Since the beginning of time, there has been a never-ending debate on whether outsourcing is bad for business. Many claims suggest that outsourcing, as a business model, hurts the social and economic aspects of accounting businesses. While some firmly argue that this model helps in lowering costs and gaining better quality, others say that it leads to unemployment.
Outsourcing has continued to prove its multi-faceted benefits to accounting firms for years. So what is it that has been raising so many questions about this? Let us understand in detail.
What is Outsourcing?
Outsourcing is not a new concept. It goes back to the Industrial Revolution when large corporations needed to build stability and efficiency and reduce costs by leveraging specialized labor. Globalization, digitalization, and other advancements have made it easier for businesses to outsource, even in a critical field like accounting. Accounting deals with a lot of complicated concepts and critical data. Analyzing outsourcing in this field becomes imperative.
The Impact of Outsourcing on the Economy:
- On cost efficiency and competitiveness:
The financial impact of outsourcing on an economy is directly proportional to the amount of cost reduction that a business has been able to withstand. Building cost efficiency is one of the primary factors that helps in ensuring cost efficiency. By outsourcing core and non-core activities, accounting firms can reduce operational costs, focus on their core competencies, and increase profit. The cost-saving strategy can enable lowering the prices for the customers and increase competitiveness in the global market. This, not only gives the business, but to the nation, an edge in the global market.
- On job creation and economic growth:
While the general verdict on outsourcing is that it leads to job loss, the reality is somewhat different. Outsourcing can help create jobs and boost the economic growth of any country. This is applicable to both the home and the host countries. In home countries, accounting firms can reassign different jobs and make way for more strategic roles, fostering innovation and creating higher-value jobs. Similarly, in the host country, outsourcing can help in economic development by providing employment opportunities and enhancing living standards. In a crux, it’s not just one nation or a set of people who benefit from this model. In fact, the implications of outsourcing reach far and wide.
Debunking the myths around outsourcing:
Myth 1: There is massive job loss in the US.
The Reality:
The fear of job loss can be massive, especially in the aftermath of a global pandemic and ongoing inflation. However, the impact that outsourcing has on job scenarios is often overstated. Instead of creating job loss, outsourcing makes way for more skilled laborers to improve their standards and quality while working in strategic roles. This helps establish a balance between people working on jobs as per their level. It is all about what is needed and what is actually relevant for your roles.
Myth 2: Outsourcing benefits large corporations.
The Reality:
A popular misconception goes that only large corporations benefit from outsourcing. Surprisingly, small and medium accounting firms reap far greater benefits from outsourcing. Besides, helping reduce costs, it also helps them scale up at a faster rate. It allows them to leverage outsourcing to improve efficiency and compete in the global market. Outsourcing is all about efficiency, cost decline, and overall consumer satisfaction.
Myth 3: Outsourcing provides poor-quality output.
The Reality:
The concerns around the quality of the output is often considered one of the topmost drawbacks of outsourcing. However, modern outsourcing firms have a team of experts who specialize in their fields. You would find people who are dedicated to performing tasks like bookkeeping, taxation, auditing, etc. There is hardly a situation where one single person is made to perform multiple tasks. This approach helps ensure that the employees are dedicated to adhering to the highest quality standards. They also use advanced communication technology that makes it easier for companies to manage and monitor outsourced services and ensure that the quality doesn’t go for a toss.
Myth 4: Outsourcing exploits cheap labor
The Reality:
The impact of outsourcing on any economy isn’t as straightforward as it might seem. The notion that outsourcing exploits cheap labor in developing countries doesn’t take a deep dive into the nitty-gritty. While it is true that the labor costs in countries like India and the Philippines are cheaper when compared with the US, outsourcing creates jobs that otherwise would not exist. These days, outsourcing agreements include provisions for fair wages and working conditions. This is also something ensured by the outsourcing partners at their end.
Myth 5: Outsourced jobs are lost jobs.
The Reality:
When you outsource any task to another country, accounting or otherwise, it becomes your means to get better in the final output with lost cost inputs. This translates to the fact that the clients in the US can avail services or products at a cheaper rate than they otherwise would. This helps small and medium businesses grow to a great extent, helping them raise their standards of living.
Impact of outsourcing on local talent – Summing up
Outsourcing has a positive impact on local economies. By outsourcing some key functions like accounting and bookkeeping, businesses can invest more in research and development, enhancing the skills of the locals, leading to innovation and the creation of high-skilled jobs. The increase in competition can lead to a higher share of the market and expansion. This helps boost economies.
One of the important factors in mitigating the potential negative impacts is spreading awareness and educating. By investing in education and training, local workforces can adapt to the changing trends in the job markets. Governments and businesses also play a key role in such initiatives. The future of businesses and work is being reshaped. This shift is a new opportunity for local economies to develop new industries and create jobs, less susceptible to being outsourced.
Want to outsource your accounting practice? Write to us at connect@finsmartaccounting.com
Director Growth Strategy & Alliance
Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.
