Outsourcing versus subcontracting

Simultaneously with the constant development of modern technology is the growth of e-commerce companies. The number of entrepreneurs who use technological innovation is increasing because it provides different business strategies that were of great help in running the company’s operations.

Outsourcing and subcontracting are two business processes that received a lot of positive feedback from many companies after showing that they were effective in terms of cost savings and efficiency. Often people are confused and tend to link the two business strategies as one. But in truth, they have different functions and are quite distinct. The primary differences are due to the extent of control that a company has over the work process.

Outsourcing is a business strategy that began to be recognized by many companies from the 1990s until this date. Based on several authors, the word “outsourcing” originated in Ronald Coase, an economist. It evolved from cultivating basic “blue collar” jobs to outsourcing expert and highly qualified services called “white collar” jobs. This strategy has been expanded in many countries.

Outsourcing customer service is one of the cost-effective ways to reduce labor, operating and overhead costs that companies would inevitably encounter. It is a process where they can hire external suppliers (outsourcing companies) who will perform certain business tasks that are not a priority or focus for the company but are essential to run the company smoothly. Both parties will agree on how extensive their control is in the business and what boundaries the outsourcing company has.

For example, when you outsourced customer service, the external provider will handle everything, such as hiring employees and setting up an office. You do not have to worry about anything, especially if you are just starting out and have only a short budget. This is one of the reasons why many companies in the United States and other developed countries choose to outsourced customer service in the Philippines. They discover that they can pay lower wages to the Filipino workers whose talent, education, and ability are the same as those with higher wages. Therefore, outsourced customer support is a wise decision.

Subcontractors are in some ways similar to outsourcing. It is also a business practice where companies hire an external company or a person to transfer business functions. The difference is that subcontractors can only be completed in a specified and limited time. Only part of the obligations and tasks are assigned to complete under a contract.

An example of subcontractors is a construction project. A construction company will handle everything needed to build a facility. But there are particularly skilled individuals when it comes to painting. The subcontractor is responsible for looking for people or teams who are very skilled in this type of job.

Outsourcing and subcontracting are considered good and innovative business practices. Many e-commerce people around the world have already proven their effectiveness and efficiency in their businesses.