The Disadvantages of Outsourcing

As with all business processes, there are both advantages and disadvantages to doing things a particular way. Nothing is fool-proof and no procedure is perfect. The same can be said of outsourcing. While there are an infinite number of benefits to sending work offshore, there are, undoubtedly, serious disadvantages to outsourcing. The key, however, is to anticipate the negatives and mitigate the impact to get the best possible outcome for your organization. Being aware of the limitations can help you to avoid the pitfalls. To guide you, we have listed ten disadvantages of outsourcing.

  1. One of the most serious problems with outsourcing is disinvestment, divestment, boycotts, embargoes and naturalization. Basically, large corporations that have had ongoing enterprises in foreign countries are all of a sudden banned from doing business because of political strife. We have seen this many times in history, most notably in Cuba and South Africa. Other African nations have even booted out charitable organizations. As we write this article, credit card processing for many countries such as Iran, Iraq, and Afghanistan is not permitted. In fact, the rules can be dictated by either the home country or the offshore country.
  2. Customers become bitter and racist when dealing with service reps with strong accents. With a growing trend to use foreign call center workers, the level of verbal abuse is elevated because the English used is not the same as the English to which the customer is accustomed. Further, the customer may be a displaced employee, or know people whose jobs were eliminated. All of this negativity is heaped upon the foreign workers.
  3. The outsourcer can take all the employees and go elsewhere, leaving the hiring company with nothing.
  4. Contracts may be difficult to enforce. Depending on how seriously a country's court system views foreign investment, it remains to be seen, what, if anything, can be done with outsourcing entities who steal, fail to complete projects, and disclose proprietary information.
  5. Often, outsourcing in the home country means that private information is being dispersed, contrary to public privacy laws. For example, hospitals routinely outsource the maintenance of patient records. The information is not much use to offshore workers, but the information can be dynamite in the hands of local companies. Outsourcing private information is detrimental to the public as a whole.
  6. If the outsourced company is poorly managed and goes under, the hiring company must start all over. When one person leaves the company, another can be trained, but with outsourcing large projects, greater risk is involved.
  7. You have to be careful with the kinds of projects you outsource. For example, advertising campaigns can become public relations nightmares for companies that use foreign firms. The differences in perception are great, and can lead to bad information. An excellent example of this is the difference in television comedies between the US and Britain. Both peoples speak English, but the nuances are completed different.
  8. Will outsourcing do your company irreparable harm? This happens when a company downsizes and fires a large number of employees. If people in the city or region know these employees personally, they are likely to boycott the company and the products. The key question is whether or not the company can endure the storm and come out ahead.
  9. Outsourcing is always a risky function. Failure to deliver services, and inept departments can have the opposite effect of reducing costs. Typically, when one employee messes up in a company, the problem is handled individually, and the rest of the department continues regardless. In the case of outsourcing, however, you generally find an overall problem long after the fact.
  10. Exchange rates fluctuate. While the currency in your own country may have made outsourcing cheaper, what happens when the economy changes? The costs of the outsourced department are directly tied to the daily currency exchange.