The global economy is at risk of a recession, and companies are looking for new ways to save expenses, streamline operations, and maximize productivity. This past year we’ve seen major tech leaders such as Meta, Tesla, Netflix, Wayfair, and Snap all minimize costs by halting new hires and laying off large numbers of their employees.
So how does outsourcing work, and what does the future hold for this increasingly popular business strategy?
The Next Global Recession
While Deutsche Bank is the world’s first major bank to forecast a looming economic crisis, investors share the overall outlook. A survey conducted by Bloomberg Markets Live between March 29 and April 1 suggested that almost 48% of investors expect the U.S. to fall into recession in 2023. 21% respondents expect the crisis to happen in 2024, while another 21% expect the recession to begin this year.
While businesses are still recovering from the long-term impact of the COVID-19 pandemic, the Russian invasion of Ukraine, and Chinese lockdowns, the economic outlook is at present clouded by uncertainties. And when there are clouds, there’s a potential for rain, or, in this case, a recession.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” said World Bank Group President David Malpass.
“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
How Outsourcing Helped Major Tech Companies Survive the 2008 Recession
The skepticism surrounding outsourcing during a looming recession is quite comprehensible for a lot of reasons. However, it is a known fact that businesses nowadays follow in the footsteps of industry leaders.
That being said, let’s take a look at some of the most distinguished names in the industry who leveraged the benefits of outsourcing when the effects of recession were forcing them to lose profits
Tech giant Apple Inc. has been known to outsource manufacturing from China, but the most interesting fact is that the company outsources one in every three Apple engineers. Additionally, the company has continued this approach since the global recession of 2008. To date, Apple still outsources manufacturing and IT engineers.
Another global organization that has made a major impression in the technology industry is IBM. While the organization itself knows the benefits of outsourcing for a lot of reasons, it also outsources its requirements from other collaborations and countries. In 2008, the company signed multiple outsourcing agreements – a fact that can drive your confusion away.
Cisco System is another company that practices manufacturing and IT outsourcing. The company sailed successfully and efficiently by downsizing and outsourcing during the 2008 crisis.
While outsourcing is a necessary business strategy in several situations, it becomes a critical one during times of major crises such as a recession.
Outsourcing as a Business Strategy During Global Recession
During or before a global recession, many businesses fear that investing in outsourced partners would simply add cost and unnecessary overhead when they are trying to tighten their belts and pull back investments. The fact is just the opposite!
Outsourcing is a capital expense, which means that you get the resources or the team that will add to your revenue, without the risk of cutting a hole in your balance sheet. A turnkey, outsourcing doesn’t “add burden to your existing teams with more responsibilities brought on by “right-sizing” operations.”
When correctly chosen, an outsourcing partner can help businesses lower costs, increase productivity, improve efficiency, and provide additional expertise. Let’s take a deeper look how:
Why Do Companies Outsource?
1. Outsourcing Enables Cost Savings
In several industries, resources are often the biggest expense on income statements. When it comes to reducing manpower to save costs, layoffs are often not avoidable.
Not only do businesses save on salary costs when working with an outsourced partner, they also save on IT-related expenses, software licenses, and support services.
A study done by Siapartners shows that outsourcing development can reduce costs by up to 26%
2. Builds Flexibility in Resourcing
With outsourcing, you get the flexibility to add or cut down resources as needed without lengthy onboarding & recruitment costs, severance or termination packages or other costs associated with staffing changes. Outsourced development partners can often add or remove resources to your project in as little as a few days, bringing in subject matter experts as needed without full-time commitment.
TechBlocks has over 2,500 developers in our network globally, allowing for nearshore, offshore, and onsite engagement models to support our clients.
3. Maximizing Productivity and Reducing Burnouts
Layoffs mean that remaining workers must take on more responsibilities. Although it’s a good idea to begin with, it can result in burnouts over time, along with the risk of increased error rates.
This, in turn, adds expenses and negates the original benefit of layoffs. Relying on an outsourcer’s talent pool and internal team can keep your business ahead of your competition and away from the long-term side-effects of recession.
Partners like TechBlocks can maximize productivity through nearly 24/7 development across our global team. Our partners can continue to focus on their core business operations, and let our agile team manage technical projects4.
Another way that outsourcing can help businesses during a recession is by increasing efficiency.
When businesses outsource, they can focus on their core competencies and leave non-essential tasks to outsourced partners. This can help businesses improve their bottom line and make them more efficient overall.
5.Because Your Business Can
Virtual and remote work, which took off during the COVID-19 pandemic, is now a prominent part of our corporate lives. Remote work now has an integrity that it struggled to gain before the crisis, irrespective of many companies having experimented with it.
Software development, transcription, website and mobile app development, graphic designing, and marketing are some of the many activities that can be done by outsourced partners
If you’ve been thinking of outsourcing resources but are skeptical about the final decision, a recession might be the best time to give it a try.
