Posted by Angelica Garcia
Oct 01, 2024
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Companies in the United States are increasingly reevaluating their operational strategies in response to the rising tide of inflation, leading to a significant shift towards outsourcing.
In fact, Grant Thornton Global listed outsourcing as one of the essential actions that companies must take to combat inflation.
In the same article, Devesh Uniyal, a partner from Grant Thornton in India explains "Outsourcing partners have heavily invested in automation and developed new service models. These innovations provide immediate access to greater efficiency through shared technology platforms and centers."
Uniyal also notes a positive geographic shift in outsourcing locations. "Before COVID-19, people used to migrate to expensive tier one cities for work. Now people are going back to tier two and three cities and working from home at a lower cost.”
Another thing, a survey conducted by the Pew Research Center found that 62% of Americans see inflation as one of the top problems facing the nation.
Read: How to Handle Inflation through Proper Financial Management
The Rising Costs of Inflation
Inflation triggers a domino effect on various business aspects — making everything from raw materials to labor, transportation, and utilities — more expensive for companies in the US.
The U.S. Bureau of Labor Statistics reports that the Consumer Price Index for All Urban Consumers (CPI–U) increased by 2.5% from August 2023 to August 2024. While this is the smallest increase since March 2021, the lingering effects continue to challenge businesses across all industries.
Companies are feeling the pinch in several ways:
- Rising wages: As the cost of living rises, employees demand higher wages to keep up with their cost of living.
- Higher input costs: The cost of raw materials and supplies has surged and resulted in a profit squeeze.
- Supply chain disruptions: Inflation often compounds supply chain bottlenecks, making goods more expensive and harder to procure.
As a result, many companies started to seek more affordable and efficient ways to manage their operations — and outsourcing has become a powerful tool in that strategy.
How Outsourcing Helps Address Rising Costs
Outsourcing back-office tasks to reliable outsourcing service providers can help you combat and shield your company from the negative effects of inflation.
This initiative lets you hire external organizations or contract business process outsourcing (BPO) companies to handle tasks that were traditionally performed in-house, such as accounting, customer service, and IT operations
Here are several ways that outsourcing can offer a strategic advantage for your company during economic uncertainties.
1. Reducing Overhead Costs
One of the main features of outsourcing is its ability to act as a cost-cutting tool. This business activity can help you reduce overhead expenses since you no longer need to hire in-house employees, buy equipment, and invest in additional office space.
Outsourcing to offshore locations can further reduce costs. Working with providers from offshore countries like the Philippines, for instance, is much cheaper compared to hiring a full-time employee in the US.
According to the latest data from the US Bureau of Labor Statistics, US-based accountants and auditors receive a median pay of $79,880 per year or $6,650 per month. On the other hand, the median yearly salary of full-time Filipino accountants is $6.065.09 or $505.42 monthly. Such price differences can go a long way, especially in curbing the impact of inflation on your bottom line.
*Based on the converted amount. The original data shows that the average yearly salary of accountants in the Philippines is Php339,524. As of 24 September 2024, $1 is equivalent to Php55.98.
2. Accessing Specialized Skills
Outsourcing gives your company access to specialized skills that may be hard to find locally. Many organizations struggle to find qualified employees due to a competitive job market or regional shortages of specific skills. By outsourcing, your company can tap into the global talent pool where they can find skilled professionals that can provide the services they need.
For instance, if your company is in need of professionals who specialize in software development or accounting, it might be more efficient to hire an external agency rather than build those capabilities internally. Not only does this approach ensure high-quality outcomes, but it also alleviates the burden of recruitment and training and allows your company to focus on its core competencies.
Read Next: Understanding the Positive and Negative Impacts of Outsourcing
3. Focusing on Core Competencies
Outsourcing will allow your company to focus on your core strengths while leaving non-core tasks to external partners. In fact, a Deloitte survey found that 65% of businesses outsource to concentrate on their primary strengths.
For businesses in the US, this approach is particularly beneficial amid the ongoing challenge of rising inflation. Afterall, inflation often leads to increased wages, which can strain a company's payroll.
4. Getting 24/7 Access
In our recent blog, we emphasized how offering continuous support, such as being available 24/7 to your clients, can set your company apart from your competitors. Outsourcing helps you make it possible.
Outsourcing companies, particularly those in the Philippines, often operate round-the-clock. Their continuous operations can seamlessly support both your company and your clients in real time and ensure that assistance is always within reach.
Choosing the Right Outsourcing Partner
To maximize the advantages of outsourcing, selecting the right partner is important. Here are some key considerations when choosing an outsourcing company:
1. Reputation and Track Record
Research and look for companies with a solid reputation, proven track record, and positive client testimonials. To be assured of their legitimacy, you may verify their experience in your industry and their ability to deliver high-quality services through an intensive due diligence process.
2. Scalability and Flexibility
You must consider choosing a partner that offers scalability and flexibility to accommodate your business needs. Whether you're looking for short-term support or long-term collaboration, ensure that your chosen partner can adjust their services accordingly. This way, they'll be able to provide you with the right level of support and expertise, no matter how your business grows.
3. Cost Transparency
While cost is an important factor to consider, it shouldn't be the only determinant. You must also look for a partner that offers cost transparency and provides you with clear information about their pricing structure. By doing so, you'll be able to compare different outsourcing providers and choose one that matches your company's budget.
4. Cultural Compatibility
When choosing the right outsourcing partner, you must consider the cultural compatibility between your company and the provider. Select a partner whose values, work ethics, and business practices align with yours. This is crucial, as it will help you avoid misunderstandings or conflicts that may arise from differences in language, work styles, or other factors.
The Bottom Line
Inflation is presenting significant challenges for US businesses, but outsourcing offers a strategic solution to mitigate these pressures.
Seeking a reliable outsourcing company to be your long-term business partner?
Consider D&V Philippines. With over a decade of experience in offering comprehensive finance and accounting services across the globe, you can be sure that D&V Philippines can be your trusted accounting outsourcing business partner. Schedule a free consultation with us today.
You can also visit our website to find out what our clients say about us and download our Outsourcing: How to Make it Work guide today to learn how we can be your reliable outsourcing partner.
