidden costs that might make outsourcing not worth the risk.