Impact of Outsourcing on Recently Formed Small to Medium-Sized Enterprises - Essay Example

Impact of Outsourcing on Recently formed SMEs Impact of Outsourcing on Recently formed SMEs High levels of uncertainty characterized by massive changes from year to year are a challenge to average small and medium enterprises. With these businesses uncertain about their futures due to unforeseen changes, proper planning always takes center stage. Planning in these businesses should mainly focus on cash flows considering that for such businesses, to acquire external financing is always a problem (Haugen, Musser & Lovelace, 2009). These small businesses must invest in strategic planning, and it is in this strategic planning that outsourcing becomes very vital. The essay will discuss on both positive and negative impacts of outsourcing on small businesses and therein give a verdict on its adoption. Outsourcing among small businesses grew by about 35% this year (Gem, 2014). Majority of those surveyed also indicated that outsourcing has been central to the growth and development of their businesses for the last twelve months. Small businesses should always realize that rather than ignoring some of the bits of work that their businesses operations cannot do, they can outsource. For these reasons, outsourcing of these services gives them protection and confidence. More small businesses should be looking up to outsourcing. Outsourcing reduces costs by specifically transferring some of the work to outside suppliers with more expertise rather than doing it internally (Bosua, 2010). More common examples are small companies outsourcing sales and marketing functions which allow them to have and maintain a sales force which is not part of their employees. It is a quick way of these businesses accessing distribution of their products without necessarily being popular (Treverton & Ghez, 2012). Most of these small businesses are not popular among their clients thus making outsourcing becoming more popular as opposed to big companies with goodwill (Lynch, 2006). There are huge cost savings in outsourcing. Start-up business should always adopt this because it is cost saving. Most entrepreneurs are enabled by outsourcing to focus solely on their core operations and keeping initial costs to a minimum. Recruitment of experts to fill positions of different functions can be very expensive, and it is financially sensible to outsource while paying per task and the excess money saved should be directed to other vital segments of the business that can make the business grow (Lynch, 2006). Outsourcing also comes with flexibility. As stated earlier, small business does change massively from year to year and sometimes also from month to month. Outsourcing will make businesses remain flexible in their operations and business models. Such small business in most cases can easily change their operational approaches or even their trading location if outsourcing firms are being used. Outsourcing can make small businesses be prepared if things go wrong. Businesses that use outsourcing as part of their operations are better prepared than companies with large permanent workforce if anything was to go wrong. If the turnover of the business drastically drops or even it loses a contract, it is commonly easier to make needed cuts where appropriate if the business is outsourcing. Small businesses gain meaningful experience from outsourcing (Bosua, 2010). Services outsourced in most cases are cheaper because they are sourced from experts with a lot of experiences. This experience comes in hand with efficiency thus giving clients value for their money and thus customer satisfaction that is crucial to small business. For an entrepreneur beginning a small or medium enterprise, he or she is always found with many but essential tasks like sales and marketing, bookkeeping, etc. which can be a huge challenge to him. To hire experts for this type of tasks is not practical and thus he or she has to resort to outside expertise to overcome the challenge thus outsourcing. It is because of outsourcing that many companies can take off because of the lower costs that come with it (Germanos, 2012). An example in recent years in the United Kingdom is with the up market instant noodle brand called Kabuto. Its founder, called Crispin Busk, started the business in 2010 with fifty thousand sterling pounds. This amount could barely cover the costs that were needed for rent, running a factory and hiring staff. It was also the time recession was at its peak. Outsourcing helped him to start off a business without having invested huge amounts. Outsourced companies made packaging materials, packed the products and also did the distribution in addition to public relations, bookkeeping and branding and thus made his business kick off. The company was running with minimum employees and fewer offices which were a major source of cost savings. The small business was running just like the big established companies (Fry, Killing, 1986). Outsourcing has made small businesses have the organizational aspect of the supply chain. In fact, this has reduced the worry of need of machines, heating and maintenance from professionals, and has reduced many kinds of expenses and demands (Lynch, 2006). With the possibility of outsourcing and tapping into others who are experts, one does not have to hire or employ somebody with the knowledge. Paying per task has been proven to be less expensive as compared to recruiting people with varied and different skills in a small business. The excess money that arises from the difference can be better-spent in areas that need money the most and in key functions like recruitment of an in-house sales person or even in marketing (Germanos, 2012). In essence, this will in turn allow small businessmen or entrepreneurs