Understanding the Positive and Negative Impacts of Outsourcing

Outsourcing has been a popular strategy for many companies that are looking for cost-efficient ways to optimize their operations and fight off inflation rates.  

However, like any business activity, outsourcing can also have its own set of advantages and disadvantages. Let’s take a look at how we can leverage its positive impacts while mitigating its potential negative impacts on your operations. 

Positive Impacts of Outsourcing 

Here are some of the positive effects of outsourcing you can experience firsthand:  

1. Cost-effectiveness and Efficiency 

According to Statista, the global inflation rate was estimated to have reached 6.9 percent last year — the highest annual increase in inflation since 1996.

For this reason, some experts predict that this current rate may continue to rise in the coming year, leaving a sense of urgency for firms around the globe to act and do something to minimize the impact of the fluctuating economy. 

Outsourcing can be a great deal to your firm amid inflation, as it can help your firm to minimize the impact of the rising costs of doing business. When you outsource to offshore locations, you can access back-office services at a lower cost, giving you the opportunity to save costs for other operational expenses such as utility bills and rent.  

On top of that, outsourcing gives you access to a pool of experts who specialize in accounting, bookkeeping, and taxation. Through the assistance of the right accounting outsourcing service provider, you can boost your firm’s productivity and streamline its processes.   

2. Business Growth and Expansion 

Outsourcing your accounting function to a third service provider lets you regain your focus on your core competencies.

Because of this, you can have more time and energy to focus on what really matters – growing your business. Whether it's about developing new products, enhancing customer service, or ramping up your marketing efforts, you'll have the freedom to focus on what truly drives growth.   

In addition, outsourcing your accounting gives you the flexibility to scale your operations quickly and efficiently based on your business’s evolving needs. 

Read: Financial Outsourcing and How It Can Help Your Business Grow 

3. International Presence

Outsourcing to developing countries such as the Philippines lets you minimize your overhead costs, specifically your labor-related expenses.  

Moreover, it also allows your firm to establish its presence in your country of choice — which can be a useful long-term strategy — especially if you want to want to learn the economic feasibility of doing business in their location.   

Negative Impacts of Outsourcing

While outsourcing has positive effects, there are also some negative impacts that you need to consider:  

1. Communication Issues 

Communication-related issues is something you must watch out for when outsourcing, especially if your provider is experiencing slow internet speed.   

When left unattended, it can cause misunderstandings for both sides, especially when it comes to the quality of the provider’s service delivery. 

Hence, your firm must thoroughly check and consider everything before starting your outsourcing engagement. This includes the vendor's reputation, track record, location and internet. Doing this can help your firm to avoid potential risks and issues that may arise during the outsourcing process.  

2. Data Confidentiality Risk 

Security and privacy are among the top concerns related to outsourcing. So having a robust system is much needed and should be in place to protect information such as customer and financial data.

Doing this gives you a guarantee that your confidential data remains safe from cybercriminals. To avoid such incidents, we recommend thoroughly checking this with your outsourcing provider. You should also make sure to check client testimonials.  

Read Next: The 8 Best Practices for Data Governance for the Company Workplace 

3. Quality Issue

Dealing with quality issues can be a huge headache when working with an outsourcing provider. It's even worse when they don't give you the freedom to customize their services to fit your needs. 

As a client, if the outsourcing provider isn't willing to customize their services to fit your requirements, it can cause inefficiencies and slowing down your progress. 

To avoid these issues, make sure to talk openly with the provider about what you need and expect from them. Let them know that you value flexibility and want a partnership that can evolve as your business does.  

By setting clear goals and metrics upfront, you can hold them accountable and make sure they're delivering on their promises. 

Take for example the story of Assist Group, a health company in Australia that partnered with D&V Philippines for their bookkeeping needs. With D&V Philippines' customized accounting solutions, the company was able to get a real-time view of its business performance and make even better decisions. To learn more, you can read the case study here. 

The Bottom Line   

The positive impacts of outsourcing have been beneficial for many firms globally. However, it is still important to understand that this business activity also have potential negative impacts. By weighing these factors and conducting thorough research, you can decide better if outsourcing is the right strategy for your business.  

In need of an accounting outsourcing provider? 

Consider D&V Philippines. D&V Philippines is a business process outsourcing firm specializing in finance and accounting that has been in the industry for more than a decade.  

Serving clients all around the globe, we pride ourselves on delivering quality accounting solutions. Schedule a free consultation with us today to find out more about how we can help you. 

You can also read testimonials from our clients and access our whitepaper Outsourcing: How to Make it Work to have a deeper understanding of how you can achieve success in outsourcing.