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CPA Australia recently issued a guide to provide assistant to Australian business how to adopt outsourcing for business growing. Below is a brief introduction from the guide.
Outsourcing is not new. Outsourcing is where a business ‘contracts out’ a business process to a third party. Outsourcing derives from the economic principle of comparative advantage identified by the 19th century economist David Ricardo1. Often though outsourcing is simply thought of to save costs – that is, outsourcing allows us to produce a good or service cheaper than we can produce it ourselves.
However, a business may also outsource the production of low value goods and services even if it can produce them more efficiently in-house. This is because there is an opportunity cost: for every hour consumed by producing the good or service, there is some other higher-value activity the business could perform.
Here, it might be cheaper to produce the good or service in-house but there are more valuable goods or services we can produce in that same time. Choices must be made. The other real opportunity of outsourcing is in accessing skilled expertise the business cannot otherwise access. In specialist areas, this might assist the business to implement new ways to get things done at a higher quality level for a lower cost.
Accessing such outsourced specialist skills supports growth by removing administrative tasks from staff, creating capacity that allows the re-assignment of skilled local resources into higher value add activities.
In addition, specialist advice on attracting new business through digital communications and improved client engagement will also support growth.
Outsourcing less value-contributing tasks to a lower cost provider enables businesses to capitalise on higher value opportunities.
This can be the case even after quality controls to ensure accuracy, completeness and timeliness are implemented into the procedures.
Today, technological advancements have enabled outsourcing services to be accessible to businesses of all sizes. Thus, ‘offshoring’ is also increasingly accessible. Offshoring is where activities are performed in a foreign jurisdiction; such offshoring is an outsourcing, and introduces its own different opportunities and challenges.
Primary offshoring locations include India, the Philippines, Mexico, Costa Rica, Poland, Ireland, China, the Czech Republic, Vietnam, South Africa, Brazil, Hungary, Dubai and Egypt.
For outsourcing to be effective, business owners and directors need to confidently embrace outsourcing, and trust to their own abilities to achieve higher value results by focusing their effort where their expertise lies.
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