to be flexible in executing their business models. With outsourcing, one can easily enter into international markets even though the business is small. Outsourcing allows entrepreneurs to easily change their business models or even location or country of trading if the cost of trading in that country is low ( Bangs, 1998). Outsourcing small and medium companies are well prepared for economic shocks than those that do not outsource. With outsourcing, business risks are shared among different companies as opposed to lone small businesses that incur all the shocks alone. Making cuts is easier in small businesses that outsource than those that do not (Bangs, 1998). Startup businesses, small and medium companies or even fast growing companies usually do not have an idea of how many resources they usually need. Since these businesses are moveable feasts, outsourcing will, therefore, bring an element of flexibility that these businesses require as they wait for things to settle down. It makes an entrepreneur run a business without necessarily being an expert in everything. Outsourcing allows small businesses not to over-commit their resource. It makes them just use and pay for what they need when they need it (Fry, Killing, 1986). Usually, outsourced services are often cheaper since those who provide are experts in their fields thus bringing an efficiency element which is a huge source of cost saving and customer satisfaction. It also helps in eliminating unnecessary fixed costs within the business that are usually hanging within the business doing nothing when the entrepreneur doesn’t need them (Friend & Zehle, 2004). Before outsourcing, there should be clear communication and also strong relationships with external workforce. It should be developed to ensure essential quality control especially when outsourcing from abroad. When outsourcing, especially out of the native country, an entrepreneur has to go through due diligence process in that country to carry out inspection and establish if the standards of work of the outsourced firm are up to scratch. Once the standards are established as good, continuous process of training and review should be done to ensure that most of the problems that will arise are detected and quickly resolved. Expectations are to be set out and make the outsourced firm have a clear understanding of them (Friend & Zehle, 2004). It is important in avoiding anything getting lost and thus avoiding misunderstanding that is one of the biggest ways that one can easily lose out. An example can be a manufacturing company like dell which outsources some of its computer components because of cost savings. For Dell to have quality components, the outsourced firm must know what dell expects from them because the components are very sensitive for Dell to remain competitive. With the advances in file sharing and communication technology, small businesses have got easier and effective way of sharing their information with their workers at their place of work and also abroad quite easily. While outsourcing in some instances garners a bad name, speaking realistically, outsourcing is one of the smartest steps a business owner or operator can make to help improve the efficiency and the time they spend working (Gay & Essinger, 2000). On the other hand, one of the biggest problems is how to get the right firm to outsource especially if it is abroad. This at first will involve trial and error and thus vast information and communication base is vital. It is because one has to work with people he has a little understanding and will usually deliver what one will not want them to deliver and thus has to move on to find someone different. The positives from outsourcing far outweigh their negatives. With the help of technology, workers around the world are being brought closer together. It is not surprising to see each and every small business and more and more entrepreneurs trying to take advantage of the globe’s huge pool of talent through outsourcing. For small businesses, it is more affordable to outsource especially from companies with comparative advantages than to have the services internally. Start up businesses should consider outsourcing because it is vital for their survival and growth. Reference List Gay, C. L., & Essinger, J. (2000). Inside outsourcing: managing the secrets of strategic sourcing. London: Nicholas Brealey. Bangs, D. H. (1998). The business planning guide creating a plan for success in your own business (8th ed.). Chicago: Upstart Pub. Co.. Bosua, R. (2010). Social Networks, Social Media and Absorptive Capacity in Regional Small and Meduim Enterprises (SMES) in Australia. .: .. Friend, G., & Zehle, S. (2004). Guide to business planning. London: Economist in association with Profile Books. Fry, J. N., & Killing, J. P. (1986). Strategic analysis and action (U.S./international ed.). Englewood Cliffs, N.J.: Prentice-Hall. Germanos, G. (2012). The process of the strategy formulation in small and meduim enterprises in Greece and the role of accounting information. .: .. Haugen, D. M., Musser, S., & Lovelace, K. (2009). Outsourcing. Detroit: Greenhaven Press. Lynch, R. L. (2006). Corporate strategy (4th ed.). Harlow, England: FT/Prentice Hall. Outsourcing. (1993). Houston, TX: International Facility Management Association. Rande, W. L., & Luciani, V. (2001). The beverage service world. Upper Saddle River, N.J.: Prentice Hall. SWOT analysis: a tool for making better business decisions.. (2008). Washington, D.C.: U.S. Dept. of Agriculture, Risk Management Agency. Treverton, G. F., & Ghez, J. J. (2012). Making strategic analysis matter. Santa Monica, CA: RAND. Gem, E. (2014, July 20). Global-event-marketing-pty-gem-pty-state-outsourcing-is-in-high-demand. Retrieved September 15, 2014, from http://www.24-7pressrelease.com Read More