How Do Companies Outsource?
Outsourcing can help you save money, free up time and resources, and improve your overall productivity. But if you have never outsourced before, the process can seem daunting.
Never fear! In this section, we’ll walk you through everything you need to know about outsourcing, from identifying your requirements to signing the contract. By the end, you’ll be an outsourcing expert!
Before going any further, let’s look at the different types of outsourcing arrangements, including:
- Offshore Outsourcing: This involves contracting with a company in another country to provide services or products. For example, many companies outsource their customer service or manufacturing operations to call centers or factories in low-cost countries.
- Nearshore Outsourcing: This involves contracting with a company in a neighboring country to provide services or products. For example, a U.S.-based company might outsource its customer service operations to a call center in Mexico.
- Onshore Outsourcing: This involves contracting with a company within the same country to provide services or products. For example, a company might outsource its IT support functions to an onshore provider.
When deciding whether to outsource, companies need to consider a number of factors, including cost, quality, availability of skills, and cultural fit. They also need to be aware of the risks associated with outsourcing, such as loss of control over critical business functions and dependence on the outsourced provider.
So, if you’ve not done it already, how would you begin? Outsourcing might seem like a long process, but the following steps can help you go about it with much ease:
1. Identify Your Business Needs
A lot of B2B companies fail because they do not have enough clarity of the requirements and expect the supplier to do the magic.
When looking to outsource, the first step is to identify your requirements. This means understanding what tasks or processes you want to hand over to another company. Once you know this, you can start researching potential service providers.
There are a few key things to keep in mind when identifying your requirements. First, think about what kind of expertise you need from a service provider. Do you need them to have specialist knowledge in a certain area? Second, consider how much time and resources you’re willing to invest in the outsourcing process. And finally, think about your budget. How much are you willing to spend on outsourcing?
Once you’ve considered these things, you can start researching potential service providers. There are a few different ways to do this. You can search online or ask for recommendations from other businesses. Once you’ve found a few companies that look promising, it’s time to get in touch and find out more about their services.
2. Define Measurement Criteria
The second step in outsourcing is to define your measurement criteria. This will help you determine what tasks or processes you can outsource, and to what extent. There are several factors to consider when defining your measurement criteria, including:
- The complexity of the task or process
- The level of expertise required
- The time commitment needed
- The cost of outsourcing
Once you have considered these factors, you can begin to narrow down the tasks or processes that you could outsource. For example, if you have a complex task that requires a high level of expertise, it may not be suitable for outsourcing. Alternatively, if you have a simple task that does not require much time or expertise, it may be a good candidate for outsourcing.
3. Look for Potential Outsourcing Partners
After you have defined your measurement criteria, it is time to seek out potential partners. There are a number of ways to find potential outsourcing partners, including online directories, word-of-mouth recommendations, issuing an RFP, participating in outsourcing industry events or simply through a consultant.
Once you have compiled a list of potential partners, you should vet them carefully to ensure that they meet your specific needs. When evaluating potential partners, be sure to consider their experience, skills, and cost. Once you have selected a partner, you can begin the process of outsourcing.
4. Go With a Supplier
The process of selecting a B2B supplier can be lengthy, thorough, and costly. Moreover, it is not efficient to be repetitive for a large number of bidders. Hence, you need to shortlist a few suppliers based on their proposals and submissions.
5. Sign the Contract
One you have whittled a few down, you need a detailed evaluation, which should consist of meetings, reference checks, discussions, site visits, and other aspects that your company’s procurement process states.
The final step is to sign a contract. This contract should outline the scope of work and the terms and conditions of the agreement. It is important to carefully review the contract before signing it, as it will be legally binding.
Once you have signed the contract, you can begin working with your outsourcing partner to accomplish your goals.
With the global recession hitting, and companies like Meta (Facebook) laying off 12.6% of their workforce (11,000 people), companies everywhere are starting to tighten their belts and cut costs. But how can companies continue to innovate, compete, and support their customers to the same level they do today?
By partnering with outsourced development companies like TechBlocks. Instead of hiring dedicated, full-time developers, business analysts, database administrators, etc. — they can benefit from dedicated outsourced teams, or on-demand resources from partners like TechBlocks.
Partners like TechBlocks can help lower a company’s Total Cost of Ownership (TCO), increase speed to market, and continue to respond to market demands as the economy slows down.
Making major changes in a business can be intimidating and challenging. However, small steps in the right direction can result in long-term protection and keep your operations afloat.
To conclude, outsourcing has several advantages to help you whether an emerging recession or streamline operations and production within your business. By outsourcing non-essential functions, businesses can reduce their overhead costs and free up resources to invest in more productive areas.
Finally, it’s important to have a solid financial foundation in place so that you can weather any storms that come your way. By taking these steps, you can help ensure that your business is prepared for whatever the future may hold.